CELIS Update on Investment Screening – November 2024
Global – Publication of 31st UNCTAD-OECD Report on G20 Investment Measures
On 13 November 2024, the United Nations Trade and Development (UNCTAD) and the Organisation for Economic Co-operation and Development (OECD) released the 31st Report on G20 Investment Measures (“Report”). The Report documents measures taken by the G20 governments between 16 October 2023 and 15 October 2024.
It is observed that Foreign Direct Investment (“FDI”) flows declined for a second year in row. Even though there was a global increase in FDI flows in the first quarter of 2024, FDI flows remained below levels recorded in majority of 2021 and 2022. Announced capital expenditure in greenfield investments saw a 22% increase, primarily in the manufacturing and infrastructure sector.
Eight G20 members took measures to manage security implications of international investments, while nine G20 members made other adjustments to their investment policies. Six G20 members also adopted policy measures concerning international capital flows that are not specific to FDI. G20 members concluded five bilateral investment treaties (“BIT”) and 11 “other IIAs” within the reporting period, of which three BITs and seven “other IIAs” entered into force.
The Report documents that the geopolitical and economic environment with increased focus on managing security risks in FDI has negatively impacted international investments and made reaching sustainable development goals more challenging.
The 31st UNCTAD-OECD Report on G20 Investment Measures can be accessed here.
United Kingdom – High Court’s recent judgment in Letter One’s appeal over the Government’s order to divest its completed purchase of Upp
The United Kingdom High Court’s order marks the first judicial oversight over the UK Government’s national security decision making under the National Security & Investment Act 2021 (“NSIA”). The UK High Court decided an appeal preferred by Letter One against an order of divestment of its purchase of Upp.
Letter One is an investment company, owned by Russian nationals, four of which were subject to UK sanctions. Two of the sanctioned persons had sold their shareholding while measures were put in place to ensure that the other two sanctioned persons are not involved in day-to-day operations. Yet, the Secretary of State ordered the divestment.
The Court underscored that Parliament had entrusted the executive with the assessment of risk to national security and not the judiciary. The Court, while acknowledging its limitations, exercised judicial restraint and allowed for wide executive discretion. The Court affirmed the flexibility with the executive in the decision-making process. It held that the claimant must satisfy a high threshold to rely on procedural unfairness as a ground for appeal. The Court held that national security decisions are almost outside judicial oversight. It held that proportionality test is part of executive orders and less restrictive measures could not have sufficed. While the Court sided with the UK government, it did review the procedural fairness adopted by the executive in making the decision.
The UK High Court’s judgment in Letter One’s appeal over the Government’s order to divest its completed purchase of Upp can be accessed here.
Ireland – Notice of timeline for commencement of Screening of Third Country Transactions Act 2023
On 8 November 2024, the Ireland Minister of State for Trade Promotion, Digital and Company Regulation announced that the Screening of Third Country Transactions Act 2023 (“Act”) shall commence in January 2025 as preparatory work is nearing completion.
The Act was passed on the 31st October 2023 and was developed to fulfil its obligations under the EU FDI Screening Regulation 2019/452. It introduces an inward investment screening mechanism for the first time. The Act empowers the government to prevent, mitigate, or respond to threats to security and public order posed by foreign investments. The Act ensures attraction of investment while empowering the government to prevent any hostile investment. It establishes an Investment Screening Advisory panel and an appropriate appeals mechanism as well.
The notice of commencement is intended to give certainty to the investment community and ensure their readiness to conform with the Act from January 2025 onwards.
The Notice of timeline for commencement of Screening of Third Country Transactions Act 2023 can be accessed here.
European Union – Opinion factsheet on the Proposal for a Regulation on the screening of foreign investments in the EU by the European Committee of the Regions
During the plenary session on 20 November 2024, an opinion by the European Committee of the Regions (“CoR”), led by Pehr Granfalk, was adopted. In the opinion, the CoR members emphasise on the importance to adapt to geopolitical situations and address issues of security and public order. However, they also stressed on the necessity of involving or at least informing local and regional authorities in the decision-making process.
The CoR suggests the addition of a provision for impact assessment and for assessing the involvement of regional entities in the screening process during the five yearly evaluation of the proposed Regulation. An impact assessment would underline the importance of best practices for better regulation.
The CoR welcomes the revised Regulation’s promotion of ‘minimum harmonisation’ of procedures and concepts. It calls for the European Commission to develop a best practices handbook for the same and recommended that the handbook state that local and regional authorities are to be consulted whenever possible or be informed of the screening process.
The CoR underlines the importance of regional growth as a determinant in FDI flows. It encourages the inclusion of a CoR representative in the Expert Working Group on screening of FDI into the EU.
The Proposal for a Regulation on the screening of foreign investments in the EU (Opinion factsheet) can be accessed here.
Cyprus – Calls for a swift passage of the foreign investment screening law
The Cyprus International Businesses’ Association (“Ciba”) urged the Cyprus parliament on 4th November 2024 to quickly pass the EU regulation 2019/452 on the screening of direct foreign investment in Cyprus, noting that the island plus Greece and Croatia are the only member states to not have regulated the screening of foreign investments yet.
The legal advisor to the Ciba, Pantelis Christofides, emphasized on the urgency of enacting a domestic legislation and ensuring that the final version of the bill incorporates the latest feedback from the European Commission. Christofides refers to the Annual EU report, which advises caution for entrepreneurs engaging with non-EU investors, particularly the United States, the United Kingdom, the United Arab Emirates, China, Canada, Japan, and Russia.
Recent updates to the EU Regulation draw the attention of member states to whether a foreign direct investment “is likely to affect security or public order” in a range of areas, including critical infrastructure and “critical technologies and dual use items”.
In parliament, officials with the finance ministry expressed concerns about updating the draft of the bill as it stands. Christiana Erotokritou (Diko), Chair of the House finance committee, stated that parliamentarians will proceed with an article-by-article debate of the bill, as it must be sent to the general assembly for a vote by end of the year.
