Romania and Moldova, the new kids on the FI block – what you need to know

Romania has recently joined the foreign investment screening (FI) party by adopting a new regime earlier this year. Still in its set-up phase, the regime comes with some noteworthy aspects. 

Similarly, across the border, the newly enacted Moldovan FI regime will subject a broad range of investments to pre-closing screening.

Romania

1. Entry into force and application – an incomplete regime

The Romanian government enacted a new FI regime in April 2022. However, to this day, the rules are not fully operational: while the competent authority under the new regime was officially set up in June 2022, the implementing legislation necessary for its functioning has not yet been adopted.

Currently, any FI filings need to be submitted in line with the new formal and procedural rules. However, since there are still no secondary rules to govern the operation of the new authority, the substantive FI assessment is still being conducted by the authority that was competent under the old regime.

2. Nature and scope of the regime – a few points left to clarify

The regime is mandatory and suspensory – all transactions within its scope need to be cleared before closing. 

A transaction will be caught by the regime if:

1. The value of the transaction exceeds two million euros;
2. The acquirer is a non-EU citizen, a company whose registered office is not in the EU (including trustees) or a company with a registered office in the EU but which is controlled by non-EU citizens and/or companies. Note that there are already plans to amend the - very recent - legislation to expand the regime to EU investors as well;
3. The transaction “has as its object” the following sectors: the security of the citizen and communities; the security of borders; the security of energy; the security of transport; the security of the supply of vital resources; the security of critical infrastructures; the security of information and communication systems; the security of financial, tax, banking and insurance activities; the security of the production of arms, ammunition, explosives and toxic substances; industrial security; the protection against disasters; the protection of agriculture and the environment; and the protection of privatisation operations of state-owned undertakings or of their management; and
4. The investment results either in the acquisition of direct or indirect control, or in a “new investment.” The legal framework defines “new investment” as the setup of a new company, the expansion of the capacity of an existing entity, the diversification of the products/services offered by a company or a fundamental change in the overall manufacturing process of a company. This rather unusual and vague rule significantly expands the scope of the regime beyond the mere acquisition of shares to catch the organic expansion of business of non-EU investors.

The interpretation of some of these criteria is not clear-cut and raises a number of questions:

For example, it is unclear if the two million euro threshold refers to the global value of the transaction or whether it applies to businesses and assets located in Romania. In any case, this threshold does not provide an entirely “safe harbour”. Exceptionally, investments below the threshold of two million euro may also be subject to examination and approval if, by their nature or potential effects, they may impact or pose a risk to public security or public order.

Further, the wording of the law on the relevant sectors is open to interpretation, as it does not clarify when a transaction can have as its object “the security” of a certain sector. The legal framework leaves it up to the investor to correctly assess this element.

The statutory deadline to finalise the entire procedure and issue a clearance is 135 calendar days (approximately 4.5 months) from the submission of a complete filing. An in-depth screening procedure can take another 90 calendar days. 

A fine of up to 10% of the total global turnover earned during the financial year preceding the sanction can be imposed on investors who have missed a filing.

Moldova

The scope of the FI law is very broad: it applies to both local and foreign transactions concerning areas of significance for state security. This includes among others information security; operation of energy and transportation (in particular any activity related to air traffic); communication networks; weapons; AI and robotics; media; and the exploitation of mineral deposits.

While not setting financial thresholds for relevant transactions, the regime catches acquisitions of control as well as acquisitions of minority shares and assets (starting from only 10% and 25% respectively), concession agreements, loan agreements, public-private partnership agreements, and more. However, the regime provides a generous exemption for investments carried out by entities in the financial sector as well as by international financial institutions. 

The statutory deadline to issue a Phase 1 clearance is 45 calendar days from the receipt of a complete notification. However, the FI authority may issue requests for information which “stop the review clock” and add to the review period.

Implications for investors

More and more countries are catching the FI screening fever, and the introduction of new regimes in Romania and Moldova is a testimony to that. These two regimes may have a different scope of application, but in both cases this is very broad and contains unclear provisions that leave investors facing significant risks as to their correct interpretation. In Romania, we are still waiting for the implementing regulation that will render the regime fully operational. Yet, at the same time, there are already plans to amend the Romanian rules and extend FI screening to investments by EU companies.

M&A players should consider both countries’ regimes carefully when planning their deals and conduct a thorough assessment of filing requirements, potential risk profiles and timeline implications for transactions with a Romanian or Moldovan nexus.

While it remains to be seen how these regimes will be applied in practice, we will keep them under review and provide updates in due course.