Control of Foreign Investments – proposal for new legislation

Sweden is one of few countries in the EU that lacks a regulation with the possibility for the state to take action against, influence or simply review foreign direct investments that have or may have an implication for Swedish security interests. On 1 November 2021, the Direct Investment Inquiry presented a proposal to introduce such a regulation into Swedish law.

The proposal, if adopted by the Parliament, will have an impact on transactions involving Swedish companies whose activities or technology are essential for Swedish security or public order. A notification obligation, a standstill obligation as well as fines in case of a failure to file are proposed.

What is the scope of the legislation?

The law would apply to all investments in companies that carry out protected activities (Sw. skyddsvärd verksamhet), regardless of their legal form. The legislation is proposed to apply to investments in e.g. limited liability companies (Sw. aktiebolag), partnerships (Sw. handelsbolag), unincorporated businesses (Sw. enkla bolag), sole trader undertakings (Sw. enskild näringsverksamhet), economic associations (Sw. ekonisk förening), foundations and trusts (Sw. stiftelser) domiciled in Sweden.

Which investments may be reviewed?

Investments in companies that carry out protected activities that gives the investor a certain degree of control shall be notified to the supervisory authority. Companies that the investor invests in shall inform the investor that the company carries out protected activities and that the legislation is applicable to its operations.

With regard to investments in limited liability companies and economic associations, investments resulting in the investor commanding 10 per cent or more of the votes must be notified before the investment is carried out. The investment can be made directly by an individual but also indirectly through a legal person that is owned solely by the investor or together with others.

What encompass “protected activities”?

According to the Inquiry, protected activities encompass the following activities:

  • Essential services;
  • Security-sensitive activities;
  • Activities critical to raw materials in the EU or metals and minerals critical to Sweden;
  • Activities whose principal purpose is the processing of sensitive personal data or location data;
  • Activities related to emerging technologies and other strategic protected technologies; and
  • Activities related to R&D or supply or dual use products or military equipment.

Which investors must notify?

Investments from (i) investors from third countries, (ii) investors from another EU Member State and (iii) investors from Sweden may be subject to review by the National Inspectorate of Strategic Products (Sw. Inspektionen för strategiska produkter) (“ISP”), the proposed supervisory authority. If the investor is a natural person with only a Swedish citizenship, the notification should be dismissed without further action, i.e. approved. The same applies if the legal entity making the investment is ultimately owned or controlled only by a natural person with only a Swedish citizenship.

Standstill obligation and process

An investment shall be notified to ISP by the investor. The investment may not be finalised without a clearance from the authority. The ISP has the possibility to prohibit an investment.

The authority has 25 working days, from the submission of a notification, to decide whether to not take any further action (clearance) or to initiate an examination of the investment. If an examination is initiated, the authority must make a decision within three months, which may be prolonged to six months subject to special circumstances.

During the review, the authority may request the parties to provide more information and documents as well as visit the premises.

What factors are relevant for the assessment?

Only if it is necessary in respect of for Swedish security interests may the ISP prohibit an investment. Within the framework of this assessment, the nature and magnitude of the business operations shall be considered as well as certain circumstances in relation to the investor. The following parameters relating to the investor will be taken into account:

  • If the investor, directly or indirectly, is controlled by another country’s government;
  • If the investor has previously been involved in activities that have or could have an adverse effect on Sweden’s security or public order; and
  • Other circumstances surrounding the investor that could pose a risk to Sweden’s security or public order.

Sanctions in case on non-compliance?

If an investment is completed without submitting a notification or contrary to a decision, the authority can impose an administrative fine. An administrative fine can also be imposed if the parties provide misleading or false information about the investor or the object of the investment. The administrative fee shall be no less than SEK 25,000 and no more than SEK 50 million.