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Estonia to start screening background of foreign investments

Joint Building of Ministries in Tallinn.
Joint Building of Ministries in Tallinn. Source: Siim Lõvi /ERR

The Estonian Ministry of Economic Affairs and Communications has prepared a draft law on the screening of the background of foreign investments, which will make it possible to check that investments made in areas strategic for the state do not pose a threat to national security or public order.

The bill seeks to ensure that foreign investments are transparent, Estonia's strategic sectors and fields of activity will not become dependent on foreign investors and the continuity of services will not be jeopardized, spokespeople for the ministry said.

Minister of Entrepreneurship and Information Technology Andres Sutt (Reform) said that under conditions of the Covid pandemic, global supply chains have come under great pressure and the use of foreign investment to achieve national policy goals keeps increasing.

"In the crisis situation, Estonia's small and open economy is heavily affected by what is happening in other parts of the world, and in areas that are important for national economic security, such as energy, transport, medicine or communications and IT, it must be made sure that investments made in Estonian companies do not pose a threat to our security or public order," Sutt said.

The draft focuses on foreign investment in strategically important areas, such as energy, transport and communications, and companies, such as providers of vital services, state invested companies, infrastructure companies, nationwide television or radio service providers, companies that manage public stockpiles or possess the infrastructure ensuring the functioning of the communications of the state.

The bill would introduce an authorization requirement for foreign investment in these areas, as well as measures to eliminate threats to security and public threats. Foreign investments by investors from third countries or controlled by them, by which, directly or indirectly, a substantial shareholding of 10 percent or more of the voting rights in the target company would be acquired, or direct or indirect control of the target company obtained, or the target company acquired, will be assessed.

The impact of a foreign investment on security and public order and the potential risks will be assessed on a case-by-case basis. It will be considered, for example, whether the foreign investor is controlled by a third-country institution or is involved in activities that threaten security or public order.

In the case of the target undertaking, its importance in the economic sphere is taken into account and whether changes are to be made in its economic activities as a result of the investment. The availability of substitute products or services will also be looked at.

"If a foreign investor is financed, for example, by a government agency of a third country, this indicates that the background to the transaction should be analyzed in greater detail," Sutt said. "We must prevent a situation where foreign economic pressure would harm Estonian business operators or affect the well-being of our people," he added.

In order to obtain a foreign investment authorization, a foreign investor must apply for permission to the Consumer Protection and Technical Regulatory Authority before the transaction is finalized. The application for a foreign investment authorization must be approved in advance by a Foreign Investment Committee consisting of representatives of different government agencies.

The bill will contribute to the effective implementation of the cooperation mechanism between the member states and the European Commission foreseen in the EU FDI background screening regulation. The FDI screening process is applied in most EU member states.

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Editor: Marcus Turovski

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