The latest annual report from French Treasury Department  on foreign direct investment ("FDI") screening in France, published on May 9, 2023, highlights that protecting key technologies and companies is a government priority against a backdrop of heightened international tensions.
According to the report, 325 authorization applications were filed with the Treasury Department  in 2022. FDI monitoring activity therefore remained stable compared with 2021 (328 files investigated). 131 foreign investment transactions eligible for control were authorized by the Minister of the Economy. 70 authorizations were subject to conditions to protect national interests, i.e. public order, public security or national defence interests. It can take different forms: ensuring continuity of sensitive activities in France, preserving skills and know-how, adjusting the target's internal governance, providing for procedures to share information, etc.
The Treasury Department is committed to increasing the transparency of its FDI control policy, notably by publishing an annual report of which 2022 is the second edition. Furthermore, it published guidelines to help investors better understand the procedure in September 2022.
When a foreign investor plans an acquisition in France, it must anticipate a phase of analysis of the criteria of eligibility for FDI control (1) and a phase of control by the administration of the investment project which can last, depending on the degree of complexity of the file, from 1 to 2 months and a half (2). Foreign investors that fail to comply with these regulations are liable to have their project called into question, and to face sanctions (3).
1. Eligibility criteria for FDI control
The Minister of the Economy exercises control over a foreign investment in France if three cumulative criteria are met:
- the presence of a foreign investor in the direct acquirer's holding chain;
- the investment is a takeover, or the acquisition of all or part of a branch of activity, or the crossing of the threshold of 25% of voting rights (only for investors from outside the EU/EEA) of an entity governed by French law;
- the French entity targeted by the investment carries out activities in one of the sectors listed in article R. 151-3 of the French Monetary and Financial Code, likely to undermine public order, public security or the interests of national defence.
2. FDI control procedure
The FDI control procedure requires a file relating to an eligible investment project be submitted to the Treasury Department. The administration then has a maximum of 30 working days to determine whether or not the investment is subject to the Minister's control and, if so, whether it can be authorized unconditionally or requires further examination. In the event of further examination, the authorities have a maximum of 45 working days to authorize the operation unconditionally or subject to conditions, or to refuse it.
3. Penalties for non-compliance with FDI regulations
Any investment made without prior authorization under FDI regulations is deemed null and void (article L. 151-4 of the French Monetary and Financial Code). In the absence of authorization, the Minister of the Economy may order the investor to regularize the situation, and may impose a fine and/or precautionary measures. The Minister may also impose a financial penalty. Finally, the investor is also liable to criminal sanctions.
Any foreign investment in France must be analysed with regard to FDI regulations as part of the legal due diligence. Purchasers but also sellers must be even more vigilant when the investment is in an obviously sensitive sector, such as defence, security or new technologies.
 Direction Générale du Trésor
DWF's team advises both domestic and international investors across all asset classes. To discuss any of the points raised in this article, please contact Bruno Richard, Partner, DWF.