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On 28 February 2019 Danish Minister for Justice, Søren Pape announced to the Danish Foreign Affairs Committee that the government has appointed an interdepartmental working committee to investigate the possibility of national screening of foreign direct investment (FDI) and other financial activities. The government proposes that screening should include critical infrastructure within the energy sector, the area of IT and telecommunications, the transport sector, the food sector and the health sector as well as investments in enterprises using advanced technologies or dual-use technologies such as AI, robot technology or nanotechnology.

According to the Minister for Justice, the committee's job is to present proposals for a screening procedure and a legal framework that will allow the government to intervene should any foreign investment or foreign financial activity prove incompatible on the grounds of security and public order in Denmark. The government expects to present proposals for relevant legislation during 2019; however, there is no indication whether that will be before the Danish parliamentary election.

Several European countries have already established screening procedures, including Norway, Finland, England, Germany and France. The application areas and scopes of the individual screening procedures vary from one country to the next.

Applicable Danish legislation does not include any general legal framework for FDI screening on the grounds of security and public order. However, within certain sectors such as war material, cyber security, reliability of supply, outer-space activities and third country investment in financial enterprises it is possible to screen foreign investments pursuant to the specific sector legislation.

Increase in foreign ownership of European enterprises in key sectors
In March 2019 the EU-Commission published an analysis of foreign direct investment in the EU, which includes investment patterns by countries of origin, the sectoral and geographical distribution of foreign investment and the characteristics of foreign-owned companies.

One conclusion of the analysis is that foreign-owned investors control approximately 35% of all activities in the EU, and that foreign ownership is high in some key sectors such as oil refining, pharmaceuticals, electronic and optical products and electric equipment. The Commission's analysis also reveals that foreign state-owned companies, investment funds and private equity funds, as well as individuals, are increasingly more active in merger activities as compared to the traditional type of investor, industrial companies.

 

Political blocking of Ørsted's divestment of Radius
The government announced the introduction of a new FDI screening procedure in November 2018, when consultations were demanded with Danish Minister for Finance, Kristian Jensen, regarding the then ongoing sales process concerning Ørsted's Danish electricity distribution business operated by its subsidiary Radius. The Minister for Finance had to explain how the government would ensure that Radius would not be sold to a foreign enterprise, for instance Chinese or Russian, or to a private equity fund, and ensure that the company would not be resold subsequently.

The Minister for Finance explained that the government would examine the possibility of establishing a legal framework for the screening of and intervention against FDI in Denmark, on the grounds of national security and public order, and the Minister expected proposals for relevant legislation to be made in 2019. The Minister for Finance explained that the legal framework would include Radius's operations and that the government and Ørsted would ensure that until the new legislation became effective, no resale of Radius could take place without the State's consent.

However, in January 2019 the Minister for Finance had to tell the board of directors of Ørsted that based on statements from the Danish Social Democrats and the Danish Socialist People's Party there were no longer political support for continuing the Radius sales process, which was then cancelled by Ørsted. See Ørsted's conmpany announcement of 13 January 2019.

New EU rules for FDI screening
On 19 March 2019 the EU adopted new regulation concerning the screening of FDI into the Union (Regulation 2019/452/EU).

The regulation establishes a framework for the Member States' screening of FDI into the Union on the grounds of security and public order. However, it is up to the individual Member State to introduce a screening procedure or screen a specific FDI.

The regulation establishes a mechanism for cooperation between the Member States and between Member States and the Commission as regards FDI that could impact security or public order. It allows for the Commission to issue opinions on such investments. The final decision in connection with any FDI that is screened or any measure taken in relation to an FDI that is not screened remains with the Member State in which the FDI is planned or has taken place.

Consequently, future Danish legislation concerning screening of FDIs must be drafted within the frame-work of the regulation, which will apply from 11 October 2020.

What do we know about the future Danish screening procedure at this stage?
Based on the statements by the Minister for Justice to the Foreign Affairs Committee on 28 February 2019, we know that the working committee must propose a screening procedure and a propose a legal basis allowing the government to take action in the event that any FDI or financial activity is incompatible on the grounds of security and public order in Denmark.

The government proposes that the screening procedure should include critical infrastructure within the energy sector, the area of IT and telecommunications, the transport sector, the food sector and the health sector as well as investments in enterprises using advanced technologies or dual-use technologies such as AI, robot technology or nanotechnology.

The government also proposes that future legislation should not include solely FDIs but also other foreign financial activities, for instance where foreign control is established through operating contracts or leases that grant control of critical infrastructure or access to sensitive information.