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On 25 August 2021, the Swiss Federal Council presented the key principles for a Swiss investment control regime. The introduction of a notification and approval requirement is planned. This shall prevent threats to public order and security by foreign investors as well as significant restraints of competition by state-owned or state-related foreign investors. The exact criteria for the notification requirement will be particularly relevant in practice. These have not been conclusively clarified yet. The consultation draft for a new separate law shall be presented in March 2022.
Switzerland is one of the world’s largest recipients of foreign direct investments in terms of capital stock (over CHF 1,350 billion in 2019 according to the Swiss National Bank). This is due in particular to the attractiveness of Switzerland as a business location, but also to the open policy towards foreign investments. Currently, no investment control regime exists in Switzerland, i.e. there is currently no mechanism in place for the systematic review of foreign direct investments into domestic companies, as it has by now been introduced in numerous larger economies.
In February 2019, the Swiss Federal Council argued against the introduction of an investment control in its report «Cross-border investments and investment controls«. The council considered the cost-benefit ratio of such control unfavourable overall and the existing legal framework as sufficient to address any relevant risks. With the adoption of the motion Rieder «Protection of the Swiss economy through investment controls» (18.3021), the Swiss Federal Council was nevertheless instructed by the Swiss Parliament in March 2020 to draft the legal basis for a Swiss investment control regime. On 25 August 2021, the Swiss Federal Council presented the key principles for a corresponding act in a media release.
Objectives of Swiss investment control
According to the key principles defined by the Swiss Federal Council, Swiss investment control shall pursue two objectives: First, it shall avert endangerments or threats to public order or security that result from takeovers of domestic companies by foreign investors. Secondly, it shall prevent significant restraints of competition that arise due to takeovers by foreign state-owned or state-related investors.
Specifically, the following endangerments or threats shall be in the focus of Swiss investment control:
Introduction of a notification and approval requirement
The above objectives shall be achieved by introducing a notification and approval requirement for certain takeovers of domestic companies by foreign investors. Since, according to the Swiss Federal Council, the fundamental threats emanate from foreign state-owned and state-related investors, a comprehensive notification requirement shall be introduced for planned takeovers by such investors (across all sectors and industries). Private foreign investors, on the other hand, shall only have to report takeovers if they affect domestic companies in certain, yet undefined sectors.
The notification requirement shall only apply to investments that lead to the acquisition of control of a domestic company. Thus, the Swiss Federal Council seems to forego a notification requirement for the acquisition of low shareholdings. Instead, it appears that the possibility of exercising a so-called «decisive influence» on the activities of the company in question is to be defined as the relevant criterion for investment control, analogous to the merger control regime under the Swiss Cartel Act. As far as can be seen, the Swiss Federal Council also refrains from restricting the notification requirement by absolute threshold based on the investment volume. This was still discussed in the Swiss Federal Council’s report from 2019. As a consequence, any relevant investment, regardless of its amount, would have to be notified and approved prior to its completion. This would be in contrast to the Swiss merger control regulation, where high turnover thresholds apply to the notification requirement, and would lead to a high administrative burden for all parties involved.
It will be crucial to see which companies shall be considered domestic for the purposes of a Swiss investment control. In the context of the consultation, two variants shall be presented in this regard which shall differ as to whether or not acquisitions of domestic subsidiaries of foreign company groups are also covered by the notification requirement. Furthermore, the actual definition of the term «state-related foreign investor» in the draft bill will be fundamental.
Two-stage approval procedure
Takeovers subject to investment control notification shall be examined in an approval procedure with regard to the above-mentioned risks. Various government agencies shall be involved in the procedure under the coordinating leadership of the State Secretariat for Economic Affairs SECO. Analogous to the merger control procedure under the Swiss Cartel Act, the approval procedure shall be divided into two phases. In a short first phase, all acquisitions subject to notification shall be examined to determine whether they are questionable in the context of public policy and public security or whether they could lead to significant competition restraints in case of takeovers by state-owned or state-related investors. If this is not the case, the acquisition and its execution shall be approved under investment control law. If concerns are identified during the first phase, they shall be examined in an in-depth approval procedure. Unless the state authorities involved do unanimously agree to approve the intended takeover in the second phase, the Swiss Federal Council shall ultimately decide on the matter.
The Swiss Federal Council has not yet commented on the duration of the two phases. In addition, the key principles outlined above do not yet address whether legal remedies shall be available against the investment control decisions. However, in light of the comments on the design of a possible Swiss investment control system in the Swiss Federal Council’s report from 2019, it is likely that an ordinary appeal procedure will be introduced.
The Swiss Federal Council has announced that it expects to present the consultation draft at the end of March 2022. A new and separate federal act shall be created for investment control. This new bill shall also contain instruments that enable cooperation and mutual exemptions from investment control with other states. Whether any investment control will ultimately be introduced in Switzerland and, if so, whether it will be based on the key principles outlined above, will most likely become clear in the course of the parliamentary debates. In any case, the introduction of investment control in Switzerland is not to be expected before 2023.
If a Swiss investment control regime was introduced, foreign investors would have to examine the investment control notification requirement in addition to the merger control notification requirement when planning investments in Swiss companies. Depending on the specific design of the criteria, the notification requirements could arise in parallel or separately. The key principles presented by the Swiss Federal Council provide information on the planned approach, but leave various crucial questions unanswered. Many of these questions are likely to be answered in the consultation draft. From a practical point of view and to the benefit of legal certainty, it is to be hoped that the Swiss Federal Council will use the draft to provide sufficiently specific assessment criteria to the endangerment and threat elements as well as significant restraints of competition to be examined in the approval procedure.