How Should a Small State Screen Foreign Investment Without Scaring It Away?

Author: Jovo Rabrenović (Institute of Economic Sciences, Montenegro)

Introduction

On 30 July 2026, the Government of Montenegro adopted a proposal to establish the country’s first comprehensive mechanism for screening foreign investment on security and public-order grounds. The proposal is not yet a screening law. It is the institutional and policy basis for a dedicated law on foreign-investment screening: the Ministry of Economic Development would act as the central screening authority and contact point for cooperation with the European Union (“EU”), an inter-institutional Screening Council would provide expertise, and the Government would take the final decision. 

The timing matters. Regulation (EU) 2026/1386, adopted in June, requires every EU Member State to establish a screening mechanism meeting common minimum requirements. Most of the Regulation will apply from 17 January 2028. Montenegro, a candidate country seeking to align with the acquis before accession, is therefore designing its system while the European framework itself is becoming more harmonised. 

The central problem is not whether Montenegro should screen foreign investment. It is how an open economy with limited specialist resources can identify genuine security risks without turning screening into a broad discretionary licence to intervene in investment. The guiding principle should be maximum relevant information with minimum unnecessary intervention.

I. The Small-State Screening Dilemma

The trade-off is material for Montenegro. The Central Bank of Montenegro reported a net foreign direct investment inflow of EUR 491.2 million in 2024, equivalent to 6.6 per cent of GDP. That figure does not by itself measure dependence on foreign capital, but it shows why regulatory design matters in an economy where cross-border investment is economically significant. 

Investment screening is information-intensive. A transaction may require an assessment of ultimate beneficial ownership, foreign-state influence, sanctions exposure, financing, critical infrastructure, sensitive technologies and dependencies that are not visible from the investor’s formal place of incorporation. 

In a compact administration, this knowledge is rarely located in one office. An economic ministry understands the transaction and investment environment; sector regulators understand networks and critical services; competition authorities understand market structure; financial authorities understand ownership and financing; and security bodies may hold information on state influence or strategic risk. 

The constraint is therefore not simply that a small administration knows too little. It is that the relevant knowledge is dispersed across a small number of institutions. The wrong response is to compensate for that constraint by defining ‘national security’ so broadly that almost any politically sensitive transaction can be pulled into screening. The better response is to pool expertise while keeping the legal test disciplined. 

Size can also be an institutional advantage. In a compact administration, officials responsible for investment, competition, finance, infrastructure and security can often convene more quickly and compare information without creating a large permanent bureaucracy. Shorter administrative chains can accelerate the initial identification of risk and make responsibility easier to trace. The same proximity can also increase the danger of informal influence, however, which is why personal familiarity must support coordination rather than replace written records, conflict-of-interest safeguards and reasoned decisions. 

Montenegro’s proposal moves in that direction. It places the Ministry of Economic Development at the centre of the process but envisages a Screening Council drawing on institutions responsible for the economy, internal affairs, defence, foreign affairs, finance, competition, electronic communications, transport, energy and national security. For an administration of Montenegro’s scale, using existing specialist institutions rather than duplicating all of that expertise in a new stand-alone bureaucracy is a rational starting point. The Ministry’s official explanation also identifies energy, transport and digital infrastructure, electronic communications, cybersecurity, healthcare, financial infrastructure, defence industries, sensitive technologies, strategic resources and critical raw materials among the areas of strategic importance.

II. Pool Expertise, Not Discretion

An inter-institutional model solves one problem but creates two others: institutional separation and accountability. 

There is nothing unusual about locating screening in an economic ministry. Finland’s June 2026 draft reform, for example, proposes a two-stage procedure in which the National Emergency Supply Agency would handle the first stage of authorisation and the Ministry of Economic Affairs and Employment would act as the authorising authority. The relevant lesson for Montenegro is not to copy Finland’s institutions, but to match administrative intensity to risk: routine cases should be cleared without mobilising the full security apparatus, while genuinely sensitive cases should trigger deeper review. 

Montenegro should apply the same logic inside its proposed architecture. Officials responsible for investment promotion or facilitation should not determine the security assessment of an individual transaction. A procedural firewall is preferable to creating an entirely separate agency: the screening file should have its own chain of responsibility, documented inputs from participating authorities and a recommendation anchored in security and public-order criteria. 

The Screening Council should also pool expertise without diffusing accountability. If several institutions contribute, each should speak within its competence, while the central authority integrates those views into one assessment. The final decision can remain with the Government, as proposed, but the reasoning should be traceable to the statutory security test rather than to an undifferentiated notion of the ‘national interest’. 

III. Security Is Not Industrial Policy

This distinction is the core of credible screening. A foreign acquisition may be economically unattractive without being a security threat. It may reduce employment, use an aggressive tax structure or conflict with an industrial-policy preference. Those concerns can be legitimate, but they belong to labour law, tax policy, competition policy, sector regulation or investment policy. 

Conversely, a commercially attractive transaction can create a security problem if it gives a foreign investor effective influence over critical infrastructure or sensitive technology, particularly where ownership is opaque, the investor is exposed to sanctions, or a third-country government can exercise control or direction. 

The revised EU Regulation is useful precisely because it separates these questions. Article 19 directs screening authorities towards potential effects on security and public order and identifies investor-related risk factors; Article 20 requires restrictive screening decisions to rest on risk-based analysis and provides that prohibition or unwinding should be used only where the likely negative effect cannot be adequately addressed through other means. 

That logic also speaks directly to a recent CELIS discussion of the boundary between discretion and arbitrariness. Screening inevitably requires predictive judgement, but national-security discretion is not a blank cheque. For Montenegro, the practical rule should be simple: screen the risk created by the investment, not the Government’s preference for or against the investment.

IV. Predictability Is Part of Economic Security

The Ministry’s official explanation of the proposal envisages prior authorisation, a 10 per cent ownership or voting-rights threshold, alongside tests based on direct or indirect control or significant influence, and an initial review of 45 calendar days from receipt of complete documentation. Investors would be required to provide information on ownership, ultimate beneficial ownership, business activities, transaction value, financing sources and intended effects. 

The 10 per cent threshold is a national design choice, not an EU requirement. The new Regulation deliberately leaves Member States room to specify additional national thresholds and to extend screening beyond the common minimum scope. What matters is that investors can identify the trigger in advance. 

This is where comparative experience is useful. Malta’s 2026 reform proposal seeks, among other things, to clarify notification requirements and connect them more closely to specified strategic activities. CELIS’s review of the Maltese proposal describes the reform as a response to uncertainty created by broader notification criteria. The point is not that Montenegro should adopt Malta’s thresholds. It is that unclear filing obligations impose costs even when most transactions are eventually cleared. 

The commercial effect of procedural uncertainty is not theoretical. A recent CELIS analysis of screening deadlines discusses the GlobalWafers/Siltronic transaction, which failed when the required German foreign-investment clearance was not obtained before the contractual long-stop date, even though no formal prohibition had been issued. The example is from a large Member State, but the lesson is general: delay can function as a de facto regulatory outcome. 

The EU framework now makes predictability a structural requirement. Article 4 requires transparent and non-discriminatory procedures, a first-stage review within 45 calendar days for filings within scope, confidentiality protection and an effective judicial remedy. Before a transaction is approved with mitigating measures, prohibited or unwound, affected parties must have an effective opportunity to make their views known. Article 23 further requires detailed public guidance on scope, thresholds, filing triggers, timelines and procedural rules where these are not already set out in national law. 

These safeguards are not concessions to investors at the expense of security. As Bálint Kovács has argued on the CELIS Blog, procedural safeguards are particularly important because screening is an exception to ordinary open-market principles. They also improve decision quality: a right to be heard can expose factual mistakes, confidentiality rules encourage fuller disclosure, and judicial review disciplines the use of discretion. 

Confidentiality deserves particular attention because the proposed Montenegrin mechanism would compel disclosure of ownership, financing and other commercially sensitive information. CELIS has separately highlighted this problem in the context of increasingly extensive screening disclosures. Montenegro’s law should therefore specify who may access a screening file, how sensitive information may be shared among participating institutions and what safeguards apply against unauthorised disclosure. 

Montenegro’s future law should therefore specify not only when the 45-day clock starts, but what makes a filing complete, when additional information can suspend or extend timelines, how a deeper investigation is opened and how long it may last. The Government has stated that the law should regulate legal remedies, but the proposal stage does not yet provide a final statutory appeal architecture. That detail should not be left vague.

V. Design for the EU Before Membership

As a non-member, Montenegro will not participate in the Regulation’s Member State cooperation mechanism on the same basis before accession. That does not mean cooperation must wait for membership: Article 22 expressly permits Member States and the Commission to cooperate with responsible authorities of third countries on investment-screening issues. Montenegro can therefore design a system that is technically and legally compatible with the EU framework while also seeking practical pre-accession cooperation where appropriate. 

The proposed information requirements already point in that direction. The new EU framework similarly depends on information about the investor, beneficial ownership, ownership structures and the target, while its cooperation mechanism will use a secure database and common information channels. The Regulation also requires Member States to make public annual reports containing aggregated and anonymised information on screened transactions and outcomes. 

For Montenegro, building that reporting discipline from the start would have value even before accession. Anonymised data on filings, sectors, clearances, mitigation and prohibitions would show whether the mechanism is concentrating on a narrow group of genuine security cases or gradually expanding into ordinary economic transactions. 

A central constraint will remain administrative capacity. The new EU Regulation expressly requires adequate procedures, resources and legal and administrative means. Montenegro should therefore resist designing a screening scope broader than the institutions responsible for it can credibly administer. A system that requires exhaustive review of too many low-risk transactions can consume the very expertise needed for the few cases that matter. 

Conclusion 

Montenegro has a strong case for introducing foreign-investment screening. It currently lacks a comprehensive mechanism for assessing security and public-order risks, while the EU framework it is preparing to join is moving towards mandatory national screening and a more harmonised minimum standard. 

But adopting a law is the easier part. The harder task is designing an institution that is sceptical enough to detect strategic risk and disciplined enough not to treat foreignness itself as a risk. 

The model proposed in Montenegro’s July policy document can work if five principles survive the legislative process: a security test distinct from industrial policy; pooling of specialist expertise without diffused accountability; procedural separation between investment promotion and security assessment; clear filing rules and deadlines; and effective safeguards for confidentiality, participation and review. 

If those elements are built into the law, screening need not scare away productive capital. A narrowly targeted, evidence-based and predictable regime can instead strengthen the investment environment by making clear that security scrutiny follows rules rather than political improvisation. 

A small state does not need a higher wall around its economy. It needs a better filter: one that makes the investments requiring genuine security scrutiny easier to identify, faster to assess and harder to politicise.