The Dutch economy is characterised by a liberal approach towards foreign investments. As a result, there is currently no general foreign direct investment screening regime in the Netherlands, other than an assessment of certain transactions in the energy and telecom sectors. In the recent years, there have been increasing concerns over undesirable acquisitions that could threaten national security. Following geopolitical developments and the outbreak of Covid-19, several European countries have introduced or strengthened their foreign direct investment screening mechanisms. In light of these developments, the Dutch government announced on 11 November 2019 that it would introduce a general framework for the screening of investments on the basis of national security.
On 2 June 2020, the Dutch government informed parliament that it has expedited the preparation of this proposal for an act introducing an investment screening mechanism. According to government, the current economic circumstances, against the backdrop of the Covid-19 outbreak, have increased the risk of undesirable acquisitions and investments. It is envisaged that the Minister of Economic Affairs and Climate Policy (Minister) may review transactions that (i) result in risks to the continuity of the critical processes, (ii) impair the integrity and exclusivity of knowledge and information associated with vital processes and sensitive technology or (iii) result in the creation of strategic dependencies.
The government announced that part of this investment screening will enter into force with retroactive effect as of 2 June 2020. This means that investments in critical infrastructures and high-end sensitive technologies taking place as of 2 June 2020 may be screened retroactively if necessary in order to protect national security. The government informed the parliament that investments will only be prohibited in exceptional cases and that the government would first seek to address potential concerns by means of mitigating measures. The general screening mechanism will apply in addition to existing sector-specific investment screening tests in the energy and telecom sector.
While the precise scope of the notification requirements is still unknown, the government announced that the list of critical infrastructures and processes prepared by the Dutch National Coordinator for Terrorism Prevention and Security (NCTV)[1] and the Dual Use Regime will constitute the departing point of whether an acquisition falls under the scope of the screening mechanism, which will enter into force with retroactive effect. The list prepared by the NCTV includes various activities in the energy, telecom, transport, petro-chemical, and financial sectors. Part of the activities on the aforementioned list of the NCTV are carried out by government owned companies or institutions, which means that the retroactive effect of the investment screening will mainly have an impact on companies active in the large-scale production/processing and/or storage of chemicals and petrochemicals, oil supply, storage, production and processing of nuclear materials and the financial industry.
The announcement followed the adoption of a telecom-specific investment screening mechanism on 19 May 2020, which introduces a mandatory notification requirement for acquisitions of certain large undertakings in the telecom sector. The Minister also referred to the European Commission’s communication regarding a coordinated economic response to the Covid-19 crisis, in which the Commission called upon the Member States to be vigilant and to use all tools available to avoid that the current crisis leads to a loss of critical assets and technology, including by means of national security screening.[2] While the general screening mechanism had already been announced prior to the outbreak of Covid-19, the current economic circumstances, against the background of the Covid-19 crisis, have heightened concerns over undesirable acquisitions or investments and the loss of critical assets and technologies. In light of the open investment climate, we anticipate that the proposed measures will only affect investments in critical companies that cause genuine and sufficiently serious concerns regarding a threat to the Dutch national security.
If you have questions regarding the proposal or recent developments in the area of investment screening, please feel free to reach out to Marinus Winters or Jochem de Kok.[3]
[2] Communication from the Commission, Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452, C(2020) 1981, 25/3/2020.
[3] Jochem de Kok is also a part-time PhD candidate at the University of Amsterdam, where he writes a PhD thesis on investment screening in the EU.
