20 September 2024
In October 2023, Ireland introduced its first legislation aimed at regulating foreign direct investment (FDI) with the enactment of the Screening of Third Country Transaction Act 2023 (the "Act"). This legislation aligns with EU Regulation 2019/452 of the European Parliament and Council, which established a framework for screening foreign direct investments into the European Union (EU). The Act places significant emphasis on national security and public order, and transactions that involve critical technologies or infrastructure are likely to receive closer scrutiny.
The Act has not yet come into force. Despite various delays, commencement is now expected to occur in Q4 of 2024. Once this happens, parties to transactions which meet the strict criteria under the Act will be required to submit a mandatory notification and obtain clearance before the transaction can close.
Notably, the Act has significant implications for investors from countries like the United Kingdom and the United States, both of which have traditionally been major sources of inward investment into Ireland.
The Act covers a broad spectrum of transactions, including the acquisition of assets, shares, or any economic activity that results in a change of control of an asset or undertaking within the state. These transactions are subject to scrutiny if they involve investors from outside of the EU, EEA and Switzerland, and fall under any of the below:
The transaction falls under any of the five “Critical Areas”:
Critical technologies include advanced sectors like artificial intelligence, robotics, semiconductors, and biotechnology, while dual-use items refer to goods or technologies that can serve both civilian and military purposes.
Of particular interest is the inclusion of media pluralism as a critical area. This aligns with amendments made to the Competition Act in 2014, which empowered the Broadcasting Authority of Ireland to review changes in media ownership to prevent undue concentration. The Act’s provisions on media pluralism reflect a broader concern about maintaining diverse and independent media in the face of potential foreign influence.
The transaction is likely to impact “security or public order.” To determine this, member states may consider whether the foreign investor is directly or indirectly controlled by a government, has been involved in activities affecting security or public order in a member state, or poses a serious risk of engaging in criminal activities.
The transaction is deemed a “notifiable transaction” under the Act. This includes cases where a foreign investor acquires a controlling interest in an EU company or asset, especially if the transaction changes the percentage ownership of shares or voting rights from less than 25% to more than 25%, or from less than 50% to more than 50%, and the cumulative value of the transaction exceeds €2 million.
The Act mandates that all notifiable transactions be reported to the Minister for Enterprise, Trade, and Employment at least 10 days before completion. Once notified, the Minister has 90 days (or up to 135 days on extension) to review the transaction. The Minister can approve the transaction, impose conditions, or, in rare cases, block it entirely.
Failure to notify a notifiable transaction carries severe consequences. If a transaction that meets the criteria is not reported, it is automatically deemed to pose a risk to security or public order, leading to potential penalties, including fines of up to €4 million, imprisonment for up to five years, and the possibility of the transaction being voided. The Act’s stringent penalties underscore the importance of compliance, particularly for foreign investors navigating Ireland’s new regulatory landscape.
One of the most striking features of the Act is its "look-back" provision, which allows the Minister to review transactions retroactively for up to 15 months after the Act becomes law. This means that transactions completed before the Act’s implementation in Q4 2024 could still be subject to scrutiny if they fall within the defined criteria. This retroactive oversight adds a layer of complexity and uncertainty for investors, emphasizing the need for thorough due diligence and careful planning in structuring transactions.
Navigating the complexities of the Screening of Third Country Transactions Act requires expert legal guidance, particularly in assessing whether a transaction falls within the scope of the Act and how to comply with its provisions. The Act casts a wide net, defining "transactions" and "change of ownership" in broad terms, especially regarding key areas of national interest and the "Critical Areas."
Our legal team is well-versed in Irish and EU FDI regulations and can provide comprehensive advice on the implications of the Act for your investments. We also specialise in structuring and reviewing complex corporate transactions to ensure compliance with the regulation while optimizing your investment strategy. So, whether you are planning a new investment or need to assess an existing one, our team is here to help you navigate these new regulatory waters with confidence.
