The Swedish government proposes a FDI screening regime 

Following up on our previous articles on the subject, on May 16, the Swedish Government published a proposal for a new regime for the screening of foreign direct investments (Government Bill 2022/23:116). The proposal was submitted to the Swedish Parliament (the Riksdag) a few days earlier, on the 11 May.

The proposal includes a new Act which will make it mandatory to notify a government authority (not appointed in the proposal but likely the Inspectorate for Strategic Products (ISP)) of a potential investment in a company conducting operations in a sector requiring special protection.

The Government proposes that the new Act shall enter into force 1 December 2023.

Relevant sectors

Sectors covered by the proposed Act are:

• Essential services (services or infrastructure that maintains or assures societal functions that are vital to society’s basic needs, values or safety. Generally energy supply, financial services, health care, information and communication, food and transport – to be ultimately decided in the authority’s regulations)
• Security-sensitive activities (covered by the Protective Security Act (SFS 2018:585) (Säkerhetsskyddslagen), aiming to safeguard those activities that are in greatest need of protection from a national security perspective);
• Prospecting for, extracting, enriching or the sale of critical raw materials, metals or minerals that are deemed strategically important for Sweden;
• Extensive processing of sensitive personal data or location data in or through a product or service,
• Manufacture or development of, research into or supply of military equipment in accordance with the Act (SFS 1992:1300) on military equipment or the provision of technical support in relation to such military equipment
• Manufacture or development of, research into or supply of dual-use products or provision of technical assistance for such products, or
• Research into or provision of products or technology within emerging technologies or other strategically protected technology or operations with the ability to manufacture or develop such products or such technology.

An obligation to notify

According to the proposal anyone planning to make an investment covered by the proposed Act is required to notify the investment to the screening authority. The notification must be made before the investment is implemented (i.e. before an investor can actually exercise influence over the company subject to the investment).

Pursuant to the proposal, an obligation to notify an investment arises if the investment results in a certain interest in the target undertaking. For instance, in the case the target is a limited company or an economic association, it is proposed that any investment where the investor after the investment will (directly or indirectly) control 10, 20, 30, 50, 65 or 90 per cent or more of the total number of votes in the undertaking must be notified. The notification requirement also apply to investments in listed companies.

The target company’s obligation to notify the investor

An undertaking which is the target of an investment that must be notified must inform the potential investor that the undertaking is subject to the Act and that the investor has an obligation to notify the investment to the screening authority (the obligation to inform the investor does not however apply in relation to acquisitions on a regulated market or MTF).

Screening at the initiative of the screening authority

If the investor does not notify an investment despite an obligation to do so, the screening authority may initiate the process itself. The screening authority may also decide to initiate an investigation of an investment in sectors covered by the proposed Act, which are not subject to notification requirement, if there is reason to believe that the investment may adversely affect Sweden’s security, public order or public security.

The screening process and prohibition to make an investment

The screening authority shall, within 25 working days from a complete notification, decide whether to decline to take any measures or to initiate an investigation of the investment.

The screening authority must decide within three months from its decision to initiate an investigation to either approve or prohibit the investment. Under certain circumstances, the screening authority may issue its decision within an extended period of six months.

In short, an investment that is subject to a notification obligation may only be carried out if:

1. the authority has declined to take any measures, or
2. the authority has approved of the investment.

Administrative fines

According to the proposal violations of the Act will be subject to an administrative fine of SEK 25,000 up to SEK 100 million.

Setterwalls’ comments

As a result of the introduction of the Act many investments that today would be fairly straightforward will become more time consuming as the investment will require an extra layer of considerations and planning. Especially in unregulated sectors the process of having investment approved by a government authority could be perceived as a cumbersome and an unpredictable process. It is likely that it will take some time before the screening authority and the market has adopted streamlined routines and processes adapted to the new regime.

What happens now?

It is the Swedish Parliament which votes to adopt the Act. We foresee that the Act will be adopted and thus that the rules will enter into force as proposed by the Government.