Screening of Third Country Transactions Bill 2022 expected to come into force in early 2023

• Ireland

• Competition, EU and Trade - Foreign investment regimes

01-02-2023

The regulatory landscape in Europe and Ireland is rapidly changing and becoming increasingly complex and onerous. One such change, the introduction of the Screening of Third Country Transactions Bill 2022 (the “Bill”), is expected to come into force in early 2023.

The Bill provides for the investigation and screening of certain transactions that involve persons, connected persons or undertakings from outside of the European Union (“EU”), the European Economic Area (“EEA”) and Switzerland, and will give the Minister for Enterprise Trade and Employment the power to block, or impose conditions on, such transactions.

Overview

The Bill gives effect to Regulation (EU) 2019/452 (the “Regulation”), and provides for the establishment of a framework for the investigation and screening of foreign direct investment involving third countries (including third country nationals and/or third country undertakings).

This is Ireland’s first foreign direct investment screening scheme, and transactions involving third countries (including third country nationals and/or third country undertakings) that meet certain criteria will have to be notified to the Minister (who has the power to block, or impose conditions on, such transactions).

Third countries, for the purposes of the Bill, are countries outside of the EU, the EEA and Switzerland. Third country nationals (being persons ordinarily resident in a third country) and third country undertakings (being undertakings governed by the laws of a third country or controlled by a person resident in a third country) are also captured. The United Kingdom (following Brexit) and the United States are considered a third country for the purposes of investment screening. As such, notifiable transactions involving US or UK companies, and/or involving persons ordinarily resident in the US or the UK, will need to be notified.

Notifiable transactions

The Bill sets out certain criteria to determine if a transaction is notifiable, including that the value of the transaction is at least €2,000,000 or an amount prescribed by the Minister; and the transaction directly or indirectly relates to or impacts upon at least one of certain prescribed sectors.

Sectors captured by the Bill

Transactions involving the following sectors may constitute notifiable transactions for the purposes of the Bill:

- transactions involving critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure;

- transactions involving critical technologies and dual use items as defined in point 1 of Article 2 of Council Regulation (EC) No 428/2009, including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies;

- transactions involving the supply of critical inputs, including energy or raw materials as well as food security;

- transactions involving access to sensitive information, including personal data, or the ability to control such information; or

- transactions involving the freedom and pluralism of the media.

The sectors outlined are potentially very wide reaching, and so care should be taken when considering whether or not a transaction involving any of the above sectors constitutes a notifiable transaction.

Requirement to notify

The parties to a notifiable transaction must notify the transaction not less than 10 days before the transaction completes. Similar to a merger notification, a ‘stand-still’ provision applies while a notifiable transaction is being reviewed (e.g. a transaction under review cannot be completed). Failure to abide by the ‘stand-still’ provision is a criminal offence.

If further information is required to assist the investigation, a notice in writing can be issued to the relevant party or parties by the Minister. The notice must allow the party/parties at least 30 days to gather and provide the information requested.

The Bill provides that a transaction that results in the acquisition of shares or voting rights in an undertaking in the State is not notifiable unless the percentage of shares or voting rights held by the person in the undertaking as a result of the transactions changes: (a) from 25% or less, to more than 25%; or (ii) from 50% or less, to more than 50%.

Right to ‘call-in’ transactions / transactions completed before the commencement of the legislation

Even if a transaction does not meet the criteria for notification, the Minister has, in certain circumstances, the right to ‘call in’ a transaction. In respect of transactions that were non-notifiable, the Minister may nonetheless investigate / ‘call-in’ such transactions up to 15 months after that transaction completes. Accordingly, in respect of transactions that were completed before the commencement of the legislation, the Minister will be able to ‘call-in’ and investigate any transactions that were completed up to 15 months before the commencement of the legislation.

In respect of transactions which were notifiable under the legislation but were not so notified, the Minister has the power to ‘call-in’ those transactions for up: (i) to 5 years from the date on which the transaction completed; or (ii) 6 months from the date on which the Minister first becomes aware of the transaction, whichever is later.

Review process

A screening decision is made when the Minister has reviewed a transaction and determined whether or not the transaction affects, or is likely to affect, the security or public order of the State. A screening decision must be made 90 days from the date on which the screening notice was issued, however, this may be extended to no more than 135 days by the Minister by notice in writing.

Where the Minister makes an adverse decision, (e.g. a decision that the transaction affects or would be likely to affect, the security or public order of the State), the Minister can require the parties to the transaction to do or refrain from doing multiple different actions, including, but not limited to, to sell or divest, to cease a conduct or practice, and not to complete the transaction. In addition, the Minister may require the parties to pay the Minister such amounts as the Minister may specify to cover the costs of monitoring compliance with any conditions imposed by the Minister.

Appeals

The Minister may appoint adjudicators in order to hear an appeal of a decision of the Minister, should a decision be challenged. A decision of the Minister may be appealed on notice in writing to the Minister within 30 days of being notified of the screening decision. The adjudicator may make a finding of a serious or significant error and allow the appeal, and remit the matter to the Minister or affirm the decision to which the appeal relates. The decision of an adjudicator may be appealed to the High Court on a point of law only.

Failure to notify

If a notifiable transaction completes before being notified in accordance with the Bill, the transaction will automatically be deemed to be subject to a finding that the transaction affects or is likely to affect, the security or public order of the State. The Minister can then direct the parties to take such actions for the purposes of protecting the security or public order of the State, including, but not limited to, to sell or divest assets, and/or to modify or cease a specified conduct or practice.

Failure to notify a notifiable transaction, or providing false information, is an offence. A person guilty of an offence is liable: (i) on summary conviction, to a Class A fine or to imprisonment for a term no longer than 6 months, or to both; or (ii) on conviction on indictment, to a fine not exceeding €4,000,000 or to imprisonment for a term no longer than 5 years, or to both.

Personal liability

Where an offence under the Bill is committed by an undertaking, in certain circumstances a person being a director, manager, secretary or other officer of the undertaking (including any person purporting to act in any such capacity) may also be liable.

Conclusions

The enactment of the legislation, which reflects the increasing complexity of the regulatory landscape, will establish the State’s first foreign investment screening process. Of particular note is the potential scope of the transactions that will be impacted.

The consequences of failing to notify a notifiable transaction are significant, and so care should be taken when considering whether or not a transaction involving any of the prescribed sectors constitutes a notifiable transaction.

If you require any further information, please contact our EU, Competition & Regulatory team: