In August 2021, the Federal Council unveiled the broad lines of a new draft legislation
Raphael Schindelholz, Marie Flegbo-Berney and Stéphane Lagonico1 authored this publication.
Unlike many other European jurisdictions marked by restrictive conditions for foreign direct investment (FDI), Switzerland has been a very attractive jurisdiction for such investments, with few rules, which has encouraged significant foreign investment. In 2016 for example, Chinese investment in the whole EU amounted to US$40 billion, while in Switzerland alone, 2016 Chinese investment came to US$45 billion.
There are currently no general foreign investment controls in Switzerland. However, foreign investment controls do apply to certain industries and sectors—in particular banking, securities and real estate—where prior government approval is required. A number of additional business activities require a license from the authorities, and the licensing conditions include specific requirements regarding foreign investors in the following fields: aviation, telecommunications, nuclear energy and radio & television. (In the pharmaceutical sector, there are licensing requirements, but none related to foreign investors.)
The longstanding limitation of access to foreign investors in certain sectors is linked to the very specific context of these sectors, as opposed to a desire to control foreign investment from an economic perspective.
For example, in the banking sector, the fact that any foreign participation is subject to prior authorization is mainly due to the requirement of irreproachable activity (a change of Swiss-Swiss management body being subject to the same requirement). In the aviation sector, the criterion of majority Swiss ownership ("nationality") is linked to the specificity of the sector and in particular to the existence—and historically, the necessity—of a national airline.
While the Swiss Federal Council has been opposed to legislation on foreign investment in Switzerland, Parliament passed a motion to that effect in March 2020. In this context, the Federal Council's objective in introducing investment controls is now to ensure that Switzerland remains open and attractive to foreign investors.
In August 2021, the Federal Council unveiled the broad lines of a new draft legislation, which should be sent out for consultation in March 2022. The legislation is not likely to come into force until 2023 at the earliest.
A detailed modus operandi, and most certainly a standard authorization request form, is expected at the very end of this new legal regime implementation, within two to three years.
The State Secretariat for Economic Affairs (SECO)-Federal Department of Economic Affairs, Education and Research will stand as the competent authority to consider applications submitted by or on behalf of foreign investors.
No threshold has been disclosed regarding a target company’s turnover, or regarding the percentage of stock/participation rights triggering a compulsory notification
TYPES OF DEALS REVIEWED
The chosen approach of the future legislation is based on two different axes. If applicable (depending on the outcome of the expedited review), a mandatory authorization regime will apply to:
- Any acquisition of certain specific industries or activities, regardless of the status of the purchaser
- Any acquisition by a foreign State or a foreign company under State influence, regardless of the target industries or activities
For private (neither State nor State-controlled) foreign investors, the relevant areas will be clearly defined at a later stage of the consultation, taking into consideration the following focal points:
- Companies that provide an essential service that cannot be replaced in the short term or for which there is a critical dependence of the Swiss military (such as suppliers of essential armament parts), of government agencies (such as suppliers of key security-related IT systems) or of international space infrastructures in which Switzerland is a stakeholder on suppliers of key components
- Risk of access by a malicious actor to a large amount of particularly sensitive personal data
At this writing, no threshold has been disclosed regarding a target company's turnover, or regarding the percentage of stock/participation rights triggering a compulsory notification. Swiss corporate law does not provide a particular threshold, but defines the acquisition of control as "obtaining the possibility of exercising a determining influence over the activities " of the target company.
From a money laundering perspective, the threshold for identifying a control holder over an operating company is set at 25 percent.
SCOPE OF THE REVIEW
The review is to be carried out in two stages:
- An expedited (presumably within a few weeks) review of the need for authorization. If none of the criteria are met, the acquisition may be carried out without stage 2.
- If deemed necessary, an in-depth approval procedure (presumably, within a few months)
For State-owned or State-linked investors, there will be a special focus on the risk of major distortions of competition.
The bill will likely also include a provision allowing for cooperation and reciprocal exemptions from investment control with other States. The draft statute should include a provision allowing for cooperation and reciprocal exemptions from investment control with other States. There will be civil and criminal sanctions for infringements.
REVIEW PROCESS TIMELINE
For the first stage, the duration will probably depend on the status of the investor (private vs. foreign State or a foreign company under State influence), the complexity of the operation and the quality/completeness of the initial request.
For the second stage, when one is necessary, the in-depth approval procedure will presumably be completed within a few months. SECO will coordinate with other offices as necessary to clarify all aspects related to the risks considered by the authorization process, such as any dependency between Switzerland and the target.
If the agencies involved disagree or unanimously agree that the transaction should not be authorized, the Federal Council will decide the outcome. Additional processing time may be required if the case has a political dimension. A conditional authorization is possible.
We await March 2022 for more details on the new authorization regime.
1Raphael Schindelholz, Marie Flegbo-Berney and Stéphane Lagonico are partners with Bonnard Lawson (T +41 22 322 25 00, [email protected]). White & Case LLP has no affiliation with Bonnard Lawson.
This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2021 White & Case LLP