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Foreign Investment and Security

To protect public order and security, government investment screening has been tightened several times in recent years. In the 17th amendment to the Foreign Trade and Payments Ordinance, however, the German government has addressed many of industry’s concerns. In the interests of Germany as an investment location, it is now important to apply the instrument with a sense of proportion. Investors and companies should not be exposed to further changes to the legal framework.

In recent years, the German government has repeatedly expanded its powers to examine and prohibit foreign investments in private domestic companies. The aim is to be able to protect public security and order more effectively, for example in the case of foreign investments in critical infrastructure in Germany. The most far-reaching of these changes was the amendment to the Foreign Trade and Payments Act (Außenwirtschaftsgesetz, AWG) in 2020, in which the standard of screenings was expanded to such an extent that the federal government can review and prohibit foreign investments as soon as they are “likely to affect” public order or security (previously: “actual threat”). At the same time, the amendment made necessary adjustments to EU law.

In the course of the 15th amendment to the Foreign Trade and Payments Ordinance (AWV), the state’s prohibition powers were then extended to companies in the healthcare industry in connection with the Corona pandemic. In a 16th amendment to the AWV in October 2020, necessary adjustments were made to the European Union’s Screening Regulation (2019/452), which took effect at the same time.

Industry concerns were taken into account

With the 17th amendment to the AWV, a further step has now been taken to implement the expansion of competences already outlined in EU law and the AWG at the ordinance level as well. The 17th AWV amendment will contribute to a renewed expansion of state investment screening. In designing the regulations, however, the federal government sought to avoid unnecessary burdens on business. In contrast to previous amendments, it has addressed most of the demands of German industry with respect to the original government draft of January 2021.

  • A number of subsectors that will benefit in the future from state investment screenings was defined more precisely. As a result, fewer acquisitions will be affected by investment screenings.
  • The delineation of the subsectors is to be reviewed on a cyclical basis. The next review is scheduled for 2022.
  • A way was found to simplify the subsequent acquisition of further shares after an initial positive screening.
  • For institutional investors or financial investors who do not have co-determination and information rights (e.g. in stock exchange transactions), a simplification option has been found.
  •   of a German parent company without a change in the legal system (both subsidiaries are domiciled in the same country) are exempt from the investment screening (Section 55 (1b) AWV).
  • The interventions and screenings are to be designed to be efficient and low-burden. This will be achieved by creating at least 30 new administrative positions to handle the additional audit workload.

Federal government must keep an eye on investment climate

State investment screenings are a necessary instrument for ensuring public order and security. But banning investments is always also a serious encroachment on private property and freedom of contract, as well as a restriction on the openness of Germany as an investment location. That is why it is now important for the German government to use its additionally acquired powers carefully and with a sense of proportion. This also applies against the background of increasing investment protectionism worldwide. Germany should not be perceived internationally as a driving force here, because our companies are particularly dependent on open borders abroad.

In addition, the delineation of the industrial sub-sectors defined as safety-relevant in the AWV must be critically scrutinized in the coming year. After all, the potential impact of certain technologies on our security can change rapidly in the course of constant technological change. In addition, it would be desirable if the 17th AWV amendment brought an end to the series of changes in the regulation of investment screenings in Germany, at least for the time being. After all, a reliable legal framework is important for companies, investors and for the investment climate in Germany.