We set out below the main points of the proposed regime and some initial comments.
The regime will be applicable to so called activities worthy of protection. The proposal defines this as activities within certain widely defined categories. Apart from military equipment and dual use products, the regime will encompass activities which concern
- raw materials, metals and minerals which are of critical importance, or of strategic importance to Sweden’s supply position;
- emerging technologies or other strategic technology worthy of protection;
- processing of large quantities of sensitive personal data and localization information;
- activities comprising vital societal functions; this includes activities which support or safeguards necessary societal functions in areas such as energy, transport, medical care and communications, where they risk negatively affecting Swedish security or public order or safety in Sweden; and
- activities that are security sensitive pursuant to the Security Protection Act. It may be expected that, given the fairly broad wording used (which will be clarified in implementing regulations), it will often be difficult to conclusively determine whether a transaction falls within the scope of the regime or not, and that therefore a notification may be necessary for safety.
Although the substantive assessment focuses on investors from states outside the EU (see below) the obligation to notify is incumbent on all investors, i.e. physical or legal persons established in or citizens of Sweden as well as within the EU and third countries. It is true that an investment can only be prohibited if it qualifies as a foreign direct investment; this is an investment made by a foreign investor as defined in the Act, i.e. who either itself has its seat in or is citizen of a state outside of the EU (including an EEA State such as Norway), or who is directly or indirectly owned or controlled by such a state or a legal or physical person therein. The same applies if a party acts on behalf of such a person. The legislator has considered that the notification obligation should be extended to investments by all investors, in order to control attempts to circumvent the regime, for example by the use of a strawman or informal influence.
The obligation to notify is generally triggered by a transaction, in the broad sense, which results in the investor acquiring direct or indirect influence over the entity who carries out the activities worthy of protection. The reference to indirect influence should mean that notification is for example triggered by an investment in a foreign company carrying out activities worthy of protection in Sweden.
Acquisition of shares in an existing company triggers the obligation to notify where the investor (together with its group) reaches certain ownership thresholds, starting at 10% of votes up to 90%. The same applies to the acquisition of more than 10% of the votes in a newly formed company. In the case of an acquisition of assets, notification is triggered if the transaction results in the investor acquiring whole or part of an activity worthy of protection.
This applies independently of how the target activity is organized; it may be a limited company, a European Company, partnership, association or a foundation with its seat in Sweden. Notification is also required for an investment in an activity worthy of protection carried out by a sole trader. In the case of a newly formed partnership or sole trader, notification is triggered as soon as the investor becomes party to the entity. Last, the obligation to notify also arises if the investor obtains in any other manner direct or indirect influence over the management of the company etc. carrying out the activity worthy of protection.
It is to be expected that the issue of whether there is influence or not will become the subject of complex determinations, both in terms of the level of influence required and the factors to be taken into account (e.g. a minority shareholding in combination with financial contributions).
Contrary to for example merger control, there are no thresholds for notification in respect of turnover etc. The obligation to notify hence applies regardless of the size of the target activity.
The supervisory authority, the Inspectorate of Strategic Products (ISP), may also under certain conditions initiate an investigation on its own initiative into investments in activities worthy of protection which do not trigger an obligation to notify.
The obligation to notify is incumbent on investors intending to invest in activities worthy of protection, independently of their origin. The notification may be submitted as soon as the notifying party can show that the transaction is imminent. It shall in any event be submitted before the transaction is implemented. The notification is submitted to ISP. The parties are subject to a standstill obligation until such time as the file has been closed or the investment has been approved.
In terms of procedure, the ISP shall decide, within 25 business days of receipt of a complete notification, whether to close the file or initiate an investigation into the investment. If an investigation is initiated, the ISP shall within three months – or if there are particular grounds, six months - adopt a decision to approve or prohibit the investment. An approval may be made subject to conditions.
The investment shall be prohibited if necessary to prevent injury to Swedish security or to public order or public security in Sweden. Such factors may depend on the investor itself or other circumstances. Although as noted there is an obligation to notify independent of the origin of the investor, a prohibition decision can only be adopted in respect of investors with their seat in, or who are citizens of, a state outside Sweden and the EU.
ISP has substantial powers of investigation. Besides the ability to request information the authority may carry out on site inspections. ISP may initiate an own initiative investigation where an investor fails to notify an investment subject to the obligation to notify. Substantial financial penalties, between 25,000 and 100 million SEK, are provided for in case of failure by an investor to fulfil its obligations under the regime.
The company in which the investment is proposed will also have a duty of information in respect of the
investor’s obligation to notify the investment.
The existing duty to notify acquisitions of security sensitive activities pursuant to the Security Protection Act will continue to apply in parallel with the proposed regime. Since the duty to notify under this Act falls on the seller, not the investor, and that a decision may be adopted by an authority other than ISP, it is to be seen how this will work in practice. One and the same investment may thus require notification under both the Security Protection Act and the proposed regime.