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The Screening of Third Country Transactions Act 2023 (Irish Screening Act) is due to come into force in the 1st week of September 2024. It follows the numerous FDI systems in place worldwide designed to protect national security (e.g. in other EU member States, the US with the Committee on Foreign Investment in the US (CFIUS), the UK with the National Security and Investment Act 2021 (NSIA) and in China with the Foreign Investment Law (FIL).
What is the purpose of Irish Screening Act?
The Irish Screening Act allows the Minister for Enterprise, Trade and Employment (Minister) to review (largely M&A) transactions where interests in assets and undertakings in Ireland are acquired (directly or indirectly) by third country undertakings (i.e. from outside the EU, EEA and Switzerland). In looking at notifiable (and in some cases non-notifiable) transactions involving sensitive businesses and assets by third country undertakings (including by state-owned undertakings), the Minister decides if such transactions would, or would be likely to, affect the security or public order of Ireland. The Minister can clear, clear on conditions or block such transactions. The term “security or public order” in Ireland is undefined and is understood more through the factors that the Minister has regard to in assessing transactions under the Irish Screening Act but broadly relates to national security and essential interests of society.
What target activities apply under the Irish Screening Act?
The Irish Screening Act draws from EU Regulation 2019/452 (Regulation) which creates a cooperation mechanism through which Member States and the European Commission exchange information and raise issues in the EU about foreign investments on security or public order grounds.
One of the criteria for notifying a transaction in Ireland to the Minster under the Irish Screening Act (as well as the other criteria (i.e. the requirements for an acquisition by a third country undertaking and an at-least €2 million deal-value)) is that the transaction: “relates to, or impacts upon, one or more of the matters referred to in [Article 4(1)(a)–(e)] of the Regulation”. Separately, there is a legislative proposal to revise the Regulation in a number of respects (including to improve its effectiveness and efficiency and to address certain outbound investments).
Article 4(1)(a)-(e) of the Regulation (Article 4(1)(a)-(e) Categories) provides that, in determining whether an FDI transaction is likely to affect security or public order, Member States (including Ireland) can consider its potential effects on the following categories:
(a) critical infrastructure (whether physical or virtual, including [emphasis added] energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure),
(b) critical technologies and dual use items (as defined in Article 2 of Council Regulation (EC) No 428/2009, including [emphasis added] artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies),
(c) supply of critical inputs (including [emphasis added] energy or raw materials, as well as food security),
(d) access to sensitive information (including [emphasis added] personal data, or the ability to control such information), or
(e) freedom and pluralism of the media.
How will the Minister likely apply the Article 4(1)(a)-(e) Categories under the Irish Screening Act?
The Department of Enterprise, Trade and Employment (Department) has issued draft guidelines (Guidelines) which provide a (non-binding) indication of how the Minister will look at each of the Article 4(1)(a)-(e) Categories when reviewing potentially notifiable transactions (as well as providing guidance on notification requirements under the Irish Screening Act). In focusing on the target’s activities and their relevance to the Article 4(1)(a)-(e) Categories, the notification form under the Irish Screening Act requires parties to the transaction to identify relevant Nomenclature of Economic Activities (i.e. NACE) codes in relation to the target.
(a) How do the Guidelines interpret “critical infrastructure”?
Parties to potentially notifiable transactions should consider a number of factors when looking at the target’s “critical infrastructure” activities in Ireland.
1. Is the infrastructure “critical”? After looking at aspects of EU Directive 2022/2557 (on the resilience of critical entities) and the sub-sectors under Article 4(1)(a) of the Regulation (see above), parties to the transaction should assess if: (a) the target provides an essential service in Ireland; (b) the target operates, and its critical infrastructure is located, in Ireland; and (c) an incident would have significant disruptive effects in Ireland.
2. The Department has yet to publish a list of essential services and critical entities (as required under EU Directive 2022/2557).
3. Therefore, when determining if a mandatory notification is required under the Irish Screening Act, parties should consider the 11 infrastructure “Sectors” as well as the “Sub-sectors” and “Categories of entities” operating such infrastructure - this list is set-out in Annex 1 of the Guidelines (and reflected in the Annex to EU Directive 2022/2557).
4. The Guidance notes that notification to the Minister is only required if the infrastructure element of a transaction relates to one or more of those referred to in the Annex 1 list.
5. What is contained in the Annex 1 list? As with the Annex to EU Directive 2022/2557, it is split into “Sectors”, “Subsectors” and “Categories of Entities” - the 11 Sectors (broadly reflecting the sub-categories in Article 4(1)(a) of the Regulation) cover: (i) energy, (ii) transport, (iii) banking, (iv) financial market infrastructure, (v) health, (vi) drinking water, (vii) wastewater, (viii) digital infrastructure, (ix) public administration, (x) space and (xi) production/processing/distribution of food.
6. There are additional references in the Annex 1 list to other EU legislation to further explain when these “Sectors”, “Subsectors” and “Categories of Entities” apply.
(b) How do the Guidelines interpret “critical technologies and dual use items”?
1. The Guidelines provide that, for the purposes of the Irish Screening Act, a technology is considered critical, and therefore within scope, if it is either a dual-use item or as military technology or equipment - the Guidelines rely on Article 2 of Regulation 2021/821 which describes dual-use items as including software and technology which can be used for both civil and military purposes (as well as “ancillary items”) with Annex 1 of Regulation 2021/821 listing individual items.
2. The Guidelines then refer to applicable technologies for the purposes of the Irish Screening Act as those relating to artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum, and nuclear technologies as well as nanotechnologies and biotechnologies (i.e. reflecting Article 4(1)(b) of the Regulation).
3. Many information and communications technology (i.e. ICT) products, both hardware and software (e.g., data storage, networking, cybersecurity), are classified as dual-use items as they incorporate strong encryption for security purposes.
4. The Guidelines refer to equipment covered in the Council Common Position 2008/944/CFSP which governs the export of military technology and equipment as also within the mandatory scope of the Irish Screening Act.
(c) How do the Guidelines interpret “supply of critical inputs?
1. The approach of the Guidelines is more confined with this category.
2. As per the Article 4(1)(c) of the Regulation, “critical inputs” include [emphasis added] energy, raw materials and food security.
3. The Guidelines then focus only on “critical raw materials”.
4. In emphasising the concern to the EU of having reliable and unhindered access to critical raw materials, Annex 2 of the Guidelines lists 34 such raw materials reflecting a Commission Proposal for a Regulation Establishing a Framework for Critical Raw Materials (COM(2023), March 2023)
5. The Guidelines go on to provide that if the Irish target of a third country transaction “is engaged in the extraction, production or supply of the identified critical raw materials, then notification is mandatory.”
(d) How do the Guidelines interpret “access to sensitive information”?
1. Access to data has traditionally been a key consideration of other screening systems (including under CFIUS, the NSIA and FIL).
2. The Guidelines describe “sensitive information” as “data that must be protected from unauthorized access to safeguard the privacy or security of an individual, organisation or the State” - this may relate to personal, business and government data.
3. Under the Guidelines, “access” to sensitive information includes the ability to:
4. Sensitive “personal data” is regarded under the Guidelines as including:
5. A transaction is notifiable under the Irish Screening Act for this category “if it involves sensitive data that is held as an essential or critical part of the business or asset” (i.e., not in relation to data held on employees of the target undertaking or asset, or not essential or critical to the operation of the business).
6. The volume of such data should be “substantial” and/or the transaction should relate to a business model that depends on generating turnover from such sensitive data.
7. Sensitive information may also relate to a government body, where access by a third country undertaking to such information could be used to undermine security or public order in Ireland.
(e) How do the Guidelines interpret “Freedom and Pluralism of the Media”?
1. The Guidelines provide that in determining if a transaction relates to “media plurality” under the Irish Screening Act, the definition set-out in the Competition and Consumer Protection Act 2014 (CCP Act) applies (used in the context of “media mergers” under Irish merger control) and comprises:
2. A “media business” under the CCP Act is:
a) the publication of newspapers or periodicals consisting substantially of news and comment on current affairs, including the publication of such newspapers or periodicals on the internet,
b) transmitting, re-transmitting or relaying a broadcasting service,
c) providing any programme material consisting substantially of news and comment on current affairs to a broadcasting service, or
d) making available on an electronic communications network any written, audio-visual, or photographic material, consisting substantially of news and comment on current affairs, that is under the editorial control of the undertaking making available such material.
3. The Guidelines provide that transactions that relate to media businesses that “operate, sell or are otherwise active” in Ireland are within the scope of the Irish Screening Act.
4. However, the level of activity in Ireland - based on sales, subscribers, viewers or other relevant metrics – “must be substantive in order to trigger mandatory notification” under the Irish Screening Act but no indication is provided in the Guidelines as to what is understood by “substantive”.
Concluding comments
While clearly important, it is worth noting that the Guidelines do not provide an all-inclusive and definitive description of target activities in Ireland that make a transaction potentially notifiable under the Irish Screening Act. In addition, the legal test for notification under the Irish Screening Act is broader than as described under the Guidelines (and includes that a transaction is notifiable if it “impacts on” the Article 4(1)(a)-(e) Categories). It is also important to note that the Minister also has the power to review non-notifiable transactions under the Irish Screening Act. All of that said, the Guidelines are a key roadmap for parties to transactions to identify better what target activities are in scope for notification under the Irish Screening Act and they provide important context for the wider assessment of transactions by the Minister to determine if they would affect, or be likely to affect, security or public order in Ireland.
For more information on this topic, please contact Alan McCarthy, Partner, Anna-Marie Curran, Partner, Dr Vincent Power, Partner or any member of A&L Goodbody's EU, Competition & Procurement team.
Date published: 20 June 2024
