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Foreign Trade and Payments Act (“Außenwirtschaftsgesetz”) Amended – Foreign Direct Investment Screening Enhanced

  • Germany
  • Competition, EU and Trade - Foreign investment regimes


The Act to Amend the Foreign Trade and Payments Act (“Außenwirtschaftsgesetz”, AWG) has entered into force on 17 July 2020. Parliament has thereby significantly tightened the German regime for foreign direct investment (FDI) screening. A regulation to amend the Foreign Trade Ordinance (“Außenwirtschaftsverordnung”, AWV) and to expand the scope of FDI screening to further industries will follow soon.

1. Outline to the German FDI Regime

The German Ministry for the Economy and Energy (Bundesministerium für Wirtschaft und Energie, BMWi) may review whether a transaction for acquisition of more than 25 % of the shares in a company situated in Germany by an acquirer from outside the European Union may endanger public order or security (so-called cross-sector review). The AWG, enacted by Parliament, sets the basic rules, the AWV, enacted by the Federal Government, provides for the details.

Such danger may occur “in particular” if the target company engages in a number of sensitive industries defined in the AWV. These sensitive activities include, among others, operation of critical infrastructures, development or modification of software for such infrastructure operation, some activities in relation to telecommunications surveillance and cloud computing, broadcasting, tele-media and printing of up-to-date news to a large audience and various activities in the health sector (§ 55 of the AWV). If the target engages in such activities, a review may be performed if only 10 % of the shares in the target are to be acquired, and the acquirer is obliged to give notice to the BMWi that a transaction agreement, i.e. an agreement for purchasing or otherwise acquiring assets or shares of a sensitive target, has been concluded. – Acquirers from Member States of the European Free Trade Association are exempted from the review, like acquirers from the EU.

Any foreign acquirer of a company or 10 % or more of the shares in a company which develops or manufactures weapons of war or engages in specific activities related to defense and IT security for classified objects has to notify a proposed acquisition to the BMWi before closing a transaction agreement (§ 60 of the AWV, so-called sector-specific review). The BMWi may block the transaction or impose obligations in order to safeguard essential security interests of the Federal Republic of Germany.

2. Amendments to the Foreign Trade and Payments Act

Substantive Test

The Act aims at aligning the German regime for FDI screening to the EU Regulation 2019/452. The substantive test for blocking an acquisition or imposing obligations in the cross-sector review may now be whether that transaction is likely to affect public order or security of the Federal Republic of Germany or of other Member States of the European Union. Formerly, the standard was a danger for the public order or security of the Federal Republic of Germany (only); an actual and sufficiently serious danger affecting a fundamental interest of society was required for blocking a transaction or imposing obligations. – It is still for Federal Government to implement this change to the substantive test into the AWV.

Suspension of Transactions

Parties to a transaction are now prohibited from implementing a transaction as long as the Federal Ministry of the Economy and Energy (BMWi) has a right to review the transaction, until the BMWi clears the transaction or the deadlines for review have passed (§ 15). During such suspension,

  • the acquirer may not be granted voting rights in the target company and may not exercise such rights, and must abstain from “comparable acts”;
  • the acquirer may not be granted rights to profits distributed by the target company;
  • it is prohibited to disclose information related to the target, to the extent such information pertains to those activities which trigger the right of the BMWi to review or which business segments have to be considered in particular for assessing whether the public order or security of Germany may be affected. From the letter of the statute, this covers all information relating to the sensitive activities.

The BMWi may declare specific items of information relating to the target “significant” for protecting the essential security interests of Germany or, in the cross-sector review, for its public security and order, as far as this is necessary for preventing premature completion of a transaction which is subject to assessment by the BMWi. Information subject to such a declaration may not be disclosed either.

Intentional infringements against the prohibitions explained above shall be a criminal offence (§ 18 par. 1b of the AWG). Perpetrators may be punished by up to five years of imprisonment or by a fine. If such an infringement is committed by a negligent act or omission, it may give rise to a fine of up to € 500,000, but not to imprisonment (§ 19 par. 1 No. 2 of the AWG).

Provisions on Deadlines

Deadlines for the review, formerly fixed in the AWV, are now part of the AWG (§ 14a). :

  • Two months after the BMWi has learned that a transaction agreement subject to FDI screening has been concluded, the BMWi may no more open a procedure for review of a transaction
  • If it has opened a procedure for detailed review, so-to-say a phase 2, it may no more block a transaction or impose obligations four months after the acquirer has submitted all the information and documents required for the review

The deadlines may be extended

  • by up to three months in complex cases,
  • by another month in such complex cases, if the transaction affects interests of the defence of Germany in a particular manner and the Federal Ministry of Defence raises that point
  • upon agreement by the immediate acquirer and the seller.

The deadlines shall be suspended, i.e. the “clock be stopped”,

  • if the BMWi has requested additional information
  • if the BMWi and the acquirer have engaged in negotiations on an agreement for mitigating concerns.

The regime on extensions and suspension corresponds to a large extent to merger control.

Rights to Investigate for the BMWi

Under § 23 of the AWG, as amended, the BMWi shall be entitled

  • to request all information needed with respect to screening foreign investment,
  • to require companies and individuals to submit documents and therefore
  • to enter the premises of the parties. It may instruct the Federal Office for Economic Affairs and Export Control (“Bundesanstalt für Wirtschaft und Ausfuhrkontrolle”) or third parties to perform such tasks.

The Federal Ministry of the Economy and Energy (“Bundesministerium für Wirtschaft und Energie”) is also to act as point of contact for comments received by other EU Member States or the Commission.

3. Assessment and Practical Implications

The new legislation significantly increases the burdens and exposure for both acquirers and sellers, and for their respective advisers.

Sanctions Regime

The most drastic change is the criminal sanction for infringements against the prohibition to complete a transaction prematurely, i.e. before the deadlines for the review have passed or before the BMWi has approved the transaction or issued a certificate of non-objection.

In our view, it is not entirely clear whether the prohibition to disclose information on the sensitive activities of the target company applies only after a share purchase agreement has been signed or even before. In the latter case, commercial or technical due diligence reviews of a “sensitive” target would become risky. While the wording of § 15 of the AWG refers to an actual, not a merely possible transaction, the prohibition applies “until [the BMWi] has cleared the transaction, does not block it [within applicable deadlines] or clearance is deemed given”. This includes the time until signing of a purchase agreement, too. It would be strange to allow any disclosure of information before a transaction agreement has been signed and to provide for a strict regime after signing, i. e. in the confirmatory due diligence phase.

The parliamentary bill explains that restrictions against disclosure of information shall only concern information which is “particularly relevant” for a possible impact on public security or order, no “purely commercial” or other information which sellers usually disclose to possible buyers during SPA negotiations. However, the borderline is unclear. If the BMWi realizes its project for expansion of FDI screening, that screening will affect transactions for investment in companies engaging in developing or applying novel or key technologies. In those cases, a meaningful technical and commercial due diligence review is likely to comprise in particular such “sensitive information”.

Impact on M&A Transactions

The current Minister of the Economy and Energy is firm in his belief that German economy, infrastructures and technology should not be “sold away” to non-German or non-EU parties. The BMWi has already announced that it intends to expand the scope of “sensitive” industries further and to include key upcoming technologies. It is therefore wise to assume that more industries and businesses will be subject to FDI screening. Parties to a transaction to which FDI screening rules may apply have to plan carefully, allow enough time and anticipate review and discussions with BMWi, or even action in court, because of the FDI review regime.