Reform of the investment screening regime 2020

Further tightening of the German screening regime for foreign investments (FDI)

The Federal Ministry of Economics and Energy (BMWi[1]) has announced a further tightening of the screening regime for foreign investors in Germany: The Federal Government is in particular implementing the so-called EU Foreign Direct Investment Regulation (EU) 2019/452), which will finally come into force in October 2020. The EU regulation was launched on the initiative of Germany, France and Italy and is intended to improve the coordination of investment screenings between the EU member states. The new rules are intended to enable an earlier and more comprehensive examination of M&A transactions with foreign buyers in security-relevant areas. The scope of action of the BMWi will thus be further extended. The rules were last tightened in December 2018.

The investment audit pursuant to section 55 AWV[2] et seqq. by the BMWi serves to avoid fundamental security risks arising from foreign company takeovers. It can always be applied when foreigners acquire domestic companies or shareholdings in domestic companies. In this case, the scope of the company's activities is relevant on the one hand, and the percentage of the equity interest acquired on the other. If so-called critical infrastructures are affected or in the case of target companies from defence or security-relevant sectors, there is an obligation to notify the BMWi. BMWi may prohibit or, subject to conditions approve transactions, if there is a danger to public safety or order (in the area of the so-called cross-sectoral audit) or if essential security interests of Germany are endangered (in the area of the so-called sector-specific audit).

Overview of the main changes

With the envisaged further amendments, BMWi's review options are once again being expanded. This is to take place in two interlinking steps.

In a first step, the Foreign Trade and Payments Act (AWG= will be amended. The main changes are:

• In future, the subject of the examination will be a "probable threat" to public order or safety i.e. the scope for decision-making during the screening will be extended (previously "actual threat").
• In future, "public order or safety of another Member State" and the impact on "projects or programmes of Union interest" will also be subject to the investment screening.
• The "suspension" of the execution of the acquisition (= pending invalidity of the purchase agreement) will be extended to all acquisitions subject to reporting (so far only in the particularly sensitive "sector-specific" regime).
• - The "National Contact Point" for the new EU-wide cooperation mechanism will be located at the BMWi.

In a second step, amendments to the Foreign Trade and Payments Regulation will follow. This will focus in particular on further specifying the investment screening for so-called critical technologies (catalogue of critical technologies). In these cases, there is both a reporting obligation and a screening option from a threshold of 10% share acquisition. This catalogue should include the following critical technologies: Artificial intelligence, robotics, semiconductors, biotechnology and quantum technology.

Consequences for transaction practice:

In particular in the case of the sale of companies active in the field of critical technologies, careful and early preparation of the transaction, taking into account the new legal requirements, will be even more important than before. In future, these transactions can only be completed after approval by the BMWi. Against the background of the 10% audit threshold, particular attention must also be paid to the comprehensive facts of the case taken to account, both in the context of the cross-sectoral and the sector-specific audit. Constellations that affect the calculation of the percentage acquisition of shareholdings must be examined at an early stage with regard to the prohibition risk and the reporting obligation. It is also to be expected that the cooperation mechanism between various member states and the EU Commission established by the EU Regulation will prolong the application and screening procedures.

Our Competition, EU & Trade experts have extensive expertise in the field of investment due diligence and will provide you with competent support in your M&A transaction.



[1] Federal Ministry of Economics and Energy = Bundesministerium für Wirtschaft und Energie = BMWi

[2] Foreign trade regulation = Außenwirtschaftsverordnung = AWV