Legal Alerts / 8 Oct 2020

The Finnish Act on the Screening of Foreign Corporate Acquisitions to be Amended

The Finnish Act on the Screening of Foreign Corporate Acquisitions will be amended as of 11 October 2020 to allow a wider conception of national security and to meet the requirements of EU Regulation 2019/452 in terms of screening foreign direct investments.

1. Key Changes

  • Wider conception of national security
    The definition of the overriding national interest will be widened specifically to include securing the fundamental functions of the society and the national safety and the objectives of the foreign- and security policy, in addition to military defence. After these amendments have taken effect, companies that produce or supply critical products or services related to statutory duties of Finnish authorities that are critical for the security of the society will be monitored in the same manner as companies within the defence industry.
  • Wider scope for mandatory filing
    Once the amendments have taken effect, the scope of the mandatory filing of an application to the Ministry of Economic Affairs and Employment will be further widened. This changes the process dramatically since the mandatory filing has previously only concerned the defence sector, whereas from thereon the application for corporate acquisitions must be filed within the security sector (as understood in the definition of monitored entities) as well.
  • Conditional clearance
    Under the amended Act, the Ministry may provide conditions for acquisitions when deciding on a clearance. Therefore, a conditional clearance is intended as a mitigated measure in comparison to a situation where the Government will refuse the acquisition. The conditions can thus be seen as a less strict alternative for the refusal, and therefore these conditions should not be imposed on any lighter grounds than the decisions on refusal. The Ministry may also impose a default fine to enhance the conditions.

2. About the amendments

2.1 Current legislation

Pursuant to the Act, corporate acquisition that is subject to monitoring refers to acquisitions where a foreign owner gains control of at least 10%, 1/3 or 50% of the total number of votes, or a corresponding actual influence over the company. All corporate acquisitions in the defence sector require advance approval by the Ministry. Furthermore, a foreign owner may submit the acquisition for advance approval in terms of non-defence sector acquisitions that fall under the scope of the Act, at the stage that immediately precedes the conclusion of the acquisition.

The mandatory filing of an application on the defence sector applies to all non-Finnish entities, whereas the voluntary notification may be examined by the Ministry if the new owner comes from outside the EU or EFTA. The Ministry must give a clearance for a corporate acquisition, unless the acquisition may compromise an overriding national interest, in which case the matter must be referred for the consideration of a Government plenary session. The Government may refuse a clearance only when necessary due to an overriding national interest. The Ministry only has the authority to give a clearance for corporate acquisitions, and the decision on refusal must always come from the Government.

2.2 Amendments taking effect on 11 October 2020

The Act was amended in order to include new provisions to meet the requirements of the EU Regulation 2019/452, and to clarify the scope of application of the Act based on the concrete issues that have arisen within the period of eight years the Act has been in force. It was emphasised in the Government’s proposal that the amendments will not widen the scope of the Act.

The new Act includes, among others:

  • amendments to the definitions,
  • an extension of the scope of the mandatory filing,
  • an authorisation of the Ministry to give a conditional clearance to acquisitions (enhanced by a default fine) and
  • provisions on the inadmissibility of matters, disclosure of confidential information and to establishment of national contact points.

The two most critical amendments are further elaborated below.

Wider conception of national security and the scope for mandatory filing

The Act has strongly focused on monitoring the companies in the defence sector. Until now, the overriding national interest has been mainly understood as securing the national defence, and the monitored entities have mainly been companies within the defence industry, even though the Act has included an open definition of “organisation or entity considered critical in terms of securing functions fundamental to society”.

After the amendments, the definition of the overriding national interest will specifically include, securing the fundamental functions of the society and the national safety and the objectives of the foreign- and security policy, in addition to military defence Furthermore, companies that produce or supply critical products or services related to statutory duties of Finnish authorities that are critical for the security of the society will be monitored in the same manner as companies within the defence industry.

In addition, the scope of the mandatory filing of an application to the Ministry will be further widened. This changes the process dramatically since the mandatory filing has previously only concerned the defence sector, whereas from thereon the application for corporate acquisitions must be filed within the security sector as well.

Conditional clearance

Pursuant to the amended Act, the Ministry may set conditions for corporate acquisitions when deciding on the clearance. Conditions may be set only if necessary for overriding national interest and only if the parties to the acquisition commit to comply with them. The conditional clearance is intended as a mitigated measure in comparison to a situation where the Government will refuse the acquisition. The conditions can thus be seen as a less strict alternative for the refusal, and therefore the grounds for imposing a conditional clearance should be as high as for the decisions on refusal, however, the situation may not seem this straightforward in real life. The Ministry may also impose a default fine to enhance the conditions.

2.3 Anticipated effects

The Government has anticipated that the amendments should not have significant effects on companies. The Government’s proposal states that including the security sector under the mandatory filing will likely have only minor effects as such companies have already submitted voluntary notifications before, usually in advance. In addition, the possibility of a conditional clearance can be seen to improve the situation of a foreign buyer as it is less likely that the acquisition will fail due to a decision on refusal. However, when taking into account the increasing number of filings in the past years and the global trend towards restrictions, it is likely that the amendments will result in even larger number of filings annually.

Moreover, it is not clear, which authorities are interpreted to be “critical for the security of the society”. The Government’s proposal sets forth certain examples, such as the Police, Customs and Finnish Border Guard, but the assessment on whether a company that supplies products or services to a such critical authority has to be made on a case-by-case basis.

Finally, the possibility of a conditional clearance is, in practice, likely to lead to a decreased threshold of interference. The conditional clearance may, however, be appealed to the administrative court (just like the decision on refusal).

Borenius’ lawyers are available to assist in addressing any questions you may have concerning these amendments and their effects on your business.

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