The French Government issued a decree on 14 May 2014 amending key provisions of the French Monetary and Financial Code dealing with foreign investments. The decree extends the list of investments for which foreign investors must obtain prior authorisation from the French Ministry of Economy. The decree is currently under scrutiny by the European Commission over its compatibility with EU law.

As a general rule, foreign investment in France is unrestricted. Some investments in strategic sectors, however, require prior authorisation.

The French Government issued a decree on 14 May 2014 that amends key provisions of the French Monetary and Financial Code (notably Article R. 153-2, 12°) dealing with foreign investments, and extends the list of investments for which foreign investors must obtain prior authorisation from the French Minister of Economy before making an investment in a French company.

The decree is the result of a law adopted by the French legislator at the end of 2004 which aimed to ensure all foreign investments touching upon public order, public security or interests of national defense were subject to official scrutiny (see Article L. 151-3 of the French Monetary and Financial Code).

Prior authorisation was already required for the following investments made in “strategic” and “sensitive” sectors:

• Investments made by companies headquartered inside the European Union (see Article R. 153-4 of the French Monetary and Financial Code) into private security services, interests concerning the prevention of illicit use of biological or toxic agents or other agents prohibited in the construction of chemical weapons, equipment designed to intercept communications, the evaluation and certification of systems used in information technology, the production of goods or provisions of services relating to the security of information systems, goods and technology with dual applications.

• Investments made by companies headquartered outside the European Union (see Article R. 153-2, 1° to 11° of the French Monetary and Financial Code) into the interests indicated above and, in addition, gambling (with the exclusion of casinos); encryption and decryption systems for digital applications; businesses certified for national defense; trade in weapons, munitions and explosives for military applications or equipment used in warfare and businesses under contract to supply research or equipment to the French Ministry of Defense or its subcontractors.

The decree extends the list of foreign investments concerned by the obligation to seek prior authorisation (see Articles R. 153-2, 12 ° and R. 153-4 of the French Monetary and Financial Code as amended by the decree).

Today, in addition to the abovementioned investments, foreign investments made in activities related to the integrity, the safety and the continuity of (i) the supply of water, electricity, gas, hydrocarbons and any other source of energy and (ii) the operation of transport services and telecommunications also fall within the scope of Article L. 151-3 of the French Monetary and Financial Code. Moreover, foreign investments made in activities related to “the protection of public health” are subject to prior authorisation as well.

It is noteworthy that the decree targets not only foreign investments made by companies headquartered outside of the EU but also in the EU. 

Investments in those sectors require prior authorization when the following transactions are contemplated:

• For any investor i.e., businesses headquartered either inside or outside the European Union: the acquisition of a controlling interest,i.e., a majority of voting rights, in a French company and the acquisition of all or part of a business line.

• For investors headquartered outside the European Union only: the acquisition of interests exceeding 33.33 per cent of equity or voting rights in a French company.

Consequences of the Decree

The decree entered into force on 16 May 2014 and applies to transactions in progress on or after that date. Companies that have already entered into negotiations related to an acquisition in the sectors listed above and haven’t formally closed the deal should ask the Ministry of Economy whether or not the transaction falls within the scope of the decree and therefore requires authorisation.

Once a request for authorisation is filed, the Ministry has two months to inform the applicant that it is withholding authorisation; silence is considered to be acceptance.

If the companies involved do not apply for authorisation even though the contemplated transaction falls within the scope of Articles R. 153-2, 12 ° and R. 153-4 of the French Monetary and Financial Code, or if it is not granted by the Ministry, the company is required to either not complete the transaction, or modify the transaction or even restore the previous status quo at its own expense. In addition, civil fines of up to twice the amount of the non-complying investment or even criminal sanctions (including imprisonment for up to five years, seizure of the investment, and a fine of up to twice the amount of the investment) may be imposed.

If the Ministry does not grant authorisation, an appeal may be filed with the Administrative Court, which may decide to annul the Ministry’s decision.

Compatibility of The Decree With EU Law

Under EU law, any restriction on the movement of capital between Member States and between Member States and third countries must be justified—such as on grounds of public policy or public security—and proportional, which means it must not go beyond what is necessary to attain the pursued objective.

EU case law allows a Member State to introduce a system of prior administrative authorisation for foreign investments if the system is based on objective and non-discriminatory criteria that are known in advance to the parties involved. It is uncertain at the moment whether or not the decree is compatible with EU law as it could be considered as overreaching.

If the European Commission has doubts as to the decree’s compatibility with EU law, it has the option to deliver a reasoned opinion after giving the French Government the opportunity to submit observations. The Commission could then decide to bring proceedings against France before the Court of Justice of the European Union (CJEU). If the CJEU finds that the decree is contrary to EU law, it could deliver a ruling specifying the measures to be taken by the French Government to rectify the situation.

For now, Michel Barnier, the European Commissioner for Internal Market and Services, has warned France against “protectionism” and announced that the compatibility of the decree with EU competition rules will be analysed “objectively and attentively” by the Commission.