Many activities that are important for the functioning of Swedish society are operated by individual actors, and it is not unusual for them to have foreign ownership or influence. Direct investments, which entail foreign actors buying up businesses that possess valuable technology or information for Sweden's security, may be prohibited. The Government has presented a proposal for a new law to the Council on Legislation that concerns the introduction of a review system that will make it possible to review and ultimately prohibit foreign investments that entail risks from a security policy perspective. The Government is proposing that the new law enters into force on 1 December 2023.
On 16 March 2023 the Government presented a proposal for a new law that will give a review body the opportunity to review foreign direct investments and, if necessary, prohibit them. The draft law follows on from an EU regulation regarding foreign direct investments that came into force on 11 October 2020.
The Government is proposing that investments in sensitive activities operated by limited companies, European companies, trading companies, economic associations or foundations with head office in Sweden shall be covered by the new law. It also proposes that investments in sensitive activities operated by a partnership or sole trader in Sweden shall be covered. Sensitive activities refers to:
- services essential to society’s basic needs, values or safety,
- 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, or
- 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.
According to the proposal, those who intend to directly or indirectly invest in sensitive activities must register the investment with the review body if the investment means that the investor acquires a certain influence in the operation. The Inspectorate of Strategic Products (ISP) is proposed as review body. The ISP will take into account the nature and scope of the activity, as well as circumstances surrounding the investor in assessing whether it is necessary to prohibit an investment.
According to the Government's proposal, the ISP will also be able to instigate a review on its own initiative, and if so, also concerning investments in sensitive activities not covered by a notification requirement pursuant to the Act. It is proposed that an investment covered by a notification requirement may only be implemented if the notification of the investment has been submitted without further action or the investment has been approved in a review. If a review is instigated on the investor's own initiative, the investment shall only be implemented if the investment has been approved in the review.
A foreign direct investment in sensitive activities shall be prohibited if it is necessary to prevent harm to Sweden's security or for public order or public security in Sweden. According to the proposal, the ISP shall be able to issue a prohibition even though the investment has already been implemented, regardless of how much time has passed since the investment was implemented and if the actors have established themselves after the investment, which means that the investment shall be reversed, which can have far-reaching and severe consequences for those involved.
Furthermore, the Government is proposing that the option should exist to impose a penalty of a minimum of SEK 25,000 and a maximum of SEK 100,000,000 on the investor in the event of infringement of the Act, for example, if the investor has not made a notification despite a notification requirement being in force.
In its proposal, the Government observes that foreign direct investments are a vital part of the development of Swedish trade and industry, and assume that only a small number of investments will be reviewed and that the majority of the notifications will be submitted with no further action. It remains to be seen how the draft law will influence trade and industry and Sweden's growth. The open investment climate may need to be restricted to the benefit of security interests, and Sweden may miss out on the capital, workforce and increased productivity and innovation that foreign investments often bring. However effectively the review procedure is conducted, it will entail increased bureaucracy and higher requirements placed on investors that are planning to implement direct acquisitions in Sweden. In view of this, it is not inconceivable that transactions in the future will be more time consuming.
The majority of EU member states have already established a similar review system and there are examples where this has had unexpected outcomes. One example that can be mentioned is that France's Minister of Economics and Finance stopped a Canadian company from acquiring Carrefour, France's leading retail chain, in January 2021 with reference to protection of food sovereignty. The French government made an extensive interpretation of what constitutes sensitive activities in order to protect national interests.
The Council on Legislation now has to consider the draft law before the Government submits a bill to the Riksdag. The Riksdag will subsequently decide whether the new law will enter into force. How the new law might be applied remains to be seen, but one thing that is certain is that it will entail changes for foreign direct investments.
We are naturally monitoring developments at Lindahl, and are happy to answer questions concerning the new legislative proposal.