Ireland: Proposed FDI Screening Guidelines Published – What We Have Learnt

On 16 February last, the Department of Enterprise, Trade and Employment (the Department) published draft guidance for stakeholders and investors (the Draft) regarding the forthcoming entry into force of the Screening of Third Country Transactions Act 2023 (the Act).

The purpose of the Act is to empower the Department to protect the security and public order of the State from the acquisition by potentially hostile third-country entities of sensitive Irish businesses and assets.

Once commenced, the Act will provide for the establishment of a national inward investment (also known as foreign direct investment/FDI) screening mechanism for the first time. The Draft contains some useful pointers on how both the jurisdictional and other aspects of the new regime will likely operate in practice.

In short, a notification must be made to the Department under the Act where an investor based outside the European Economic Area or Switzerland seeks to acquire control of a business/asset in the State relating to, or, impacting upon one or more of five key activities/sectors listed in EU Regulation 2019/452 provided the cumulative value of the transaction is, at least, EUR 2 million. A notifiable transaction cannot proceed until it receives clearance or deemed clearance.

Learnings regarding the five key activities/sectors

In terms of deciding whether a particular transaction is mandatorily notifiable under the Act, the trickiest question is likely to be whether one of the below quintet of relevant activities/sectors is engaged.

• Critical infrastructure: The Draft leans heavily on the definition/categories of critical infrastructure contained in EU Directive 2022/2557. It also suggests that the State will publish a list of identified and designated critical infrastructure, in due course.
• Critical technologies and dual-use items: The Draft focuses on what constitutes a dual-use item for the purposes of EU Regulation 2021/821 – this legislation contains a lengthy and detailed list of the relevant goods across a range of sectors. Surprisingly, the Draft neglects specifically to address what might constitute a critical technology.
• Supply of critical inputs: The Draft states that critical inputs include energy, raw materials crucial to the European economy and food security. Helpfully, the European Commission has created a list of critical raw materials for the EU – this is reviewed every three years.
• Access to sensitive information: The Draft notes that sensitive information is data that must be protected from unauthorised access to safeguard the privacy or security of an individual, organisation or the State. The Department stipulates that a relevant transaction will be notifiable if sensitive data is held as an essential part of the target business or asset. The volume of the relevant data must be "substantial" or related to a business model that generates income from such information. Helpfully, the Draft stipulates that the personal data held by the target (for example, information regarding its staff) is not relevant.
• The freedom and pluralism of the media: The Draft refers to the definition of media plurality in the Competition and Consumer Protection Act 2014. In short, this concept comprises both diversity of content and diversity of ownership. While borrowing from the rules governing media mergers, the Draft emphasises that any screening by the Department under the Act is entirely distinct.

The Act requires notification if the transaction "relates to, or impacts upon" one or more of these five activities/sectors. The Draft helpfully points parties to resources that would indicate a transaction is, on its face, within scope, but does not stipulate where the Department might consider a transaction not impactful on, or not related to, a relevant activity or sector.

Other learnings

As stated above, the Draft contains some useful other indications on how the FDI screening regime will likely operate in practice.

• Value of transaction: The objective of protecting currently low in value but high-potential start-up businesses in key sectors of the economy is behind the adoption of the relevant EUR 2 million value of transaction threshold. Although the relevant Minister has the power under the Act to revise this threshold, the Draft appears to suggest that the current figure will remain in place for the foreseeable future. That said, if an unexpected large volume of mandatory notifications ever threatens to overwhelm the Department, increasing the threshold would be a straightforward way of decreasing the potential workload.
• Concept of decisive influence: In interpreting the concept of an acquisition of control, the Draft explicitly refers to the EU/Irish merger control concept of decisive influence. This should be of significant assistance to businesses given the availability of detailed relevant European Commission precedent.
• Greenfield investments: The Draft notes that the Act focuses on transactions – veritable greenfield investments will most likely not be subject to mandatory notification to the Department.
• Call-in powers: As a supplement to the mandatory notification regime, the Act allows the relevant Minister to call-in, on a discretionary basis, non-notifiable or non-notified transactions, which are likely to affect the security or public order of the State. The Draft notes that the purpose of this provision is both to prevent the deliberate circumvention of the notification requirement and to police transactions in emerging technologies or sectors (i.e. outside the five key activities/sectors discussed above.)
• Honest mistake: While the Act stipulates the failure to notify a mandatory notification is an offence, the Draft notes that this provision is not intended to punish honest mistakes. The introduction of this concept is perhaps surprising given that the lack of direct statutory support.
• Case management system: According to the Draft, the Department will adopt an online case management system both to accept notifications and to manage all other interactions with the notifying parties. Interestingly, if the relevant transaction is not mandatorily notifiable, the Department will issue a letter confirming this to the relevant parties. Accordingly, parties, unsure of whether the Act applies, may, in the interests of legal certainty, decide to submit a notification on a precautionary basis.
• Notification form: Along with the Draft, the Department has published a proposed notification form. While this form strives to cover all potentially required information, it is recognised that certain material will not be available. The Department has thus identified, in the draft form, certain information that should be provided only to the extent reasonable for the transaction and where the cost is not unreasonable for the relevant notifying party. While this flexibility is welcome, the worry, from the perspective of the notifying parties, is that the Department might, nevertheless, seek the relevant material through a formal request for information thus delaying the review process.

Next steps

We understand that the current plan is for the Act to enter into force by 30 June 2024. In this regard, the Department wishes to finalise the relevant ancillary documentation well in advance of commencement. It is thus open to receiving written comments regarding both the Draft and the proposed notification form.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.