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Sweden proposes a new law on investment screening which will have significant implications for transactions

November 04, 2021

Contrary to the situation in many other countries, there are currently only limited possibilities to regulate or prevent foreign direct investments in Sweden that could entail risks to Swedish security interests. Existing regulatory frameworks, such as the Protective Security Act (Sw. Säkerhetsskyddslagen), are limited to certain areas, to certain activities and to specific situations. The final report of the Inquiry of foreign direct investments (Sw. Granskning av utländska direktinvesteringar), published on 1 November 2021, puts forward a proposal for new legislation to address this gap.

In the EU, the FDI Screening Regulation (Regulation 2019/452), which sets out a framework for cooperation and consultations between the Member States and the European Commission regarding the screening of foreign direct investments, entered into force in October 2020. The European Commission has recommended all Member States with no screening system to introduce such a mechanism. The Inquiry’s proposal constitutes Sweden’s answer to this call. The proposed legislation is meant to introduce extensive requirements concerning the screening of investments/transactions and will have a significant impact on the Swedish transaction market. It is suggested that the new act should enter into force on 1 January 2023.

The main elements of the Inquiry’s proposal are the following:

  • Anyone planning to make an investment covered by the new act should be required to notify the screening authority. A notification must be made before the investment is carried out.
  • The suggested scope of the act is very wide. Not only investments made by investors from third countries, but also those made by investors from other EU Member States should be subject to a notification requirement. In addition, investments made by investors from Sweden should in general also be notified.
  • The range of activities to be covered by the new screening mechanism is substantial. It is suggested that it should cover, for example, companies that carry on essential services (services or infrastructure necessary to the maintenance of important societal functions), activities related to the processing of raw materials considered critical to the EU, activities whose principal purpose concerns the processing of sensitive personal data or location data, activities related to emerging technologies and activities that manufacture, develop, conduct research into or supply dual-use products, or supply technical assistance for such products (i.e. products that may be used for both military and civil purposes).
  • The Inspectorate of Strategic Products (Sw. Inspektionen för strategiska produkter, “ISP”) shall be the authority responsible for screening foreign direct investments.
  • The screening mechanism should be applicable to all investments in Swedish undertakings that carry out protected activities, regardless of their legal form. In other words, the act should apply to all investments in limited companies, partnerships, unincorporated partnerships, sole trader undertakings, economic associations, and foundations and trusts domiciled in Sweden.
  • A threshold requirement related to investments in limited companies and economic associations is proposed. It is suggested that an investment where the investor after the investment will command 10 per cent or more of the total number of votes in the undertaking, through their shareholding, other participations, or membership, must be notified.
  • The screening authority’s screening analysis should involve an overall assessment in each individual case, based on the relevant activity’s actual protection value. In particular, circumstances related to the potential investor will be significant for how the risks of the investment should be assessed.
  • The screening will consist of a two-stage procedure. At the first stage, the screening authority must decide whether to take no further action or to initiate stage two, the screening process, within 25 working days of the notification. If the process moves into stage two, the authority should be required to adopt a final decision within three months of the decision to initiate the screening process. This deadline may be extended up to six months under certain circumstances.
  • The screening authority shall have the right to order the investor and the investee undertaking to provide information or documentation requested by the authority. The authority should also have the power to issue injunctions in order to gain access to sites, premises and other locations.
  • The screening authority may decide that the transaction cannot be carried out. It is suggested that it should also be able to approve the investment subject to conditions.
  • A breach of the suggested legal requirements should be subject to a penalty fee, ranging from SEK 25,000 to SEK 50 million.

 

Link to the report>>>

Contact: Erik Lagerlöf, Martin Johansson, Anders Leissner

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