On 27 April 2020, the German Government approved the 17th Amendment of the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, AWV). This entails a stricter regime of investment screening in Germany. The new rules entered into force on 1st May 2021. In order to ensure the smooth execution of already planned investments, it is essential for investors to prepare for the new procedures. We have summarised the most important points for you:
Since 2017, Germany, together with Italy and France, has been campaigning at European level to change the EU legal framework conditions for investment screening. Critical infrastructure and key technologies should be comprehensively protected from foreign investment. In 2019, this initiative resulted in EU Regulation 2019/452 establishing a framework for screening foreign direct investment in the Union (EU Screening Regulation), which entered into force on 11 October 2020.
The German Foreign Trade and Payments Act (Außenwirtschaftsgesetz, AWG) and the Foreign Trade and Payments Ordinance (AWV) were subsequently already amended last year. The Federal Cabinet has now passed the 17th Amendment to the AWV to effectively protect the security interests of the Federal Republic and to transform further European innovations into German law.
Entry into force of the new regulations
The new regulations came into force on 1st May 2021, the day after their announcement in the German Federal Gazette (Bundesanzeiger). They were then submitted to the Bundesrat and Bundestag. The Bundestag can now still repeal the Amendment within four months.
The trend is towards ever greater scrutiny of foreign investments – also outside of Germany or the EU. This has been demonstrated very clearly by the recent changes to the US screening regime CFIUS. In order to be able to carry out investments in Germany without issues and, above all, in a timely manner despite the far-reaching investment screening, thorough preparation of the screening procedure is required, both on the part of the acquirer and on the part of the seller.
The following regulations have been substantially amended:
- Extension of notifiable acquisitions to new industries in the cross-sectoral screening;
- Reduction of the relevant thresholds for the notification obligation to 20% of the voting rights for certain cases;
- Explicit regulation on the screening and notification obligation of additional acquisitions if 20%, 25%, 40%, 50% or 75% of the voting rights are reached or exceeded;
- Extension of the sector-specific screening:
- Standardisation of the deadlines for cross-sectoral and sector-specific screening.
The most important amendments in detail:
The Amendment extends the case groups for which an obligation to notify the Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie, BMWi) exists. Acquisitions of companies active in the following areas, among others, are now also subject to a notification obligation: certain satellite technologies, artificial intelligence, robotics, semiconductors, cyber security, quantum information technology, secret patents, critical raw materials or extensive agriculture - as well as autonomous driving or flying, optoelectronics, additive manufacturing and network technologies in the areas not expressly mentioned. While the previous Amendment last year focused on the medical sector, the focus this time is on emerging technologies and key technologies.
Reduction of thresholds
The threshold for a notification obligation and a screening right on the part of the BMWi is being lowered to 20% of the voting rights (as opposed to 25%) for the newly controlled industries and the medical sector. Intra-group restructurings involving two wholly-owned subsidiaries of a parent company are however not subject to screening if both subsidiaries are domiciled in the same jurisdiction.
Control of acquisitions
The AWV Amendment now also codifies the already existing practice of screening additional acquisitions if this results in the relevant share of voting rights in the target company being exceeded. This does not only apply if the relevant 10%, 20% or 25% of the voting rights are reached or exceeded through the acquisition of additional shares for the first time. Additional acquisitions that result in a shareholding of 40%, 50% or 75% of the voting rights being reached or exceeded are now likewise subject to screening. This new regulation is based on the assumption that the shareholder positions and corresponding extended rights of influence are reinforced when these voting rights are reached or exceeded.
Scope of the sectoral audit
The BMWi's screening competence has also been expanded in the area of so-called sector-specific screenings. Above all, this concerns the acquisition of defence companies. In future, all military equipment within the meaning of Part I Section A of the Export List will be relevant here.
The regulations also provide for some procedural changes: Thus, in the future, a notification by an indirect acquirer will no longer exempt the direct acquirer from its notification obligation.
Unification of deadlines
The deadlines for cross-sectoral and sector-specific screenings have been harmonised, as it should also be possible for the BMWi to switch between the procedures. This prevents adverse effects on the deadlines in the event of a change in procedure. The deadlines of Section 14a AWG continue to apply: In the case of notifiable procedures, a deadline of two months from the date of BMWi gaining knowledge of the transaction is generally applicable for the decision on opening a screening procedure. A deadline of four months after full receipt of the relevant documents (with the possibility of an extension of a total of four months in difficult cases) generally applies to the ordering of restrictions or obligations. After the expiry of this deadline, the transaction is in principle deemed approved. In practice, these deadlines are however seldom applied, because these screenings mainly involve public-law contracts for the protection of national interests that are negotiated with BMWi, where the deadline is suspended (Section14a (1) sentence 1 No. 2 AWG).
European Cooperation Mechanism
There was no need to include provisions on the European cooperation mechanism pursuant to Articles 6 and 7 of the EU Screening Regulation in the context of investment screenings in the AWV, as the relevant Regulation contains detailed wording in this respect without any national leeway for the member states.