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Denmark's new foreign investment screening legislation

28 May 2021 Blanka Kolenikova

New legislation will apply in Denmark from 1 June, screening foreign investments in the critical infrastructure, defense, IT security, and dual-use technology (e.g., nuclear power and radio navigation) sectors. The law was passed by the Danish parliament on 4 May.

Investments in these sectors which exceed a 10% ownership stake will be subject to mandatory government screening, while investments deemed by the government to represent a potential threat to Denmark's national security also are subject to screening, regardless of the ownership stake. The screenings will be performed by the Ministry of Industry, Business and Financial Affairs, granting the government complete control over the screening process without third-party oversight. The government has also restricted scope for freedom of information requests related to the screening procedures, meaning there will be no public record of the reasoning behind decisions taken.

Companies already operating within the EU will be exempt from screening unless they are deemed to be under the control of or heavily influenced by a non-EU government. The new law will not affect investments made before 1 September 2021.

Significance

The new law is designed to combat threats to Danish national security and follows similar legislative initiatives in the UK and some EU countries. The law will increase regulatory obstacles for non-EU companies to participate in these sectors or participate in relevant tenders.

The government is likely to favor firms from countries with long-lasting trade and security partnerships, such as the US, Norway, and the UK. However, investments from such countries as Russia and China are highly likely to be subject to government intervention, especially in cases of large ownership stakes or companies dealing with particularly sensitive information.

These dynamics were indicated in Norway in March 2021, when Norway blocked a UK company from completing its planned USD2.76-billion sale of its Norwegian maritime engine maker to a Russian company, citing security reasons. Danish government suspicions of any covert activity by either Russia or China, such as cyberattacks targeting state institutions, would be highly likely to result in more stringent application of the controls.

Posted 28 May 2021 by Blanka Kolenikova, Associate Director – Europe & CIS, Country Risk, IHS Markit

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