Gimme! Gimme! Gimme! …Swedish FDI in December

Investors looking to acquire Swedish companies may face fresh legal hurdles as of 1 December when the Swedish Foreign Direct Investment (FDI) Act enters into force. As described in our previous blog post, transactions that involve the acquisition of an entity engaged in a “protected activity” in Sweden will now need to be notified. The scope of the Act is very broad, and despite recently issued guidance having clarified a number of aspects, many uncertainties remain. In addition, the authority in charge of the new regime - the Inspectorate of Strategic Products (ISP) - will not provide preliminary guidance as to whether your deal is in scope or not, so the only way to achieve legal certainty (and avoid sanctions) will be to notify. 

The ISP will now face the challenging task of reviewing a potential tidal wave of notifications. This is a brand new role for an authority that does not have the same experience dealing with transactions as, for example, the Swedish competition authority. While the ISP is actively looking to bolster its staff to take on this new challenge, initial delays in the review process cannot be excluded. 

A short reminder of the rules

If you acquire 10% or more of the voting rights in a Swedish company engaged in a “protected activity”, the mandatory filing requirement is triggered – and closing cannot occur until clearance has been granted. Also, if you increase your holding in such a company, so that your holding exceeds 20%, 30%, 50%, 65% or 90%, the filing requirement will be triggered once again (no matter if your initial investment was filed and cleared). Influence through other means is also covered, as are assets deals and intra-group investments. Lastly, the ISP has a call-in right for transactions that do not require a mandatory filing, if the authority suspects that the deal may harm Swedish security, public order, or safety.  

It does not matter where investors are based and the filing requirement covers Swedish, EU based as well as non-EU based investors alike. That said, Swedish and EU-based investors will face less scrutiny (and presumably be more likely to have their investments cleared in phase 1). When the Swedish government introduced its proposal for a new Act, it emphasised that Russia, China and Iran currently pose the greatest security threats to Swedish interests, and investors from these countries will in all likelihood face particular challenges. Investors from other jurisdictions are less likely to see their investments blocked but may still have to adopt measures to address the Swedish authorities’ concerns, especially when investing in highly sensitive businesses.

How do I know if my deal is in scope? 

Thanks to newly issued guidance, we now have a better view of what will be covered. The concept of a “protected activity” includes activities related to:

• Essential services: draft regulations suggest that this will include a broad range of services, including certain activities relating to mining, food production, healthcare & pharma, public administration, finance & insurance, transportation, energy, chemicals, IT, rescue services, water supply, sanitation, construction, aviation & space, R&D & laboratories, telecommunications, payment systems as well as education & childcare. The draft regulations are very detailed. So, although it may be difficult to determine whether a deal is in scope, the regulations offer more certainty than what we find in some other FDI regimes.
• Critical raw materials, metals and minerals: covering over 40 items considered critical, including aluminium, cobalt, nickel, lithium, copper, titanium and tungsten.       
• Large-scale processing of sensitive personal data or location data 
• Emerging technologies or strategic technologies: recently issued regulations set out which products and techniques are covered, including areas such as nuclear power, battery cells, high-entropy alloys, isostatic presses, AI-algorithms and systems to monitor objects in orbit around the Earth. 
• Military equipment and dual-use products: the precise scope of these categories is found in national and EU legislation. 

What if I don’t notify, are there any consequences? 

Firstly, failure to notify may lead to fines up to SEK 100 million (approx. EUR 8.6 million) - although it is expected that any fines will be at the lower end of the scale. Secondly, the ISP will be able to open a review into a transaction even though it is completed and closed (albeit, only for those completed after 1 December). In a worst-case scenario, if the ISP finds that the transaction is harmful to Sweden’s security or public order, it may order the parties to unwind the deal.  

I suspect my deal is in scope, now what? 

If your target is involved in what you suspect may be a “protected activity” in Sweden, and your transaction will close after 1 December, you should: 

• Check the updated regulations: some of the newly issued regulations are still in draft form so make sure that you are looking at the latest drafts. 
• Check your transaction documents: even if you do not foresee that your transaction will pose a security risk in Sweden, we recommend that your conditions precedent cover both a phase 1 and a phase 2 scenario, since early-stage administrative delays may cause your transaction to “slip” into phase 2. The parties will also need to factor in the risk that the deal is called in for review even if it does not trigger a mandatory filing.
• Check your timelines: the ISP will follow a two-step procedure: 25 working days in phase 1, and up to six months in phase 2. However, do not expect the review clock to start ticking on 1 December. The ISP must first declare the notification complete. This may take additional time, and we expect a long queue of investors hoping to have their filing cleared before the end of year holidays. Moreover, it is important to bear in mind that the new regime does not provide for tacit approval if the authority fails to adopt a decision within the statutory deadlines for phase 1 or phase 2.