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Sweden is one of the few countries in the EU that does not have regulations allowing the state to take action against, influence or simply review foreign direct investment which has or may have an impact. implication for Swedish security interests. On November 1, 2021, the Direct Investment Survey presented a proposal to introduce such regulation into Swedish law.
The proposal, if adopted by Parliament, will have an impact on transactions involving Swedish companies whose activities or technology are essential to Swedish security or public order. A notification obligation, a standstill obligation as well as fines in the event of failure to file are proposed.
What is the scope of the legislation?
The law would apply to all investments in companies carrying out protected activities (Sw. Skyddsvärd verksamhet), whatever their legal form. It is proposed that the legislation apply to investments in, for example, limited liability companies (Sw. Aktiebolag), partnerships (Sw. Handelsbolag), unincorporated businesses (Sw. Enkla bolag), sole proprietorships (Sw. Enskild näringsverksamhet), economic associations (Sw. Ekonisk förening), foundations and trusts (Sw. Stifteler) domiciled in Sweden.
What investments can be reviewed?
Investments in companies carrying out protected activities which give the investor a certain degree of control are notified to the supervisory authority. The companies in which the investor invests inform the investor that the company carries out protected activities and that the legislation is applicable to its operations.
With regard to investments in limited liability companies and economic associations, investments in which the investor holds 10 percent or more of the votes must be notified before the investment is made. The investment can be made directly by a natural person but also indirectly through a legal person owned only by the investor or jointly with others.
What does “protected activities” include?
According to the Survey, protected activities include the following activities:
- Essential services;
- Security sensitive activities;
- Critical activities for raw materials in the EU or critical metals and minerals for Sweden;
- Activities whose main purpose is the processing of sensitive personal data or location data;
- Activities related to emerging technologies and other strategic protected technologies; and
- Activities related to R&D or the supply of dual-use products or military equipment.
Which investors must notify?
Investments from (i) investors from third countries, (ii) investors from another EU Member State and (iii) investors from Sweden may be subject to review by the National Inspectorate of Strategic Products (Sw. Inspektionen för strategiska produkter) (“ISP”), the proposed supervisory authority. If the investor is a natural person having only Swedish nationality, the notification must be rejected without further action, i.e. approved. The same applies if the legal entity making the investment is owned or controlled only by a natural person having only Swedish nationality.
Standstill obligation and procedure
An investment must be notified to the ISP by the investor. The investment cannot be finalized without the authorization of the authority. The ISP has the option of prohibiting an investment.
The authority has 25 working days from the filing of a notification to decide not to take further action (authorization) or to initiate an investment review. If a review is opened, the authority must take a decision within three months, which can be extended up to six months subject to special circumstances.
During the examination, the authority may ask the parties to provide more information and documents as well as to visit the premises.
What factors are relevant for the assessment?
Only if it is necessary in the light of Swedish security interests can the ISP prohibit an investment. As part of this assessment, the nature and extent of the business operations will be taken into consideration as well as certain circumstances relating to the investor. The following parameters relating to the investor will be taken into account:
- If the investor, directly or indirectly, is controlled by the government of another country;
- If the investor has already been involved in activities which have or could have a negative effect on the security or public order of Sweden; and
- Other circumstances surrounding the investor which could present a risk to the security or public order of Sweden.
Penalties for non-compliance?
If an investment is made without notification or contrary to a decision, the authority may impose an administrative fine. An administrative fine may also be imposed if the parties provide misleading or false information about the investor or the subject of the investment. The administrative costs will not be less than SEK 25,000 and will not exceed SEK 50 million.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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