Foreign direct investments, which involve foreign actors acquiring Swedish companies, are crucial for the development of the Swedish business sector. These investments can bring capital, knowledge, skills, and new markets. Foreign direct investments also increase competition, leading to increased productivity and strengthening innovation capacity. The majority of foreign direct investments made in Swedish companies are unproblematic, but strategic acquisitions and investments carried out in sensitive activities can pose significant risks. On 11 May 2023, the government adopted a proposition with a proposal for a new law aiming to implement a screening regime that will enable the review and ultimately the prohibition of foreign investments that pose risks from a security policy perspective. The government proposes that the new law shall enter into effect on 1 December 2023.
The new law will govern investments in sensitive activities conducted by limited companies, European companies, trading companies, economic associations, or foundations with its registered office in Sweden. Investments in sensitive activities in Sweden operated through an unincorporated partnership or by a sole trader will also be covered. Sensitive activities refer to:
- essential societal activities;
- security-sensitive activities as defined by the Protective Security Act (2018:585);
- prospecting for, extracting, enriching, or selling raw materials or metals or minerals of strategic importance to Sweden;
- activities which to a significant extent entail the processing of sensitive personal data or location data by a product or service;
- production, development, research, or supply of military equipment according to the Military Equipment Act (1992:1300) or provision of technical support in respect of such military equipment;
- manufacturing or development of, research on, or provision of products with dual-use capabilities or provision of technical assistance for such products; and
- research or supply of products or technology relating to emerging technologies and other sensitive strategic technologies, or activities which entail the ability to develop such products or technology.
Anyone who intend to invest, directly or indirectly, in sensitive activities is required to notify the investment to the supervisory authority if the investment results in certain influence in the undertaking. The investor’s notification obligation arises if, after the investment, the investor would directly or indirectly control votes that correspond to or exceed any of the thresholds of 10, 20, 30, 50, 65, or 90 per cent, or if the investor in any other way obtains direct or indirect influence over the undertaking carrying out the sensitive activities. The screening regime will apply irrespective of the nationality or jurisdiction of the investor, meaning that also domestic and intra-union investors are under an obligation to notify.
According to the proposal, the target undertaking engaged in sensitive activities must inform the investor about the notification obligation. However, such obligation does not apply to acquisitions on a regulated market, an equivalent market outside the European Economic Area (EEA), or a multilateral trading facility (MTF).
The Inspectorate of Strategic Products (ISP) is expected to be the supervisory authority. The supervisory authority shall consider the nature and scope of the activity, as well as circumstances surrounding the investor when assessing whether it is necessary to prohibit an investment.
According to the proposal, the supervisory authority will be able to initiate a review on its own initiative, which means that investments in sensitive activities that are not subject to notification may also be subject to a review. If a review is initiated on the supervisory authority’s initiative, the investment may only be completed if the investment has been approved in the review. An investment subject to the notification requirement may only be completed if the notification of the investment has been submitted without further action or if the investment has been approved in a review.
The supervisory authority shall prohibit a foreign direct investment if it is necessary to prevent detrimental impact on Sweden's security, public order or public safety. The supervisory authority will also be able to prohibit investments that have already been carried out, regardless of the time that has passed since the investment was made, which means that the investment shall be reversed, something that can have significant and serious consequences for those involved. However, an investment made on a regulated market, an equivalent market outside the EEA, a MTF, through executive auction, or involving the transfer of immovable property, that has already been carried out and is prohibited shall not be reversed. Instead, the supervisory authority shall order the investor to dispose of the acquisition.
To ensure that foreign direct investments are not hindered to a greater extent than necessary, the supervisory authority also have the ability to approve an investment subject to conditions. If the risks associated with a specific foreign direct investment can be reduced to an acceptable level by imposing certain conditions, it is not necessary to prohibit the investment.
In the event of a breach of the law, such as failure to make a notification despite the notification requirement, a sanction fee ranging from SEK 25,000 to a maximum of SEK 100,000,000 may be imposed.
The Swedish Parliament still has to resolve on the adoption of the law. No date for the vote has been set at this time, but the decision is expected to be made sometime during the fall. Therefore, anyone planning to acquire a company engaged in sensitive activities with closing after 1 December 2023, needs to be aware that the investment may need to be notified to the supervisory authority before the transaction is allowed to proceed.
We are naturally monitoring developments at Lindahl and are happy to answer questions concerning the new legislative proposal.