Economic sovereignty: France again tightens controls over foreign investment (FDI).

One will recall that foreign investments subject to FDI control are broken down in three categories according to the nature of the activities of the French target of the investment.

First of all, there is investments in activities that are sensitive by nature. These activities pertain mainly – but not exclusively – to the defence and security sectors. 

Then, there is investments in infrastructures, goods or services that are essential to guaranteeing notably, but without limitation, the integrity, security or continuity of energy and water supplies, the operation of transportation networks and services, the protection of public health, food safety and so on. 

Finally, the third category concerns investments in research and development activities linked to either of the first two categories, and involving certain critical technologies or dual-use goods and technologies.

Investments by foreign investors in at least one of the above categories require prior authorisation, with or without conditions, from the French Ministry of the Economy. 

According to the 2023 annual report from the French Ministry of the Economy (MoE), in 2022, 131 foreign investment transactions in sensitive French entities were authorised by the French MoE, and 70 of these authorisations were subject to conditions so as to protect national interests.  

It is in this context that, on 1^st January 2024, new activities were added to two of the three categories referred to above. 

The second category, which relates to investments in essential infrastructures, goods or services, now also concerns activities consisting in the extraction, processing and recycling of critical raw materials. 

According to the EU list, more than thirty raw materials are considered critical. The processing of critical raw materials concerns many strategic sectors, including semiconductors, batteries for electric vehicles, and national defence.

Moreover, in a more incidental manner from an economic standpoint, it is specified that the activities that are essential to the security of prisons are part of the security activities included in the second category. 

As regards the third category, which relates to research and development activities related to the first or second category, the critical technologies referred to in this category now include photonics and low-carbon energy generation technologies. 

Moreover, the takeover of the French branches of foreign law entities carrying out sensitive activities shall now also be subject to control, in order to rule out potential strategies for circumventing FDI regulations. 

Previously, at the time of the acquisition of direct or indirect control over a foreign law entity, French FDI regulations would only apply if the foreign law entity was controlling a French law entity (and not a branch registered in France). 

Finally, the FDI control of the crossing by a non-European investor of the threshold of 10% of voting rights in a listed company has now become permanent. The measure had been introduced on an interim basis in the context of the public health crisis in order to protect listed French companies carrying out sensitive activities from opportunist acquisitions of shareholdings. 

If there is any doubt as to whether a transaction requires the authorisation of the French MoE, and due to the risks associated with a failure to comply with FDI regulations (various administrative or criminal penalties, invalidated transaction, etc.), it is essential to carry out a preliminary FDI analysis of the contemplated transaction. With our many years of experience in this field, we would be delighted to assist you.