Behind the Scenes of the First Czech FDI Screening Prohibition

Jan Kupčík

The Scenes

The Czech FDI screening regime has been in effect since May 2021. Until recently, it had been flying pretty much under the radar due to a number of factors, in particular because of its quite narrow scope in terms of mandatory filings. We had dozens of cases, the majority of which were triggered by a voluntary filing, without a prohibition or even commitments being agreed. The number of abandoned deals was also low, not showing any sign of being forced by national security concerns. Overall, the enforcement could be seen as reflecting Czech economy's openness to foreign investments.

On 19 March 2025, the Czech government issued a resolution prohibiting the continuation of a foreign investment by EMPOSAT Co., Ltd., a Chinese company, due to concerns over national security. EMPOSAT Co., Ltd., based in Beijing, China, sought to establish and operate a satellite service facility in Vlkoš u Kyjova, Czech Republic. The facility was to utilise a parabolic antenna with a diameter of 7.3 metres, operating in the S/X bands. The Czech government, upon reviewing the investment under Act No. 34/2021 Sb., on the Screening of Foreign Investments (the "Act"), determined that the investment could pose a threat to national security or public order.  Consequently, the Ministry of Industry and Trade is instructed to issue a formal decision to ban the continuation of this investment.

Facts Behind the Scenes

While there is no official comment, the news reported few additional important facts. First, the case began in the Czech counterintelligence service (BIS) taking a note of a ground satellite station in the Czech countryside. It apparently warned the Ministry of Industry and Trade that is in charge of FDI screenings that the station could be used for espionage. As the news claim, the owner of the station (EMPOSAT) has no track record in terms of business activities or ownership of land in the Czech Republic. The station was built on a land owned by a third party, a Czech firm Pekasat. Coincidentally or not, also Pekasat is constructing ground satellite stations, some of them in a neighbourhood of the EMPOSAT station. However, Pekasat claims that it only leased the land to the Chinese company and has not been involved in construction and operation of the station.

Apart from Chinese domicile of EMPOSAT, there are further links to China. EMPOSAT allegedly is in a tight relationship with the Chinese Academy of Sciences. Pekasat, on the other hand, works with the Azerbaijan Space Agency, which in turn cooperates in EMPOSAT.

Laws Behind the Scenes

The decision to prohibit EMPOSAT's investment was grounded in Section 13(4) of the Act that allows the government to determine if a foreign investment poses a threat to national security or public order. Section 15(1) empowers the Minister of Industry and Trade to issue a prohibition decision based on such determinations.

The Act requires a mandatory ex ante notifications only for investments to the most critical sectors (simply put, these consist of military and dual-use manufacturing and R&D, critical infrastructure and large media). Only those investments are prevented from implementation by a stand-still clause. Other foreign investments can be filed voluntarily and if not, they may be called-in within five years from implementation. If called-in, the investors are required to submit a notification. Based on the status of the investment, the government may impose a prohibition of implementation or of further existence of the foreign investment.

Wider Implications Behind the Scenes

Disclaimer: As the amount of publicly available information about the case is very limited, the following statements are based on the most likely scenario and shall be considered as rather an educated guess.

On substance, the case is as unsurprising as it can get. The operation of a satellite station with suspicions of being used for Chinese espionage is precisely the type of investment that authorities should block. The main takeaway is that the Czech authorities, in collaboration with intelligence services, are vigilant and proactive in protecting national security. Where the case becomes interesting is the type of scrutinised foreign investment.  Unlike regular share or asset deals, this involved a simple lease of land and the construction of the satellite station. This serves as a reminder that greenfield investments are within the scope of the Act and subject to scrutiny. In this regard, the Czech regime is ahead of time as greenfield investments are yet to be targeted on the EU level (which the draft new FDI regulation indeed suggests).

While clearly an issue of national security, it may be that the investment did not fall into the mandatory regime. One reason to think that it was the case is that there is no mentioning of any gun-jumping issue in both official and unofficial sources. The trick could be in the fact that the investment did not concern manufacturing or developing the ground station, or largely a satellite system (which would presumably fall under military or dual-use material) in the Czech Republic, but only erection of the station and its operation. It is possible that it was not designated as critical infrastructure in the Czech Republic either, where operation of it would be in scope. If it indeed fell into the voluntary regime only, the investor either was not aware of the regime at all, was not advised to file voluntarily or decided to take the risk. This highlights the importance of thorough risk assessment and the potential consequences of not filing voluntarily.

While commitments can theoretically be offered to mitigate risks, it is hard to imagine any realistic commitments that could alleviate espionage concerns in this case. It anyway appears that the investor did not attempt to cooperate with the authority or offer any commitments, which might have influenced the outcome in an outright prohibition decision. Also, the station has allegedly already been built, meaning the investor did not have the option to simply withdraw the notification to avoid the negative decision. If withdrawal were possible, it is likely that most investors, especially Chinese, would prefer to avoid negative publicity and abandon the deal before receiving a prohibition decision.

Conclusion

The EMPOSAT case underscores the Czech Republic's commitment to safeguarding national security through rigorous screening of foreign investments.  The collaboration between authorities and intelligence services demonstrates a robust enforcement mechanism. Future investors should be aware of the broad scope of the Act, including greenfield investments, and the importance of cooperation and risk assessment.  The case serves as a precedent for vigilant enforcement and the potential for ex post prohibitions, reinforcing the need for careful consideration of foreign investment implications.