Unlike many other EU Member States, Ireland does not currently have a regime for screening foreign direct investment (FDI) in key infrastructure. This, however, is set to change following the publication earlier this month of the Screening of Third Country Transactions Bill 2022 (the Bill). The Bill, which aims to “provide the Government with powers to protect security or public order from hostile actors using ownership of, or influence over, businesses and assets to harm the State”, introduces a FDI screening process which allows the Minister for Enterprise, Trade and Employment (the Minister) to assess, investigate, authorise, condition or prohibit third country (any non-EU/EEA country other than Switzerland) investments in key Irish industries/ sectors. Specifically, the Bill creates a mandatory notification obligation for parties to third country transactions, acquisitions, agreements or other activities, with a value of €2 million or more, in designated sectors or involving sensitive or strategic activities, which result in a change of control of an asset or undertaking in Ireland.
The publication of the Bill was preceded by an EU regulation establishing a framework for the screening of FDI in the Union ((EU) 2019/452) (the FDI Screening Regulation). The FDI Screening Regulation, which first came into effect in October 2020, seeks to encourage cooperation and information exchange between Member States and the European Commission in relation to FDI from third countries. When requested by other EU Member States and/or the Commission, Ireland is obliged under the FDI Screening Regulation to provide information on any relevant transaction involving FDI including:
- details of the target’s ownership structure, products, services and business operations; and
- declaring the other EU Member States where the target conducts relevant business operations.
Our briefing on the FDI Screening Regulation is accessible here. While the FDI Screening Regulation does not oblige Ireland to adopt a screening mechanism, it undoubtedly propelled the introduction of the Bill which will facilitate Ireland’s compliance with its reporting and cooperating obligations under the FDI Screening Regulation.
Key elements of the Bill
Section 1 of the Bill sets out detailed definitions, including of the terms ‘undertaking’, ‘third country’, ‘person’ and ‘transaction’; the careful consideration of which will be key in determining the impact of the mandatory notification and other requirements under the Bill.
When is a transaction notifiable?
Under the Bill, a mandatory notification obligation is applied in respect of transactions which satisfy the following criteria:
- a party to the transaction is a third country undertaking, or a person connected with a third country undertaking;
- the value of the transaction is equal to or greater than €2m (or such other amount as may be prescribed by the Minister);
- the transaction directly or indirectly relates to, or impacts upon one or more areas likely to affect security or public order, including critical infrastructure (whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure), critical technologies (including artificial intelligence, robotics, cybersecurity, defence and energy storage) or the supply of critical inputs (including energy or raw materials, as well as food security);
- the transaction relates, directly or indirectly, to an asset or undertaking in the State; and
- having satisfied the above criteria, the transaction results in a change in control over an asset or undertaking from 25% or less to more than 25%/ from 50% or less to more than 50% (a Notifiable Transaction).
In addition, a transaction may be subject to screening regardless of whether it is a Notifiable Transaction, where there are reasonable grounds to believe that it might impact security or public order.
When must a transaction be notified, what details must be provided and who must do the notifying?
Parties to a Notifiable Transaction must generally provide notification to the Minister at least 10 days prior to completion. Extensive transaction details are required to be included in the notification including:
- the identities of the parties involved;
- the ownership structure of the parties to the transaction;
- the approximate value of the transaction;
- information on the products, services and business operations of the parties to the transaction;
- the nature of the economic activities carried out in the State by the parties;
- the funding of the transaction and its source; and
- details of any sanctions imposed on the parties to the transaction by the EU.
While all parties to a Notifiable Transaction have a notification obligation, the Bill sets out a procedure for one party, upon agreement with the remaining party(ies), to make the necessary notification to the Minister, resulting in deemed compliance by the remaining party(ies) with their notification obligation under the Bill.
Transition period and retrospective limitations
Where a Notifiable Transaction is proposed but not completed before the notification requirement under the Bill comes into operation, the transaction must be notified to the Minister within 30 days of the transaction being completed or the notification requirement coming into operation.
The Bill limits the retrospective period in which the Minister may commence screening of a transaction, including a limitation on the Minister’s power to screen any transaction which is completed more than 15 months before the relevant screening provisions of the Bill come into operation.
When may a transaction be blocked or conditions imposed?
The Minister’s screening of a transaction for any threat it posses to security or public order will take account of several specified factors including: whether an investor is controlled by a third country government; the extent to which the transaction parties are involved in activities related to security or public order; any evidence of criminality amongst the parties to the investment; and the likelihood of the transaction resulting in actions that are disruptive or destructive to people, assets or undertakings in the State.
Having screened a transaction, the Minister has 90 days (extendable by 45 days), from when the parties are notified of the decision to screen, to issue a decision on the transaction If no decision is issued within the 90-day period, the transaction is automatically permitted to proceed. The 90-day period, however, may stand suspended where a notice to the parties requesting additional information is issued. Specific timelines for information requests are set down in the Bill.
The Bill sets out the types of conditions which the Minister can impose following the screening of a transaction, including requiring parties:
- not to complete the transaction or specific parts of the transaction, whether before a specified or at all;
- to sell or divest itself of any business, assets, shares or property;
- to prevent the flow of competitively sensitive information between undertakings or within an undertaking;
- to report on compliance with conditions imposed by the Minister; and
- to pay the reasonable costs of the Minister in monitoring compliance with any conditions imposed.
Can the Minister’s decision be appealed?
A party to a transaction may appeal a screening decision made by the Minister and/or a decision by the Minister not to fully divulge the reasons for the decision. Appeals will be heard by an adjudicator appointed in accordance with the provisions of the Bill. The adjudicator will have the power to allow the appeal and remit the matter to the Minister for reconsideration within a defined period, or to affirm the Minister’s decision. The findings of an adjudicator may be appealed to the High Court on a point of law not later than 30 days from the date on which the party was notified of the adjudicator’s decision.
The Bill, once enacted, will provide a mechanism for protecting the State’s key infrastructure from ownership by investors from third country undertakings who may have questionable geo-political motives. Given recent political developments, most notably Russia’s invasion of Ukraine, such a regime is arguably long overdue.
We will keep you apprised of further developments in relation to the Bill. If you wish to explore any aspect of it further, please reach out to Cormac Little SC of our Competition team, Máire O’Neill of our Corporate team or your usual William Fry contact.
Contributed by Jack Stokes