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Investment screening to be tightened

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Foreign Trade and Payments Act Investment screening to be tightened

With an amendment to the Foreign Trade and Payments Act, the German government intends to prevent the outflow of information or technologies that could have serious consequences for public order, safety and security in Germany. The provisions will cover the acquisition of stakes in businesses by investors from outside the European Union.

2 min reading time

An assembly worker shows coated cold light cables.

The German government is to screen investments more closely

Photo: picture-alliance/dpa/Kasper

On Wednesday, the Cabinet adopted a bill to amend the Foreign Trade and Payments Act (Außenwirtschaftsgesetz). It will render the screening of foreign direct investment (FDI) more effective, and tighten the criteria, thus closing an important regulatory gap. 

Taking into account interests of the Union

Specifically, in future all proposed foreign investments will be examined for any "likely adverse impact" on public order, safety or security – in line with the EU FDI Screening Regulation. The Foreign Trade and Payments Act has hitherto used as its criterion only the "actual and serious threat" posed.

National investment screening can in future also take into account any possible impact on the public order, safety or security of another member state of the European Union, or on any projects or programmes that affect the interests of the Union.

The amendment largely translates into German law the 2019 EU FDI Screening Regulation, which introduces for the first time investment screening regulations at European level.

Acquisition during screening "provisionally invalid"

Moreover, any notifiable acquisitions will in future be deemed "provisionally invalid" until the investment screening is completed. Recent weeks have demonstrated that supplies of essential goods such as vaccines for the German population must not be dependent on any one company. Any outflow of information or technology, and thus the legal or de facto conclusion of an acquisition before the screening procedure is finalised is to be prevented. This has hitherto only been possible in the military equipment sector. The amendment thus closes a regulatory gap and a gap in the prosecution provisions.

The Foreign Trade and Payments Act is now also to be brought into line with the re-numbered EU Anti-Torture Regulation, and the acquisition screening which has hitherto been regulated under the provisions of the Satellite Data Security Act (Satellitendatensicherheitsgesetz) integrated into investment screening pursuant to the provisions of the Foreign Trade and Payments Act and the Foreign Trade Ordinance.