Foreign direct investment (FDI) into Ireland originating from outside the EU is not currently subject to any specific regulatory requirements. However, the Irish government, following a public consultation launched in mid-2020, is likely to introduce such rules in the near future. In the meantime, Ireland is obliged under a recently-introduced EU law to comply with information requests from its fellow EU Member States regarding relevant FDI transactions. FDI may encompass the purchase of full control or a minority stake in relevant enterprises.

Regulation (EU) 2019/452 (FDI Screening Regulation) aims to encourage co-operation and information exchange between EU Member States and the European Commission (Commission).  The FDI Screening Regulation became binding in Ireland on 11 October 2020.  Separately, the Department of Business, Enterprise and Innovation (DBEI) conducted a consultation process on FDI screening in spring/summer 2020. This has resulted in the preparation of new rules by the DBEI.

What is FDI Screening?

In general terms, an FDI screening mechanism requires a foreign investor to notify, and potentially receive clearance from, a state authority before making an investment into a particular country.  (The FDI Screening Regulation defines FDI as investment from outside the EU.)  The purpose of FDI screening is to protect public order and security in EU Member States.  Although the FDI Screening Regulation does not require EU Member States to adopt a screening mechanism, several have done so.  More broadly, screening of FDI is, also, a feature of jurisdictions outside the EU including the USA, the UK and China.

Certain sectors and technology are seen as critical in the context of FDI.  Indeed, separate from the FDI Screening Regulation, recent EU guidance regarding the COVID-19 pandemic emphasises the strategic importance of healthcare to public order and security.

The Current Irish Position and How it May Change

Unlike several other European countries such as Germany, France and the UK, Ireland currently has no FDI screening mechanism in place, and, as stated above, is not currently required, under EU law, to have one.  Indeed, in its consultation documents, the DBEI noted the importance of maintaining the attractiveness of Ireland as a location for FDI in any policy decision.  Recital 7 to the FDI Screening Regulation notes that EU Member States have sole responsibility to protect their national security.  That said, the DBEI must balance the continued attractiveness of Ireland for FDI with the need to comply with the FDI Screening Regulation.  The relevant public consultation document envisages a “robust, but proportionate” mechanism.  It is notable that other than Germany and France, twelve other EU Member States have relevant screening mechanisms in place.

What has Changed Since 11 October 2020?

Following the FDI Screening Regulation’s entry into force on 11 October 2020, all EU Member States must abide by the relevant cooperation mechanisms.

FDI not undergoing screening

Even though it has not yet adopted FDI screening, Ireland must now, when requested by other EU Member States and/or the Commission, provide information on any relevant transaction involving FDI as set out in Article 9 of the FDI Screening Regulation including:

• details regarding the target’s ownership structure, products, services and business operations; and
• the other EU Member States where the target conducts relevant business operations.

Ireland must also give “due consideration” to any further comments from other EU Member States or an opinion from the Commission. While the FDI Screening Regulation does not specify what is meant by “due consideration”, its recitals envisage such consideration being given in line with an EU Member State’s duty of sincere cooperation under the relevant EU Treaty.

This obligation will apply to any FDI in Ireland not undergoing screening including, after the enactment of any legislation adopting a domestic FDI screening mechanism, to any FDI which is not caught by any relevant Irish thresholds.

FDI undergoing screening

If and when a national regime is enacted, Ireland will be required to inform the Commission and the other EU Member States of any FDI undergoing screening in Ireland which is caught by the relevant thresholds.  Such notification must include the ‘Article 9’ information referenced above.  Other EU Member States may provide comments, and the Commission may provide an opinion, to Ireland regarding such FDI.  As with FDI not undergoing screening, due consideration must be given to such comments/opinion, although Ireland retains sole jurisdiction to take any final decision regarding the FDI (e.g., whether to clear or block the transaction, to clear subject to commitments, etc.)

EU Member States which adopt FDI screening mechanisms must respect the rights of would-be investors including the protection of commercially sensitive information and allowing the possibility to challenge FDI screening decisions.  At the same time, where an FDI Screening Regulation is in place, the EU Member State must implement measures preventing foreign investors from circumventing any screening requirements.

What Would an FDI Screening Mechanism Look Like?

According to the government’s Spring 2021 Legislative Programme, heads of an Investment Screening Bill were approved in July 2020.  However, the Bill has not undergone pre-legislative scrutiny and no draft legislation has been published.  Therefore, it remains to be seen what form the Irish FDI legislation will take.  However, key points of interest will include:

• Whether there will be a mandatory or voluntary notification process;
• The nature, scale and types of FDI that may require screening.  For example, whether an obligation to undergo screening will be based on the investor/target’s turnover, the nature of their activities, the type of transaction (acquisition of “control” for merger control purposes or a percentage shareholding threshold), etc.;
• The potential establishment of an Investment Screening Board – whether a new public body will be established or whether a unit of the DBEI or another Department will conduct the relevant screening activities;
• The timelines for an FDI screening process (in particular, whether such screening may take place concurrently with Commission’s review under the EU Merger Regulation or the Competition and Consumer Protection Commission’s merger review process under Part 3 of the Competition Act 2002 (as amended)); and
• Sanctions for failure to notify.

Comment

Any FDI screening mechanism will likely create an additional regulatory burden on non-EU investors wishing to invest in Ireland.  Given the strategic importance of FDI to Ireland’s economy, Ireland faces a challenge to create the appropriate balance.  It will also be interesting to see which sectors are targeted, and if this changes over time.  For example, the perceived strategic importance of the healthcare sector has increased due to the COVID-19 pandemic – therefore, the healthcare sector may be more likely to be subject to FDI screening.

More generally, the interaction between FDI screening and other mandatory notification requirements, such as merger control, should be considered.  For example, merger control focuses solely on competition whereas FDI screening focuses on public order and security.  In theory, a transaction could face notification requirements under two or more domestic regimes.  In practice, the interaction between regulators will therefore be crucial to how relevant FDI transactions are reviewed.

Contributed by Eoin O’Cuilleanain