Will your transaction be stopped by the Swedish government?

The EU has issued Regulation (EU) 2019/452 establishing a framework for screening of foreign direct investments into the Union on the grounds of national security or public order, which began to apply on October 11, 2020. In the light of this, the Swedish government appointed a special investigator to investigate whether a national system for screening of foreign direct investments should be implemented and, if so, how. A proposal will be presented no later than November 2, 2021.

Due to the increasing strategic acquisitions of security-sensitive businesses by foreign investors during the pandemic, the Swedish government has, however, decided to speed up the process by amending the existing legislation. A business is security-sensitive if it is important for Sweden’s security or if it is covered by an international security commitment binding on Sweden. The security-sensitive businesses can be military, civil as well as municipal/regional (i.e. businesses owned by the Swedish municipalities or regions). Important civil infrastructure such as airports, power plants and information systems for electronic communication, technology relating to artificial intelligence or quant- and crypto technique, and certain services provided/owned by municipali-ties/regions such as rescue services, energy or drinking water supply, and health care services have been named as examples of security-sensitive businesses.

On September 29, 2020, the Swedish government presented a proposal to the Swedish parliament amending the Swedish National Security Act (2018:585) with the proposed effective date on January 1, 2021. The main amendments to the Act stipulate that a seller who intends to sell (i) its shares (excluding shares in a Swedish public company) in a company operating security-sensitive business, (ii) its security-sensitive business , or (iii) tangible or intangible property (except for real estate) used in its security-sensitive business, shall prior to the initiation of the contemplated sale carry out a particular security and suitability assessment respectively, and refrain from initiating such a transfer should the assessments show that the transfer is unsuitable from a security perspective. Should the assessments show the opposite, the seller shall consult with the Swedish authority designated by the Swedish government. The authority may, in certain cases, prohibit the transfer before or after the transfer has been carried out (in case of the latter, only if the transfer has been carried out without prior consultation with the authority as required).

In addition, according to the Supplementary Provisions to the Regulation (EU) 2019/452 (with effective date on November 1, 2020), a potential buyer/seller of a Swedish company, business or property within a security-sensitive sector may be required by the Swedish National Inspectorate of Strategic Products to provide certain information (e.g. shareholder structure and business areas of the buyer, and value and funding of the transaction).

Our remarks
Sweden is currently a free market for foreign investments subject to only a few restrictions in the financial sector, which makes the country more attractive for foreign investors compared to many other EU countries. Even though it remains uncertain to what extent the above-mentioned amendments will be adopted, it is certain that Sweden will not make itself more attractive for foreign investors by implementing the screening system through such amendments.

It can also be concluded that to adopt those amendments as is may lead to arbitrary and unpredictable prohibition decisions. Firstly, the definition of security-sensitive business is broad and blurry and there is no guidance on how the particular security and suitability assessments should be carried out. A business is defined as security-sensitive if it is important for Sweden’s security or if it is covered by an international security commitment binding on Sweden. Which businesses may be considered security-sensitive and thereby stopped from being transferred can vary from one time to another and be finally determined by the Swedish government (through the consulting authority) taking into consideration the prevailing circumstances and necessity to protect the country (or the international society due to commitments undertaken by Sweden) from espionage, sabotage, terrorism or other crimes, and/or other events (e.g. spreading, destroying or distortion of classified information) that may threaten the security.

Secondly, the scope and time of the consultation obligation is not regulated in the amendments. To justify the absence of such regulation, the Swedish government has referred to the general urgency requirement set forth in the Public Administration Act (2017:900), which, however, does not bring more clarity on this issue. Time is of the essence in the modern business life. A deadline for the consulting authority to make its final decision needs to be set out expressly so that the seller and the investor in question will know how and when they can act. It should not be at the seller/investor’s risk if the Swedish authority would choose to stay passive or if it would not be able to make the decision in a timely manner. 

It is unclear how the currently proposed screening system will interact with the national screening system which is still under investigation and the results of which will be presented at the latest on November 2, 2021. One may expect that the national screening system will probably be more complete and detailed and cover more transactions which are not covered by the currently proposed screening system, e.g. real-estate transactions.
Is it reasonable to have an even more far-reaching screening system than the current one proposed by the Swedish government?

You are welcome to share your opinions or comments with us, or if you would like to have a discussion or ask any question(s) regarding the above, please contact any of us:

Stockholm: Anders Söderlind
Gothenburg: Johan Hallén
Malmö: Ola Grahn