In comparison with many other countries, foreign direct investment control, thus the FDI screening, has got rather limited attention in Finland even though the FDI mechanism has been in place since 2012 (amended twice since then). However, the recent crises such as war in Ukraine and energy crisis along other recent global developments have emphasized the importance of such mechanism.
The FDI screening regarding corporate acquisitions in Finland
The foreign investment policy and legislation regulating it are based on a positive attitude towards foreign ownership and investments to Finland.
The Act on the Screening of Foreign Corporate Acquisitions (172/2012, as amended, referred to as the “Act”) provides the rules for the FDI screening. The Act is aimed at securing key national interests through monitoring and therefore it is principally a monitoring tool. Where necessary, the authorities have also the power to restrict transfer of influence to foreigners or foreign organisations or foundations of Finnish companies.
The Ministry of Economic Affairs and Employment (the “MEAE”) is a designated national contact point for purpose of the FDI screening as per Regulation establishing a framework for the screening of foreign direct investments into the Union (EU 2019/452). It is also responsible for the monitoring task and approval of corporate acquisitions as provided in the Act.
Key national interests that are taken into consideration in the FDI screening are mainly the following:
- securing military national defence;
- securing functions vital to society (including safeguarding critical infrastructure); and
- safeguarding national security and public order.
Companies operating in the field of defence and security are logically subjects to the FDI screening and therefore monitored entities. Furthermore, companies in sectors which are generally considered critical in terms of securing functions vital to society include energy, communication and transport, food supply and social and health care, can be monitored entities.
When is an approval needed?
A corporate acquisition refers to an acquisition or other corresponding transaction or measure as a result of which a foreign investor/foreign owner gains a control of at least one tenth, at least one third, or at least one half of the aggregate number of votes conferred by all shares in the company, or a corresponding actual influence. Hence, also minority acquisitions can be subject to the FDI screening.
The target company’s field of activities determine whether the approval is mandatory. A foreign investor is obliged to submit a prior application to the MEAE if the target is active in defence industry (including defense equipment and dual-use products) or if it produces or supplies critical products or services related to the statutory duties of the Finnish authorities that are essential to the security of society. In cases where the application is mandatory, the acquisition must not be completed before the approval has been granted.
Regarding other corporate acquisitions of monitored entities a voluntary notification can be submitted before closing, for example, after the letter of intent has been signed.
Unless an acquisition could endanger at least one of the key national interests, the MEAE is obliged to confirm it. The MEAE may set conditions on its approval, for example, by excluding certain parts of the target from the acquisition. If the acquisition risks key national interests which cannot be mitigated by conditions, it is for the government to decide on the rejection. To our knowledge to-date the FDI screening process has not led to any acquisitions being rejected.
There are no legal timelines for the procedure relating to acquisitions in defence sector and the handling time varies depending on the case. In practice, it can take some months to get the confirmation. This must be kept in mind when drafting the deal documentation and considering the expected timeline of the acquisition.
Regarding other acquisitions certain legal timelines apply. The MEAE has six weeks to decide whether the matter necessitates a further examination. If not, the acquisition is considered confirmed. Also, if the MEAE does not propose the matter be referred to a government’s consideration within three months after receiving all information necessary considering the matter, the acquisition is considered confirmed.
It is therefore recommendable to consider and assess at an early stage of the planned transaction the need for the FDI screening application/notification.
Is there need for other regulatory approvals?
The FDI screening does not remove or replace other potential regulatory processes. For example, the acquisition may require a parallel merger control notification and approval by competition authorities such as the Finnish Competition and Consumer Authority.