Foreign direct investment reviews 2021: Romania

Lucian Bondoc and Raluca Ioana Voinescu authored this publication¹

As a matter of principle, foreign direct investment (FDI) that falls under the scope of the economic sectors defined under the law as relevant to national security is subject to review by the relevant authorities, and may be prohibited by the Romanian government in cases where the investment is deemed to pose a threat to national security.

Review and control of FDI in Romania falls under the competence of the National Council for Country's Defence (CSAT). In essence, CSAT is an executive body chaired by the President of Romania and having the Prime Minister as its co-chair.

CSAT has the prerogative to advise the government to prohibit the closing of a transaction on the grounds that it may pose a threat to Romanian national security. However, there are as yet no reports that CSAT, in reviewing a transaction from a national security perspective, concluded that it may pose a security threat and consequently recommended its prohibition by the government.

Notification to CSAT regarding a transaction is always made via the Romanian Competition Council (RCC), which acts as proxy between the notifying party and CSAT.

Although the RCC does not have any jurisdiction over national security (being concerned exclusively with competition law), the RCC is the recipient of notifications of transactions—as part of its antitrust merger control—which may also be subject to CSAT review.

Since CSAT does not have a dedicated administrative apparatus for dealing with the receipt of notifications, legislators adopted a procedure whereby the RCC acts as a "one-stop shop," being mandated under the law to receive and forward to CSAT notifications not only of transactions subject to merger control, but also of any other transactions that fall under the scope of CSAT review.

WHO FILES

Undertakings that merge or that acquire sole or joint control, in an economic concentration, file in Romania. The parties to these transactions are referred to as "notifying parties."

A procedural distinction is made regarding whether the transaction is subject to merger control:

• If the transaction is subject to merger control, the notifying party files a merger notification with the RCC (per the usual merger filing format), without any specific mention of CSAT and without performing any assessment of whether the transaction falls under the scope of CSAT review. It is the obligation of the RCC to assess the transaction and decide whether to inform CSAT about it. The RCC will inform the notifying party when it has decided to inform the CSAT, and keep the notifying party informed as to the response received from CSAT
• If the transaction is not subject to merger control, the notifying party prepares and files with the RCC a specific CSAT notification, which consists of a brief summary of the main elements of the transaction including identity of the parties, the structure of the transaction, the target company and its business scope, as well as the economic sector where it operates. The RCC does not make its own assessment in this case, but merely forwards the notification to CSAT and acts as an intermediary between the notifying party and CSAT

TYPES OF DEALS REVIEWED

According to CSAT Decision No. 73/2012, transactions subject to the CSAT Control are those that concern the following economic sectors/domains:

• Security of individuals and of communities
• Security of frontiers
• Energy security
• Transportation security
• Vital supply systems security
• Critical infrastructure security
• IT&C systems security
• Security of financial, fiscal, banking and insurance activities
• Security of weapons, ammunition, explosives and toxic substances production and circulation
• Industrial security
• Protection against disasters
• Protection of agriculture and the environment
• Protection of state-owned company privatization or their management

The economic sectors that invoke CSAT review are both broadly and vaguely formulated, which make it quite challenging to determine whether certain transactions (e.g., the ones that concern sectors more or less linked to the ones above) fall under the review.

One practical consequence of such vagueness is that, when in doubt, many investors prefer to notify transactions to CSAT (in cases where the transactions are not subject to merger control), leading to an overload at CSAT and unwanted delays.

SCOPE OF THE REVIEW

When CSAT reviews a transaction from the perspective of national security, its objective is to identify any actual or potential risks the deal may pose to the national security interests of Romania based on the nature of the economic sector concerned, the role and importance of the target company, the undertaking that acquires control and any foreseeable consequences of such control.
CSAT enjoys a discretionary power in assessing national security threats and taking appropriate measures to counter them. Decisions taken by CSAT in this process are not subject to judicial review.

TRENDS IN THE REVIEW PROCESS

Since the activity of CSAT is not public, trends in the review process are difficult to pinpoint. The wording of recent clearance responses given by CSAT regarding transactions reviewed from a national security perspective seem to comprise a certain disclaimer that was not used earlier.

For example, in recent clearances, CSAT mentions that, based on its assessment, no elements were identified "up to the current date" that would render the transaction likely to pose security risks; previously, "up to the current date" was not included.

HOW FOREIGN INVESTORS CAN PROTECT THEMSELVES

Foreign investors can protect themselves by ensuring that any transaction carried out in Romania is verified from a CSAT review perspective (in other words, verifying whether the relevant economic sector is one requiring review), in addition to satisfying other regulatory clearances which may be required, such as merger clearance by the RCC. 

In case of transactions falling under CSAT review by virtue of the economic sector, CSAT clearance would need to be a condition precedent to the closing of the transaction. A transaction prohibited following CSAT review would have to be cancelled.

REVIEW PROCESS TIMELINE

There is no formal deadline for CSAT to issue its response. The relevant legal provisions state that if CSAT decides that the transaction is not susceptible to raising national security risks, such outcome will be communicated immediately to the RCC, which will forward it promptly to the notifying party. An average two months' term is to be expected for the CSAT to carry out its analysis and inform the RCC of the outcome. Normally, the RCC is prompt in forwarding the clearance response of the CSAT to the notifying party.

When CSAT concludes that a transaction may pose a national security threat and needs to be further assessed, the RCC will inform the notifying party within 7 days, and if also applicable, the merger clearance procedure will be suspended. Should the assessment reveal that the transaction should be prohibited, the CSAT immediately informs the RCC and the RCC has ten days to inform the notifying party. In case the respective transaction was subject to merger control also, such procedure is immediately terminated as it remains without object.

2021 UPDATE HIGHLIGHTS

On July 29, 2021, the RCC republished for public consultation the Draft Government Emergency Ordinance on measures for the implementation of the EU Regulation 2019/452, establishing a framework for the screening of foreign direct investments into the Union (Draft FDI Ordinance). The public consultation period ended on August 15, 2021, but at this writing, the Draft FDI Ordinance has not yet been adopted.

The Draft FDI Ordinance provides a new regime for FDI, in accordance with the EU Regulation 2019/452, and it applies to foreign direct investments made by foreign investors that fulfill the following two criteria:

• The value of at least the equivalent of €2 million, or investments below such threshold, which by their nature may have a significant impact on security or public order, or that present significant risks to them
• The activity is within the scope of the domains mentioned in the CSAT Decision No. 72/2012 or concerns critical infrastructure or technology, or other important domains (e.g., freedom or pluralism of media, supply in terms of critical production factors, including energy or raw materials, access to sensitive information, etc.) as provided in the Draft FDI Ordinance

According to the Draft FDI Ordinance, a new public body with jurisdiction in the FDI area, under the subordination of the government, shall be established: The Commission for Examination of Foreign Direct Investments.

_{1 Lucian Bondoc (+40 723 660 942, lbondoc@bondoc-asociatii.ro) and Raluca Ioana Voinescu (T +40 31 224 8400, rvoinescu@bondoc-asociatii.ro) are partners with Bondoc si Asociatii SCA. White & Case LLP has no affiliation with Bondoc si Asociatii SCA.}

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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