CELIS Update on Investment Screening – April 2024
United Kingdom – Response of the UK Government to the Cabinet Office’s ‘call for evidence’
The UK Government published its response to the Cabinet Office’s ‘call for evidence’ on the National Security and Investment Act 2021 in April 2024. The UK’s new National Security and Investment Act (NSI) came into force on 4 January 2022, introducing new requirements for FDI in certain business sectors with the potential to impact on national security.
In general terms, “the Government wants the NSI system to keep ahead of the national security risks facing the UK and adapt to the changing nature of our economy, whilst minimising the burden it places on businesses and encouraging investment to enable our economy to grow.”
Therefore, the Government has categorized its intentions into five discrete areas: The Section 3 Statement provides a brief outline on when the Secretary of State expects to exercise the call-in power under the NSIA, which is effectively a means of indicating that a transaction might raise national security concerns. Second, the Government response commits to further specific updates on the topics such as how the NSIA applies to transactions in the academia and research areas, factors the Government expects to take into account when assessing risk, the calculation of statutory time limits, the application of the NSIA to outward direct investment and the scope of the definitions of the 17 sensitive sectors that are covered by the mandatory notification regime. Third, the Government commits to a consultation in summer 2024 on the 17 sectors considered potentially sensitive, which will include proposals for new standalone sectors for semiconductors and critical minerals as well as the possibility of adding water to the sensitive sectors. Additionally, the Government has addressed response on whether targeted exemptions from the mandatory notification requirement may be appropriate. Last, improvements concerning the ‘notification portal’ for required filings to be submitted electronically are ongoing and will continue. The perceived lack of transparency end engagement with the ISU has not been answered with any commitments.
The Call for Evidence Response to the National Security and Investment Act 2021 can be accessed here.
EU Commission – First ex officio investigation and first dawn raid under the FSR
On April 9 2024, the European Commission initiated its first ex officio investigation under the EU Foreign Subsidies Regulation (FSR) targeting Chinese wind turbines. Executive Vice-President Margarethe Vestager announced an EU inquiry into Chinese manufacturers of wind turbines selling in Bulgaria, France, Greece, Romania, and Spain. The FSR entered into force last year and is intended to regulate subsidies granted by non-EU countries to ensure that they do not distort competition in the EU internal market and grants the Commission powers to launch investigations ex officio in any other circumstances where it suspects that foreign subsidies may be distorting the internal market.
On 23 April 2024, the European Commission has also just conducted its first FSR dawn raids, targeting the offices of Nuctech, a Chinese state-owned manufacturer of surveillance technology and security equipment and producer of baggage security scanners for airports and seaports among other things. The raids on Nuctech’s premises in Poland and the Netherlands were based on indications that Nuctech may have received foreign subsidies that could distort the internal market. Without announcement by the Commission, Nuctech, a Chinese security and surveillance equipment supplier, subsequently confirmed that it was the subject of the investigation and that its premises in the Netherlands and Poland had been inspected. IT equipment and employees’ mobile phones were seized by the authorities, who also requested access to data.
Additionally, in the last few weeks, the Commission also opened in-depth investigations following FSR notifications of tenders submitted by inter alia Chinese companies in EU public procurements related to electric trains in Bulgaria and solar photovoltaic park in Romania.
Belgium – Guidelines to the Belgian rules on the screening of foreign direct investments
On 4 April 2024, the Interfederal Screening Commission (ISC) published guidelines to provide further clarification on the Belgian rules on the screening of foreign direct investments. The Belgian FDI screening regime became effective on 1 July 2023 and since then a mandatory notification procedure has been in place in Belgium for transactions involving a non-EU investor investing in a Belgian target active in certain specific sensitive sectors. To assist investors, the ISC issued draft guidelines on 30 June 2023, outlining the scope and procedure of the screening mechanism, however certain aspects required further clarifications during the course of the rollout of the new regime. Therefore, the ISC updated these guidelines in the form of an FAQ.
The new guidance on the application of the Belgian FDI screening regime can be accessed here (in Dutch).
United States – Treasury proposes Regulatory Update to sharpen and enhance CFIUS procedures and enforcement authorities to protect national security
On 11 April 2024 the U.S. Department of the Treasury, as Chair of the Committee on Foreign Investment in the United States (CFIUS), issued a Notice of Proposed Rulemaking to enhance certain CFIUS procedures and sharpen its penalty and enforcement authorities. The proposed rule reflects CFIUS’s increased focus on compliance, monitoring and enforcement. It marks the first substantive update to the mitigation and enforcement provisions of the CFIUS regulations since the enactment and implementation of the Foreign Investment Risk Review Modernization Act of 2018.
Among other things, the proposed rule would refine and enhance CFIUS’s authorities through changes such as expanding the types of information CFIUS can require to submit when engaging with them on transactions that were not filed with CFIUS, expanding the circumstances in which a civil monetary penalty may be imposed due to a party’s material misstatement and omission, instituting an extendable timeline for transaction parties to respond to risk mitigation proposals for matters underactive review to assist CFIUS in concluding its reviews and investigations within the statutory time frame, expanding the instances in which CFIUS may use its subpoena authority and extending the time frame for submission of a petition for reconsideration of a penalty to the Committee and the number of days for the Committee to respond to such a petition.
India – Terminal Investment Ltd acquired a 49 percent stake for Rs247 crores in the container terminal
Terminal Investment Ltd, a unit of Geneva-based Mediterranean Shipping Company S.A, the world’s biggest container shipping line, has received security clearance to acquire a 49 percent stake for Rs247 crores in the container terminal run by APSEZ (Adani Ports and Special Economic Zone Ltd) in state-owned Kamarajar Port Ltd located in Tamil Nadu (the only corporate port among the 12 owned by the Union government). This deal was awaiting security clearance from the Union government, per procedure framed for port contracts.
In 2014, APSEZ won the rights to operate a 1.4 million TEU-capacity container terminal for 30 years at Kamarajar Port Ltd after placing a revenue share of 37 percent.
Australia and South Korea – Australian shipbuilder Austal rejected takeover offer from South Korea’s Hanwha Ocean
On 2 April 2024, Australian shipbuilder Austal said it had rejected an $662 million takeover offer from South Korea’s Hanwha Ocean as it was unlikely to be approved by Australian and U.S. regulators due to the sensitivity of its operations. The approvals needed would include Australia’s Foreign Investment Review Board, the Committee on Foreign Investment in the US and the US Defense Counterintelligence and Security Agency.
Austal signed an initial agreement with the Australian government in November which would see the company being selected as a strategic shipbuilder. Austal is also a prime contractor designing, constructing and sustaining ships for the U.S. Navy. Hanwha Group is South Korea’s seventh-largest conglomerate with $59.11 billion in assets, spanning the energy, defence and financial industries.
Austal states finally, that the company is open to further engagement if Hanwha is able to provide certainty on whether a transaction would be approved.
