The Swedish Government Proposes Far-reaching Rules on Foreign Direct Investments

Sweden is one of the few EU Member States which does not have a stand-alone foreign direct investment (“FDI”) regime. This is about to change. On 16 March 2023, the Swedish Government presented a draft legislative bill on foreign direct investments (the FDI Act). The FDI Act, which is suggested to enter into force on 1 December 2023, significantly expands the Swedish Government’s current powers to scrutinize foreign investments. Given its broad scope, it will no doubt impose an additional administrative burden on many transactions and investments in Sweden and lead to delays in closing times.

A broad range of investments are covered
The FDI Act aims to protect Sweden’s national security as well as public order and public security in Sweden by introducing a mandatory notification requirement on investments in undertakings domiciled in Sweden that carry out certain “protected activities”. The proposed screening mechanism is broader than many of its counterparts in other EU Member States, as it catches investments made by investors also from Sweden and other EU Member States and not only third countries. If adopted, it will require prior notification and clearance of investments in a wide range of sectors.

The FDI Act provides for mandatory notification of all kinds of investments in Swedish companies that carry out certain “protected activities” in a variety of sectors. These include, e.g., security-sensitive activities, essential services, military equipment, emerging technologies, and critical raw materials, metals and minerals. Also, businesses dealing with location data and personal data may be covered. However, unlike the EU FDI Regulation, investments in media companies are excluded from its scope.

Anyone who acquires 10% or more of the total number of shares or votes in a company engaging in such activities will have to notify the acquisition. This obligation applies to investors from both third countries and EU Member States (including Swedish investors). However, investments which are purely related to Swedish or EU citizens may not be subject to in-depth scrutiny or prohibition.

Far-reaching sanctions
In certain cases, investments may be prohibited or subject to conditions and sanctions, including fines of maximum SEK 100 million (approx. EUR 9 million) and may be prohibited, also after completion.

Standstill
Investors will have to obtain clearance from the screening authority prior to closing. In an earlier proposal the Inspectorate of Strategic Products (Sw. Inspektionen för strategiska produkter) was named as the authority in charge and it is also the authority in charge of EU coordination of FDI screening. However, the competent authority will later be nominated by the Government. It will have the power to call in investments that are not notifiable if there is reason to believe that they will harm the interests protected by the FDI Act, but will not allow voluntary notifications. In case notification is not filed although filing is mandatory, the authority has the power to draft the notification.

The assessment by the authority
When assessing the investment, the authority will examine the nature of the target’s operations and whether the investor is (i) controlled directly or indirectly, by the government of a third country, or (ii) has already been involved in activities affecting security or public order, or whether there are other circumstances that may affect national security, public safety or public order. This, we recognize from Article 4 of the EU FDI Regulation.

Prohibitions and conditional approval
The authority will be able to prohibit investments or make clearance subject to certain conditions. If an investment has been completed without notification or before the competent authority has completed its review and the conditions for a prohibition are met, it may impose an administrative fine and prohibit the investment. The prohibition means that the investment is null and void and will therefore have to be reversed.

Timelines for scrutiny
A two-stage screening procedure is suggested. In the first stage, the authority will have 25 working days to decide whether to carry out an in-depth review, in which case it will have an additional three months to scrutinize the investment. This deadline may be extended up to six months.

Other notification regimes will apply in parallel
The screening mechanism will not replace but complement existing notification requirements under the Protective Security Act (which applies to transfers of security-sensitive activities) and the Competition Act. Nor will it be affected by the EU Foreign Subsidies Regulation. As a result, an investment may be cleared under one screening mechanism and prohibited under another. The complexity that comes with different aims, notification requirements and timelines require early and careful review of potential investments.

Next steps
The draft will now be reviewed by the Council on Legislation whereafter the Government will issue a government bill (expected in May) which will be voted in Parliament. However, it is time for companies to start preparing for the new regime already now.

We will get back with an article commenting on the proposal in more detail and closely follow the next steps in the legislative process.