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Extension of Foreign Investment Control to New Strategic Sectors And the Reinforcement of Sanctions


A new legislative bill, known as the “Plan d’action pour la croissance et la transformation des entreprises” (Action plan for company growth and transformation - the  PACTE bill), is currently under discussion in the French Parliament, which alongside Decree No. 2018-1057 of 29 November 2018 (Foreign Investment Decree) will complete regulations governing foreign investment in strategic sectors in France. The Decree extends the list of sectors covered by the procedure to authorize foreign investments in new strategic sectors, in particular, the so-called “sectors of the future”. The PACTE bill could further extend the list of strategic sectors subject to prior authorization, as well as the list of sanctions for non-compliance with foreign investment regulations.

In Depth

The French foreign investment authorization procedure and this new legislation have some similarities to the US government’s procedures for reviewing national security implications of foreign investment in US businesses under the “CFIUS” procedures, and the French legislation comes soon after new US legislation and regulations were implemented to strengthen the CFIUS process.  We have covered these new rules in a previous On The Subject, available to read here, and regularly cover developments by CFIUS in our Thought Leadership available here.

I.   Extension of the list of strategic sectors subject to prior authorization

In general, foreign investments in France are unrestricted. In order to ensure the protection of French national interests, investment in certain sectors considered as strategic and “sensitive” require the prior authorization of the French Minister for Economy.

Protected sectors originally covered sensitive activities related to the protection of national defense, such as trade in weapons, munitions and explosives for military applications, private security services or interests concerning the prevention of illicit use of biological or toxic agents for chemical weapons. The Alstom Decree of 14 May 2014 extended the list of foreign investment subject to prior authorization to activities relating to the supply of water, electricity, gas, hydrocarbons, transport services and telecommunications services and the protection of public health.

On 16 February 2018, in a speech before French company L’Oréal, the French Prime Minister Edouard Philippe announced his intention to extend the scope of the strategic business sectors to the so-called “sectors of the future,” naming in particular artificial intelligence, the space industry, data storage and semiconductors sectors.

In this respect, the Foreign Investment Decree widens the scope of the authorization regime to:  

  • activities relating to equipment for capturing computer data;
  • activities relating to information system security, including, or the first time, when the operator acts as a subcontractor;
  • activities relating to the integrity, security and continuity of electronic and computer systems required in the duties and active service of the national police, the national gendarmerie and civil security services;
  • activities relating to the integrity, security and continuity of space operations, defined as any activity consisting of launching an object into outer space or ensuring control of a space object during its orbit in outer space;
  • research and development activities relating to cybersecurity, artificial intelligence, robotics, additive manufacturing and semiconductors;
  • research and development activities relating to dual-use goods and technologies, in contrast to the old regime which excluded research and development activities ;
  • activities relating to the storage of data whose disclosure is likely to harm strategic interests, such as supply of water, electricity, gas, hydrocarbons, transport services etc.

It should be noted that this list could be further extended in the future as the PACTE bill provides that the list of strategic sectors subject to the prior authorization procedure may be extended by decree.

II.  Extension of the categories of operators authorized to file a preliminary request to the French Minister for Economy

Prior to any investment in a strategic sector governed by these foreign investment regulations, an investor may file a preliminary request (“rescript”) to the Minister for Economy to obtain confirmation as to whether its contemplated investment is subject to the prior authorization requirement. The Minister for Economy must reply within two months from the receipt of the request. It should be highlighted that, unlike the request for authorization, absence of a response within this period does not mean that the authorization is deemed granted. This preliminary procedure allows investment to be secured by involving the relevant foreign investment authorities prior to the contemplated transaction.

However, prior to the publication of the Foreign Investment Decree, only potential investors could file a request for the Minister for Economy’s prior ruling. The Foreign Investment Decree extends the preliminary procedure to target companies, enabling them to become an official mouthpiece for the administration in the prior authorization procedure.

While the other provisions of the Foreign Investment Decree apply only to foreign investment requests filed from 1 January 2019, this provision is of immediate effect and allows target companies to seek the prior opinion of the French Minister for Economy in order to determine whether a potential transaction falls within the scope of the foreign investment authorization procedure. The content of the preliminary request will be specified in a subsequent order of the Minister for Economy.

III. Extension of the list of sanctions for non-compliance with foreign investment regulations

The Senate will discuss the PACTE bill, which was adopted by the Assemblée Nationale at first reading on 9 October 2018, in January 2019. This Bill intends to increase existing sanctions for non-compliance with foreign investment regulations.

The bill strengthens the powers of the French Minister for Economy to issue injunctions when an investment has been made without prior authorization. In this case, the Minister may direct the investor to (i) submit a request for authorization, (ii) modify the investment and (iii) have the previous situation restored at its own expense.

In addition, if the protection of national interests is compromised, the Minister for Economy  will be able to (i) suspend voting rights attached to the shares  themselves, (ii) prohibit the distribution of dividends attached to these shares, or (iii) suspend the free disposal of all or part of the assets related to activities subject to authorization.

The Minister will also be given power to impose a financial penalty when an investment is carried out without prior authorization, in instances when the authorization has been fraudulently obtained or when the operator fails to comply with the conditions laid down in the authorization. The maximum penalty will be the greater than the following amounts: twice the amount of the irregular investment, 10% of the annual turnover excluding tax of the target company, EUR1 million for natural persons and EUR5 million for legal persons.

The Bill also provides for the publication of annual statistics on the control of foreign investment in France and the creation of an appropriate parliamentary delegation on these specific subjects, charged with the preparation of an annual report.

It should be noted that these domestic regulations must be read in light of the proposed European regulation establishing a framework for the screening of foreign direct investment into the European Union. This new regulation, soon to be adopted, provides guidance on Member States’ screening mechanisms for foreign direct investments, a cooperation mechanism between Member States and the Commission when specific foreign investment in several Member States may affect the security of another and European Commission-specific screening when foreign direct investment may affect programs of interest to the European Union.

© 2022 McDermott Will & EmeryNational Law Review, Volume VIII, Number 351

About this Author

Sabine Naugès Paris France Regulatory Constitutions Law Partner McDermott Will Emery Law

Sabine Naugès counsels clients on all aspects of public law, including administrative and regulatory, competition and constitutional law. Among other high-profile clients, Sabine has advised telecommunications companies France Télécom and Orange on regulatory matters in cases before administrative and commercial courts, and before EU and French competition authorities. She also regularly represents major companies with interests in a wide range of industries, including aerospace, energy, oil and gas, and public health care, before the French government and in litigation...

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Camille Roudergues, McDermott Law Firm, Corporate and Energy Law Attorney, Paris

Camille Roudergues focuses her practice on regulatory law including state aid and energy law as well as on data protection and cybersecurity regulations.

Camille has acted for clients across a range of industries including within the telecommunications and energy sectors. She has advised a number of key clients on the establishment and maintenance of their GDPR compliance programs.