Screening of Third Country Transactions Act 2023

Screening of Third Country Transactions Act 2023

Key terms and definitions

Some of the key terms include:

• A “third country”, is anywhere other than the Republic of Ireland, an EU Member State, an EEA Member State or Switzerland.
• A "third country undertaking” is an entity that is:
  • Constituted or otherwise governed by the laws of a third country
  • Controlled by (a) an undertaking in the first bullet or (b) a third country national, or
  • A third country national.
• "Transaction” means any acquisition, agreement or other economic activity resulting in:
  • A change in control of an asset in the State, or
  • The acquisition of all or part of, or of any interest in, an undertaking in the State.
• "Asset in the State” means an asset:
  • Where it is physically located within the territory of the State, and
  • In the case of an intangible asset, where it is owned, controlled or otherwise in the possession of an undertaking in the State.
• "Undertaking in the State” means an undertaking that:
  • Is constituted or otherwise governed by the laws of the State, or
  • Has its principal place of business in the State.

When must a transaction be notified to the Minister?

The following four criteria must be met for a transaction to be notifiable:

• A third country undertaking, or a person connected with a third country undertaking, as a result of the transaction:
  • Acquires control of an asset or undertaking in the State, or
  • Changes the percentage of shares or voting rights it holds in an undertaking in the State from 25% or less to more than 25%, or from 50% or less to more than 50%
• The cumulative value of the transaction and each transaction between the parties to the transaction, or connected persons, in the 12-month period before the transaction, is at least €2 million. The Draft Guidance confirms that this threshold relates to the entire value of the transaction, ie the consideration being paid by the acquirer, including any international dimension.
• The transaction is not an internal reorganisation where the same undertaking directly or indirectly controls all the parties to the transaction, and
• The transaction relates to, or impacts on, one or more of the matters referred to in Article 4(1) of the EU Regulation on screening of foreign direct investment for possible security and public order risks. Namely, critical infrastructure, critical technologies and dual use items, the supply of critical inputs, access to sensitive information, and freedom and pluralism of the media.

What sectors in Ireland will be affected by the Screening of Third Country Transactions Act 2023?

The FDI Act applies to a transaction that directly, or indirectly relates to, or impacts on, any of the following matters specified in the EU Screening Regulation:

• Critical infrastructure, whether physical or virtual e.g. energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure. The Draft Guidance clarifies that a notification will only be required where the infrastructure in question comes within one of the categories listed in Annex 1 of EU Directive 2022/2557 (the CER Directive).
• Critical technologies and dual use items e.g. AI, robotics, semiconductors, cybersecurity, quantum and nuclear technologies, as well as nanotechnologies and biotechnologies. The Draft Guidance clarifies that a technology is critical, and within scope, if it is listed as either a dual-use item in Annex 1 of the EU’s Dual Use Regulation (Council Regulation 2021/821), or as military technology or equipment in the EU’s Common Military List (Council Common Position 2008/944/CFSP).
• Supply of critical inputs, including energy or raw materials, as well as food security.
• Access to sensitive information, including personal data, or the ability to control that information. The Draft Guidance states that sensitive information is data that must be protected from unauthorised access and may be business, government or personal data (interpreted in accordance with the GDPR). The Draft Guidance helpfully provides that a transaction is in scope if:
  • Sensitive data is held as an essential or critical part of the target business or asset, i.e. not only in relation to employees, and
  • The volume of such data is “substantial”, or
  • The transaction relates to a business model that depends on generating turnover from such sensitive data.
• The freedom and pluralism of the media. This category includes media businesses operating, selling or otherwise active in the State. The Draft Guidance clarifies that the level of activity of the media business in the State (based on sales, subscribers, viewers or other relevant metrics) must be substantive to trigger mandatory notification.

The Draft Guidance helpfully confirms that an Irish nexus requirement applies to the above critical sectors. This means that the target must operate the “critical” element of its business, or the critical infrastructure must be located, in Ireland.

Which parties to the transaction are obliged to notify?

The notification obligation rests on all parties to a transaction which meets the relevant criteria under Article 9(1) of the Act, unless they are not aware of the transaction. Second and subsequent parties to a transaction will be deemed to have complied where they satisfy certain notice requirements. The Draft Guidance confirms that only one notification per transaction is required and the Department expects the buyer will take primary responsibility for the notification.

A transaction satisfying the mandatory criteria must be notified to, and approved by, the Minister prior to completion of the transaction. The Draft Guidance suggests that parties may submit a notification on the basis of a “good faith intention” to complete a transaction. The FDI Act includes transitionary provisions for notifiable transactions that complete within 10 days of the FDI Act coming into force. In such circumstances, parties will be deemed to have complied with the notification obligation if they provide the required information to the Minister no later than 30 days after completion.

How does the review and approval process work?

Once a notification is made, the Minister will issue a Screening Notice to confirm that he is accepting jurisdiction over the transaction. The Minister is required to make a screening decision within 90 days of the Screening Notice. The 90 days may be extended to 135 calendar days, by way of an ‘Extension Notice’, at the discretion of the Minister.

The review period is suspended by the issuance of a ‘Notice of Information’ and resumes on the date that the notice is demeed to be complied with. The Minister decides if the transaction affects, or would be likely to affect, the security or public order of Ireland. This is referred to as a ‘Screening Decision’. The Minister is assisted by an Advisory Panel.

After having assessed a notification, the Minister issues a 'Screening Decision':

• Authorising the transaction
• Imposing conditions, e.g. structural or behavioural remedies on the transaction, or
• Prohibiting the transaction.

Can the Minister review a transaction even if it has not been notified or does not require to be notified?

Yes, if the Minister has reasonable grounds for believing that a transaction affects, or would be likely to affect, the security or public order of Ireland. This ‘call in’ power applies whether or not a transaction has been completed. The Draft Guidance clarifies that this power is aimed at new or emerging technologies or sectors that are not captured by the mandatory notification criteria set out in the FDI Act.

The Minister must exercise the ‘call in’ power within 15 months of the transaction being completed in the case of transactions that are not notifiable. In the case of notifiable transactions which have not been notified, the Minister will be required to exercise the power within five years from completion or six months from the Minister becoming aware of the transaction.

The Minister cannot review any transaction that completed more than 15 months before the commencement of the FDI Act.

What are the penalties for non-compliance?

The FDI Act introduces a range of criminal offences, including for failing to notify a notifiable transaction and completing a notifiable/notified transaction prior to obtaining a Screening Decision by the Minister approving the transaction.

A person found guilty of an offence under the FDI Act may be liable to a fine not exceeding €5,000 and/or up to 6 months imprisonment. Alternatively, following conviction on indictment, they may be liable to a fine not exceeding €4 million and/or up to 5 years imprisonment.

Alignment with international standards

Foreign investment screening regimes are becoming increasingly common across the EU following the implementation of the EU Screening Regulation. This requires co-operation and information sharing on foreign investment. However, it does not specifically oblige Member States to have a screening mechanism.

Early engagement on these and other questions is advisable. Please get in touch with a member of our Competition & Antitrust team for more information.

The content of these articles are provided for information purposes only and does not constitute legal or other advice.