On 5 March 2019 the EU adopted legislation that will establish a framework for screening by EU Member States of foreign direct investment into the EU on the grounds of security or public order.  This means that investments by foreign entities or governments, including transactions, must consider the implications on timing and permissibility of the investment under this new regime, as well as under existing rules.

The screening will apply to any investment by a foreign investor which makes capital available to a person or business in order to carry on economic activity in an EU Member State.  Included is any such investment that enables effective participation of a person or company in the management control of a company carrying on economic activity in an EU Member State.  It follows that if a non-EU entity wishes to acquire an EU entity, screening should be considered.  In addition, if a non-EU entity wishes to acquire a non-EU entity that has EU affiliates, then screening should be considered.

The screening will be a procedure allowing the EU Member State to assess, investigate, condition, prohibit or unwind foreign direct investments.  The screening will allow Member States to consider the potential effects of the investment on

• critical infrastructure,
• critical technologies,
• supply of critical inputs,
• access to sensitive information, or
• the freedom and pluralism of the media.

Where several EU Member States may be relevant to an investment, the EU legislation identifies a cooperation procedure.  In certain instances the European Commission can deliver an opinion on an investment to relevant Member States.

The legislation, which is a Regulation, is foreseen to be officially published on 21 March and enter into force 20 days later.

The Regulation does not prevent individual EU Member States imposing their own rules and screening regimes.  There are already 12 EU Member States that have in place similar mechanisms.  Neither does the Regulation require a Member State to impose a screen for foreign direct investment into its country.

The EU Commission first proposed screening legislation in September 2017, with France, Germany and Italy being early proponents of the legislation.