CELIS Update on Investment Screening – July 2024
Romania – Romanian Parliament introduces new law revising and reinforcing the approach towards EU investors
On 17 July 2024, the President of Romania officially promulgated the new law Nr. 231. It took effect three days after its publication in the Official Gazette on 18 July 2024.
One of the most important aspects of the new reform is the extension to EU investors of the sanctions regime that previously applied to non-EU investors. This means that “gun jumping” – the making of unauthorised investments – is now treated in the same way, regardless of the nationality of the investor, and that sanctions of up to 10% of worldwide turnover can be imposed on investors who break the rules.
Another change concerns the introduction of important safeguards to protect client-attorney privilege. Inspected undertakings are no longer required to disclose the actual content of correspondence allegedly covered by the legal professional privilege. If the inspectors are unable to determine whether the correspondence is privileged, they will seal the documents and forward them to the Romanian Competition Council for a final decision on the nature of the correspondence.
There were 105 clearances issued in 2023. In only one case were obligations imposed on the acquirer; all other cases were unproblematic and resulted in unrestricted clearances. The number of notifications and clearances is expected to increase in 2024.
The Romanian Law Nr. 231 of 17 July 2024 can be accessed here (Romanian).
EU – EESC publishes Opinion on Screening of foreign investments in the Union
On 10 July 2024, the European Economic and Social Committee (EESC) published an Opinion on the Screening of foreign investments in the Union, in particular regarding the Proposal for a Regulation of the European Parliament and of the Council on the screening of foreign investments in the Union and repealing Regulation (EU) 2019/452 of the European Parliament and of the Council (COM(2024)23 final – 2024/0017 (COD)).
In the opinion, the EESC welcomes the proposed Regulation as a step in the right direction to improve the control mechanisms for foreign direct investment in the EU and stresses the importance of promoting greater harmonisation of national standards for regulating FDI and control mechanisms, including the establishment of uniform thresholds for FDI controls and consistent definitions of security and public order risks, as well as strengthening the capacity of Member States to carry out control tasks effectively. The EESC calls for the definition of the exceptional cases in which the EU institutions may prohibit, mitigate or impose conditions on FDI that jeopardizes programmes or projects of interest to the Union, in order to ensure a coherent approach to the protection of public security and public order in the Member States. Lastly, the EESC calls for investment from tax havens to be subject to special scrutiny, which requires full knowledge of the beneficial owners of the investment companies and verification of the legality of the funds used.
The Opinion on Screening of foreign investments in the Union can be accessed here (English).
EU –Council of the European Union publishes Update of the EU Best Practices for the effective implementation of restrictive measures
On 3 July 2024, the General Secretariat of the Council has published Update 1162/24 on the subject “Restrictive measures (Sanctions) – Update of the EU Best Practices for the effective implementation of restrictive measures”.
The threshold for assessing ownership was lowered from “more than 50%” to “50% or more”. This is in line with the US threshold. There are new ‘red flag indicators’ for the ‘control test’, including the ‘de facto’ power to ‘exercise dominant influence over a legal person or entity without being the holder of that right’, majority shareholding, the use of front persons, repurchase options, the transfer of shares close to the definition, and the use of trusts, shell companies and limited liability companies. It is recalled that EU persons and entities are obliged to inform national authorities of “any information at their disposal” that would facilitate the implementation of EU restrictive economic measures. In the absence of a definition, the best practices provide a list of criteria to be taken into account in the relevant assessment.
The Update of the EU Best Practices for the effective implementation of restrictive measures from 3 July 2024 can be accessed here (English).
USA – CFIUS publishes 2023 Annual Report
On 23 July, the Department of the Treasury (Chair of the Committee on Foreign Investment in the US) released its Annual Report to Congress for calendar year 2023. The Annual Report provides key indicators of CFIUS’s activities and statistics on transactions that CFIUS evaluated in 2023.
CFIUS caseload remains high, even as global M&A activity is reduced in 2023 with a total of 342 notices and declarations of covered transactions or covered real estate transactions. CFIUS cleared 66% of distinct transactions that did not require mitigation measures during the 30-day review period for a notification or the 45-day initial review period for an opinion in 2023, an increase from 58% in 2022.
CFIUS assessed or imposed four civil monetary penalties for violations of the substantive mitigation provisions of the agreement, doubling the number of civil monetary penalties CFIUS had previously imposed in its nearly 50-year history.
CFIUS improved its efficiency and case processing by reducing the number of withdrawn and reinstated transactions restarting CFIUS’s investigation period from 24% to 18% of notices (and from 63 to 43 notics overall), the first such reduction in five years.
The Committee on Foreign Investment in the United States 2023 Annual Report to Congress can be accessed here (English).
