knowledge 1 May 2020 |

Government Launches Public Consultation on FDI screening

FDI Screening and Covid-19

The FDI Regulation was adopted in April 2019, and its provisions will apply from 11 October 2020 (read our briefing here). While the FDI Regulation does not require Member States to adopt a screening regime, it lays down minimum rules for those that choose to do so, and establishes a co-operation mechanism allowing Member States and the European Commission to share information and give their views on FDI into the EU.

Until now, there had been no indication that Ireland intended to adopt a screening regime. However, the outbreak of Covid-19 has injected urgency into FDI screening policy at European level. On 25 March, the European Commission called on all Member States that do not operate an FDI screening regime to “set up a fully-fledged screening mechanism” amid concerns that the crisis could lead to “attempts to acquire healthcare capacities (for example for the productions of medical or protective equipment) or related industries such as research establishments (for instance developing vaccines) via foreign direct investment” (read our briefing here). The Commission also warned that the inevitable economic fallout of Covid-19 could result “in a sell-off of Europe’s business and industrial actors, including SMEs.”

Consultation

Announcing the Consultation, Minister for Business, Enterprise and Innovation Heather Humphreys acknowledged that “the current public health pandemic Europe was placing a greater focus at European level on the need to protect strategic European assets at this time of severe economic vulnerability.”

Noting that “Ireland prides itself on the fact that it operates an open economy welcoming of foreign direct investment”, the Minister provided assurances that the Department will seek to implement the Regulation “in a manner that balances Ireland’s continued attractiveness as a location for inward investment, with a robust, but proportionate Investment Screening Mechanism.” The Department’s press release noted that “the expectation is that screening of investments would arise in a small number of cases.”

The Consultation seeks advice on the following issues, inter alia, before Friday, 22 May 2020:

• Whether an FDI screening mechanism should be adopted on the grounds of protecting public security and public order;

• In the event that a screening mechanism is adopted, what role and powers the Minister should have to investigate, authorise, apply conditions to, prohibit or unwind investments;

• Whether the regime should be voluntary or mandatory;

• Defining the nature, scale and type of investments that may be subject to screening (e.g., based on sensitive technologies or data sets, key sectors, strategic locations or country of origin); and

• The sanctions that may apply for failure to comply with the screening procedures, or for breach of determinations resulting from the screening process.

All submissions will be made publicly available on the Department’s website.

Comment

Following the Consultation, it seems clear that Ireland will adopt some form of FDI screening in the short-term. However, the Minister’s statements show that Government is acutely aware of the need to preserve Ireland’s attractiveness as a location for FDI.  

Among the 14 Member States that have adopted screening regimes to date, the approaches vary widely: some are mandatory while others are voluntary; some are sector-specific, others general. In addition, the level of shareholding in a company required to trigger FDI screening varies. The FDI Regulation preserves Member States’ ability to tailor a regime that is specific to their needs. Ireland is likely to position itself at the less stringent end of the spectrum.

Ireland is not alone in implementing FDI screening at this time: the Consultation notes that almost all of the Member States that do not currently operate screening regimes are considering implementing one. In addition, the UK is set to establish a regime that could result in 200 FDI notifications per year.

Screening regimes generally require investors to provide regulators with basic information regarding the investment, such as the structure and identity of the investor involved, the source, value and timing of the investment, and the sectors and products/services involved. Third country investors into Ireland should expect to have to provide such information when the Irish regime is established. Additional cost and delays to transaction timelines may also need to be factored in, depending on the structure of the screening process.