The law proposal, tabled on 23 February 2021 by the Federal Government, aims at including in the Belgian Code of Economic Law a mechanism for screening foreign direct investments in a Belgian company active in a strategic sector. The objective is to introduce in Belgium a mechanism for the ex-ante notification to a screening commission within the Federal Minister of Economic Affairs of investment projects made by non-European investors in a Belgian company operating either in a highly sensitive sector or in a sector likely to affect security or public order. On the basis of the opinion of the screening commission, the Minister for Economic Affairs will take a reasoned decision to approve the investment (with or without conditions) or block the investment project.
Currently, only the Flemish Region has introduced limited a posteriori control of foreign investments in strategic (semi-)public assets in Flanders via its Flemish Administrative Decree of 7 December 2018. No similar legislation on the control of foreign direct investments exists in the Walloon Region and the Brussels Capital Region.
This proposed law will impact the acquisition process of foreign investors in Belgium. Like the obligation to notify the Belgian Competition Authority or the European Commission in advance of merger projects, this future formality cannot be ignored given the power conferred on the competent Minister and the sanctions envisaged.
Scope of application
The proposed law aims at introducing a prior notification obligation under the following conditions:
- an investor from a non-EU country
- making an investment above certain thresholds
- in a Belgian company
- which operates either in a highly sensitive sector or in a sector likely to affect security or public order.
The sectors covered by the scope of the proposal are :
- critical infrastructure (including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure and sensitive installations, as well as land and property essential for the use of such infrastructure);
- critical technologies, as well as certain dual-use items as defined by Regulation (EC) No 428/2009 (e.g. technologies related to artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies, as well as nanotechnologies and biotechnologies);
- the provision of critical supplies (including, inter alia, energy, raw materials or food security);
- access to and control of sensitive information, including personal data; and
- the freedom and pluralism of the media.
On the one hand, the proposed law provides that the foreign investor will have to notify the screening commission if the planned investment allows the foreign investor to directly or indirectly acquire 10% or more of the voting rights in the entity or to appoint a majority of the directors of the entity. The percentage of voting rights is calculated on a consolidated basis. Therefore, the voting rights of all related entities are added together.
On the other hand, if a foreign investor intends to make a foreign direct investment without acquiring voting rights in an entity, the notification requirement also applies if the foreign direct investment has a value of EUR 4,500,000 or more.
Procedure before the screening commission
The law proposal provides for the establishment of a federal public service, the screening commission, to examine foreign direct investments. This office is placed under the authority of the Federal Minister for Economic Affairs.
After receiving the notification, the screening commission will determine within 21 working days whether further examination is desirable for the protection of national security or public order. Should the screening commission consider that the announced investment is not likely to be prejudicial to national security or public order, it will immediately inform the notifying party. As soon as this information has been provided, the investment may proceed.
However, if the screening commission considers, after an initial review of the notification, that a further investigation is necessary, it will collect from the applicant or third parties any information relevant to this review.
In this respect, the screening commission will take into account the opinions of State Security, the General Intelligence and Security Service, the Belgian Cybersecurity Centre, the competent public services, the sectoral regulators and supervisors that control the strategic sector, as well as any observations made by other EU Member States or the European Commission. It will be mandatory for the screening commission to consult with these bodies.
In some cases, further investigation by the screening commission will still be required:
- if the foreign direct investment is directly or indirectly controlled by a public authority, including government agencies or the armed forces of a third country, including through its ownership structure or substantial financing ;
- if the foreign investor has previously been involved in activities undermining the security or public order of a Member State;
- if there is a serious risk that the foreign investor will engage in illegal or criminal activities;
- if a regional government so requests.
The supplementary investigation should be closed no later than six months after the receipt of the last information requested from the foreign direct investor. After the opinion of the screening commission, the Minister of Economic Affairs takes a reasoned decision to either approve the investment (with or without conditions) or block it.
The decision to block the planned foreign direct investment or to impose additional conditions can only be taken if it is necessary to protect national security or public order.
If the Federal Minister of Economic Affairs does not take a decision within this six-month period, the planned investment will be considered approved.
A decision of the Minister imposing additional conditions on a foreign direct investor or refusing permission to make the investment may, unless the decision is justified by military interests, be appealed to the Council of State.
Sanctions
If the screening commission concludes that the procedure has not been complied with, the competent Minister will be authorised to suspend the voting rights attached to the foreign direct investment in question or the purchase itself, if it is an investment not linked to the acquisition of voting rights, until the procedure provided for has been completed. In addition, the foreign direct investor who fails to comply with the notification obligation will be sanctioned with an administrative fine of between EUR 1,000 and EUR 100,000.
Furthermore, if a foreign direct investment is made in disregard of the notification obligation or of the conditions imposed by the proposed law, the competent Minister may compel the investor to transfer the investment to a party approved by the said Minister within a specified period of time.
Screening mechanism in Flanders
Since 1 January 2019, Flanders has had a screening mechanism for foreign direct investments set up by the Flemish Governance Decree (“Bestuursdecreet”).
In contrast to the ex-ante screening, which will be implemented at federal level, the Flemish mechanism provides for an ex-post screening mechanism for foreign direct investments in Flemish government institutions. The Decree specifically targets companies that are controlled by the Flemish government or local authorities (including, for example, external government agencies under public law and Flemish investment companies), and certain institutions with legal personality that have been established for the specific purpose of meeting public interest needs.
The Flemish Government may, under certain conditions, annul or declare unenforceable a legal act (e.g. a share transfer or the conclusion of a commercial contract) if, as a result of this act, a foreign company acquires control or decision-making power in a Flemish government institution, thereby threatening the strategic interests or strategic independence of the Flemish Region or the Flemish Community.
Conclusion
According to the OECD, the European Union is the largest recipient of foreign direct investment in the world. The European Commission describes it as essential for economic growth, competitiveness, employment and innovation in the EU. However, there are also concerns about foreign direct investment, the most important of which is the takeover of strategic companies or national champions by third country investors.
On 26 March 2020, in the context of an economy weakened by the COVID-19 crisis, the European Commission alerted Member States to the risks associated with the takeover of European strategic assets by third parties. Aware that the public health crisis has exposed many companies to significant economic vulnerability, the Commission strongly encourages Member States to protect their security and economic sovereignty.
The proposed law to regulate foreign direct investment in Belgium is therefore part of a common desire by Member States to protect the EU's strategic interests and highly sensitive sectors.
At EU level, Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of FDI in the European Union became fully applicable as of 11 October 2020.
Moreover, the Commission tabled on 5 May 2021 a new draft regulation to tackle the distortions caused by foreign subsidies within the single market. Indeed, subsidies granted by third country governments are currently subject to almost no control, while subsidies granted by Member States are subject to scrutiny under EU state aid rules.
Annabelle Lepièce, Partner, Brussels
Raphael Brochier, Junior Associate, Brussels
