The Government’s proposal for a Swedish regime on foreign direct investments (FDI) – SOU 2021:87

Sweden is one of the few EU Member States which does not have a stand-alone foreign direct investment (“FDI”) regime. In 2019, the Swedish Government therefore announced that it would consider introducing a new FDI control regime. On 1 November 2021, the Swedish Government published its long-awaited government official report (SOU 2021:87) with an inquiry and proposal for a new FDI screening mechanism (the “Inquiry Report”). The Inquiry Report suggests comprehensive and wide-ranging reforms to the Government’s powers to review foreign direct investments. The proposal, which is suggested to enter into force on 1 January 2023 (and thus apply to investments as from 1 February 2023), significantly expands the Swedish Government’s current powers to scrutinize foreign investments.

According to the proposal, the screening mechanism is intended to protect Sweden’s national security as well as public order and public security in Sweden. The proposed screening mechanism aims to give the screening authority the power to review investments in Swedish undertakings that carry out certain “protected activities,” as developed below.

The proposed FDI screening mechanism will require notification and clearance of investments in a wide range of sectors. In certain cases, investments will be prohibited or subject to conditions and sanctions, including fines of maximum SEK 50 million (EUR 4,8 million) and investments may also be prohibited after completion. Even if this will occur only in limited cases, the legislation will consequently impose administrative burdens in a substantial amount of investments and transactions and will lead to delay in closing times.

Summary of the proposal

• The proposed screening mechanism provides for mandatory notification of all kinds of investments in Swedish companies and foundations etc., including public companies, that carry out certain “protected activities” in a wide range of sectors.
• Investors must obtain a clearance from the screening authority, the Inspectorate of Strategic Products (“ISP”) (Sw. Inspektionen för strategiska produkter) prior to closing.
• If an investment has been completed without notification or before the screening authority has completed its final examination of the notification and the conditions for a prohibition are met, the screening authority may prohibit the investment.
• The ISP will be able to prohibit investments or clear investments subject to certain conditions. If a condition imposed is not met, the screening authority may order the investor to comply with the condition or face an administrative fine or prohibit the investment if the conditions for a prohibition are met.
• An investment may also be prohibited after implementation, e.g. even if the investor has not notified the investment to the ISP and there are grounds for prohibition. Such prohibition would annul the investment and the implementation of it, meaning it has to be reversed. This will not apply to public companies, where the investor instead may be ordered to sell what has been acquired.
• The notification obligation applies to investors from third countries and EU Member States (including Swedish investors) who obtain 10 % or more of the total number of shares or votes in the target company.
• A two-stage screening procedure is suggested. In the first stage, the screening authority decides either to take no further action or to initiate an examination within 25 working days from a complete notification. In the case of a decision to examine the investment, as a general rule the authority must make a final decision within three months of the decision to initiate the examination. Where there are special grounds, this deadline may be extended up to six months.
• The ISP may issue administrative fines of up to SEK 50 million (EUR 4,8 million) for non-compliance with the legislation.
• The screening mechanism will not replace but complement existing notification requirements under the Protective Security Act (which applies to transfers of security-sensitive activities) as well as the merger control rules in the Competition Act.

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