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Investors from outside of the EU, EEA and Switzerland will need to contend with Ireland’s new Foreign Direct Investment (FDI) screening mechanism when it comes into effect in early January 2025. The mechanism will empower the Minister for Enterprise to assess, investigate, authorise, mitigate or prohibit FDI into Irish assets and businesses in certain 'sensitive' sectors. When certain statutory thresholds are met, it will be compulsory for the parties to notify a transaction to the Minister. Failure to notify a notifiable transaction can attract penalties of up to a €4m fine and/or a jail sentence for up to 5 years. Moreover, the transaction cannot be completed. Separately, the Minister may retrospectively 'call-in' deals for review under the mechanism. Investors should plan early on how to navigate the mechanism. FDI screening-related provisions should be built into the transactional documents, for example, appropriate warranties, pre-conditions and long-stop dates.
Overview
Investors from outside of the EU, EEA and Switzerland will need to contend with Ireland’s new FDI screening mechanism when it comes into effect in early January 2025. The FDI screening mechanism, which is underpinned by the Screening of Third Country Transactions Act 2023 (the Act), will empower the Minister for Enterprise, Trade and Employment (the Minister) to assess, investigate, authorise, mitigate or prohibit FDI into Irish assets and businesses in certain 'sensitive' sectors, on the basis of security and public order.
When certain statutory thresholds are met, it will be compulsory to notify a transaction to the Minister. If the Minister issues a 'screening notice', completion of the deal must be suspended pending Ministerial review and approval, a process that may take up to 135 days. Separately, the Minister will have the power to retrospectively 'call-in' deals for review, whether they trigger the thresholds for mandatory notification or not.
The impact of the FDI screening mechanism is likely to be significant:
- Analysis conducted by the Law Society of Ireland suggests that over 300 transactions per year may potentially be mandatorily notifiable to the Minister.
- Dealmakers will need to be mindful of the substantial criminal penalties that apply for a failure to notify a notifiable transaction (up to a €4m fine and/or a jail sentence for up to 5 years). Moreover, parties to a notifiable transaction that fail to notify, may not complete the transaction.
What transactions will be mandatorily notifiable to the Minister under the mechanism?
A transaction will be mandatorily notifiable to the Minister if the purchaser is a 'third country undertaking' (i.e. from outside of the EU, EEA and Switzerland) or a person connected with such an undertaking, and if each of the following 4 cumulative conditions are met:
1. The purchaser acquires control of an asset or undertaking in the State (i.e. ROI), or increases the % of shares or voting rights it holds in an undertaking in the State from 25% or less to more than 25% (or from 50% or less to more than 50%).
2. The cumulative value of the transaction and each transaction between parties/connected persons is equal to or greater than €2m in the 12 months prior to the date of the transaction.
3. The same undertaking does not, directly or indirectly, control all the parties to the transaction.
The transaction relates to/ impacts upon, one or more of the following 'sensitive' sectors:
- Critical Infrastructure: whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure;
- Critical Technologies & 'Dual Use' Items: including artificial intelligence,
- Supply of Critical Inputs: including energy or raw materials, as well as food security;
- Access to Sensitive Information: including personal data, or the ability to control such information; and
- Freedom & Pluralism of the Media.
The Department for Enterprise, Trade and Employment has published Draft Guidance on the mechanism which explains the very broad scope of these 'sensitive' sectors.
When can the Minister 'Call In' a Transaction for Review?
The Minister may retrospectively 'call in' a transaction for review within specific statutory periods where:
1. The Minister has reasonable grounds to believe that the transaction could affect the security or public order of the State; and
2. The transaction would result in a third country undertaking, or a person connected with such an undertaking, acquiring or changing the extent to which it has control of/ an interest in/ legal rights in/ an ability to exercise effective participation in the management or control of, an asset or undertaking in the State.
Transactions that have completed 15 months before the Act comes into effect (regardless of whether they fulfill the thresholds for mandatory notification or not) may be retrospectively 'called-in' for review by the Minister.
Aside from transactions that completed before the Act comes into effect:
- Transactions that were mandatorily notifiable but not notified, may be retrospectively 'called-in' for review by the Minister within the later of—5 years from the date on which the transaction completed, or 6 months from the date on which the Minister first becomes aware of the transaction; and
- Transactions that were not mandatory notifiable, may be retrospectively 'called-in' for review by the Minister within 15 months of the transaction completing.
The Notification
A Notification should be submitted using a Notification Form to the Department of Enterprise and Employment. No filing fee is required. Notification on the basis of a “good faith intention” to complete a deal is not precluded. The Act does not specify which of the parties must notify the Minister. All that is required is that one of the parties does so, at least 10 days before transaction is completed.
The Screening Process
The screening process may be summarised as follows:
- A Notification should be submitted to the Minister at least 10 days prior to completion of the transaction.
- The Minister will then confirm whether a Notification is valid and required.
- For valid and required notifications, the Minister will issue a Screening Notice to the notifying parties as soon as practicable. The transaction cannot be put into effect until the Minister's screening review is complete.
- The Minister has 90 days to conduct a screening review but can extend this period to 135 days if needed. This period can be suspended if a Notice of Information (RFI) is issued. A party has 30 days to respond to an RFI.
- Ministerial review of the transaction will be on basis of a range of security and public order criteria and will take into consideration the European Commission’s and other Member States’ opinions.
- Minister will then clear the transaction, clear the transaction subject to conditions or prohibit the transaction. The Minister will then inform the parties in writing of its Screening Decision together with reasons for its Screening Decision.
Appeal to a Screening Decision
A party can appeal a Screening Decision and/or the Minister’s decision not to provide detailed reasons. To do so, the party must issue an intent to appeal. The Minister will then assign an Adjudicator and issue an Adjudication Notice. The party must then submit a Notice of Appeal, along with relevant documentation. Where a party to the appeal does not accept the Adjudicator's decision, they may appeal to the High Court. They may also seek a judicial review if appropriate.
Offences & Penalties
A number of offences are provided for in the Act, for example:
- Failure to notify a notifiable transaction before the transaction is completed;
- Providing false information in the Notification Form; and
- Putting a transaction into effect while subject to a Screening Notice.
Penalties imposed may amount to:
- On summary conviction, a €5k fine/ 6-month prison sentence/ both; or
- On conviction on indictment, a €4m fine/ 5-year prison sentence/ both.
Moreover, a failure to notify a notifiable transaction before the transaction is completed will lead to the transaction being deemed to be subject to a negative screening decision.
Conclusion
The introduction of the FDI screening mechanism is likely to have a notable impact on dealmaking in Ireland, with potentially over 300 transactions per year mandatorily notifiable to the Minister.
In light of the criminal sanctions for failure to notify a notifiable deal, the related legal risks to the deal and the Minister's very broad retrospective 'call-in' power, investors should exercise caution and notify their transactions for legal certainty purposes.
At the outset of a transaction, parties should:
1. Determine whether the transaction is mandatorily notifiable to the Minister on the basis of the 4 cumulative thresholds being met. For transactions that are not mandatorily notifiable, the parties should consider whether there is a risk of a transaction being 'called-in' retrospectively by the Minister.
2. Form an early view of whether mitigating measures are likely to be necessary to obtain clearance by the Minister for notifiable transactions.
3. Incorporate appropriate FDI screening-related provisions into the transactional documents, for example, warranties, pre-conditions and long-stop dates.
Following its implementation in early January 2025, dealmakers will be keen to examine the practical application of the FDI screening mechanism. While individual screening decisions or details about any individual transaction will not be disclosed, the Act requires the submission of an annual report to the House of the Oireachtas, setting out aggregated data, trends and outcomes. Once published, the inaugural annual report may offer real insight into the emerging enforcement landscape, though it will not contain any information that could result in the identification of individual parties to any transaction.
