The Proposed Swedish FDI Regime – What You Should Know

Authors: Peter Forsberg and Lars Lundgren 

On 11 May 2023 the Swedish Government tabled the proposal for the proposed act on screening of foreign direct investments (“FDIs”) to the Swedish parliament (in Swedish: Riksdagen). The Swedish FDI act is expected to enter into force on 1 December 2023. As with many other EU Member States’ FDI regimes, the Swedish proposal is based on the framework provided by EU law (via Regulation 2019/452) and is expected to bring major changes to the regulatory landscape for foreign investments in Sweden.

In this post, we will provide an overview of the proposal, address key questions regarding the scope of the act, as well as highlight the proposal’s impact on the transaction process.

Overview

Authorisation to be required before investing in sensitive sectors

The proposed Swedish FDI screening regime will obligate investors investing in Swedish companies active in sensitive sectors to submit a filing and obtain authorisation before implementing the investment (i.e., a standstill obligation). This authorisation is to be issued by the Inspectorate of Strategic Products (the “ISP”). When deciding on the permissibility of an investment, the ISP may decide to (i) take no further action, or, following a material review, (ii) approve, (iii) conditionally approve, or (iv) prohibit, the investment. Conditions and prohibitions may only be imposed if necessary to protect public order or public security (as defined by EU law) in Sweden or Swedish national security.

Strategic Importance for Transactions

Timeline of the Review

Review in two phases

The proposed review is split into two phases. In Phase I, the ISP has 25 working days from the date it receives a complete filing to assess whether a review of the investment is required. If not, the filing is to be left without further action, which in practice means that the investment is authorised. If the ISP decides to initiate a Phase II investigation, it shall, as a main rule, make a final decision within three months, counted from the date of the decision, to start the Phase II investigation. The Phase II investigation may be extended by a further three months if there are particular reasons, such as if consultations with state or local authorities take longer than expected.

Sanctions

Conditional approvals and prohibitions of investments – breaches subject to fines

The ISP may take two types of measures with regard to substantive issues: it may either conditionally approve an investment or prohibit the investment.

Conditions may only be imposed on the investor, but they are otherwise only loosely regulated in the proposed act. A breach of a condition may result in the ISP issuing an order to comply with the conditions, which may also be coupled with a conditional fine. A condition being breached may also result in the ISP prohibiting the investment if the prerequisites for a prohibition are fulfilled.

A prohibition decision may only be issued if necessary to prevent harm to the interests protected by the act. That may be the case if an investor has close ties to the government of a non-EU Member State. A previous governmental inquiry on the topic states that investors with ties to the governments of Russia, China, and Iran require particular scrutiny in this regard. However, proof of previous involvement in activities harmful to the interests protected may also warrant a prohibition.

Breaches of the FDI act, such as implementing a transaction without filing or in breach of the standstill obligation, may also result in fines of up to EUR 10 million being imposed on the investor.

Take FDI into Consideration as Early as Possible

Given that the proposed regime may thus entail both an extended timetable for a transaction and risks related to deal certainty, it will become necessary to take the proposed Swedish FDI regime into account during the earliest stages of a transaction. As has become the case in other EU countries, sellers of in-scope companies will have to make an FDI analysis of their own of potential purchasers to ensure a smooth timetable and that the transaction can be completed as envisioned. Similarly, investors should consider what an investigation may entail and how to gather the information necessary to receive approval.

Sectors Covered

Wide scope encompassing sectors of both civil and military importance

The proposed FDI act is to cover investments made in any company or sole proprietorship having its seat in Sweden which conducts so-called protected activities (in Swedish: skyddsvärd verksamhet). In the proposal, the following are considered protected activities:

• Services essential to society’s basic needs, values, or safety (in Swedish: samhällsviktig verksamhet).
• Security-sensitive activities (in Swedish: säkerhetskänslig verksamhet, as defined by the Protective Security Act).
• Activities that prospect for, extract, enrich, or sell raw materials or metals or minerals of strategic importance to Sweden.
• Activities which to a significant extent entail the processing of sensitive personal data or location data.
• Production, development, research, or supply of military equipment or dual-use products, or the supply of technical assistance regarding such equipment or products.
• Research or the supply of products or technology relating to emerging technologies and other strategic protected technologies, or activities which entail the ability to produce or develop products within these fields.

While the majority of the protected activities are only vaguely delineated, the proposal envisions that more precise definitions shall be set out by governmental ordinances or by designated sectoral authorities.

With the lack of a clearly defined scope in mind, many stakeholders have requested the possibility to engage in informal pre-filing contact with the ISP. However, the ISP has indicated that the primary purpose of the Phase I review is to establish whether the transaction is in-scope or not and the ISP is therefore unlikely to engage in pre-notification discussions. Additionally, the government proposal states that it will not be possible to submit voluntary filings. The impact of the latter rule is hard to assess: It is highly likely that investors will decide to file anyway if they cannot clearly assess whether authorisation is required. In such cases, the ISP would still be obligated to issue a formal decision regarding the filing.

Investors Covered

Nominally applicable to investors of all nationalities

Although intended to prevent harm by means of foreign direct investments, the act is nominally applicable to any investor, irrespective of nationality. As such, Swedish investors and investors from other EU Member States will have to receive prior authorisation under the same conditions as investors from non-EU countries. However, the government proposal entails that, in general, a Phase II investigation should not be initiated where the ultimate owners are not citizens of any non-EU Member State.

The term investor is not exhaustively defined in the proposal, but the Government has indicated that the legal or natural person performing the transaction is generally the person responsible for filing the investment. A parent company of the purchaser is not to be regarded as the investor for the purposes of the act.

Investments Subject to Authorisation

Threshold based on votes to be acquired coupled with a catch-all clause

The proposal entails that investments are subject to prior authorisation where the investor will hold shares, directly or indirectly, amounting to or exceeding 10, 20, 30, 50, 65, or 90% of the votes in the target company.

However, the proposed act is intended to apply even where an investment results in non-shareholding influence. A shareholding of less than 10% may, for example, be subject to prior authorisation if the investor also enters into a shareholders’ agreement giving the investor influence comparable to that of a 10% shareholding. Conversely, an investment through which the investor becomes partner of a general partnership conducting protected activities is also subject to authorisation.

Notably, greenfield investments (the foundation of a company intended to conduct protected activities) are also in the scope of the act. The ISP is also envisioned to be able to initiate a review ex officio if an investment exceeding the thresholds is not filed or if an investment into protected activities below the thresholds can be expected to harm the protected interests.

To Apply in Parallel with Existing Regimes

Multiple related filings may be required for the same investment

While much narrower in scope than the proposed FDI regime, the currently applicable Protective Security Act (the “PSA”) stipulates that ownership changes in so-called security-sensitive businesses are subject to prior authorisation. However, the government proposal considers that the difference in scope, and to some extent purpose, warrants that the two acts apply in parallel. Along with other approvals or permits required to implement a transaction, this means that an investor may be required to apply for two security-related approvals prior to implementing an investment, which entails a risk of conflicting decisions being issued. Finansinspektionen, the Swedish Financial Supervisory Authority, also noted during the referral process that other regulatory approvals such as the suitability assessment for bank owners will also apply in parallel with the proposed FDI regime.