Dr. Michael Brüggemann


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Dr. Melanie von Dewall

Senior Associate

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Dr. Michael Brüggemann


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Dr. Melanie von Dewall

Senior Associate

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4 May 2021

Further tightening and expansion of the German investment screening

  • Briefing

The Federal Cabinet approved the 17th AWV amendment to tighten and expand the German investment screening on April 27, 2021. The amendments came into force on May 1, 2021. In order to avoid security risks, the Federal Ministry for Economic Affairs and Energy (BMWi) may review the acquisition of domestic companies by foreign acquirers on a case-by-case basis. This depends firstly on the target company's area of activity and secondly on the percentage of the shareholding acquired.

Last year, the German government had already significantly tightened and expanded the regulations of the Foreign Trade and Payments Act (AWG)/Foreign Trade and Payments Ordinance (AWV), the basic standards of the German investment screening regime (Newsletter from 2020, DER BETRIEB, PDF download of the article). This has been accompanied by a significant increase in audit cases at the BMWi. Last year, two of three planned reform projects were implemented. The expansion of investment screening with further case groups of reportable acquisitions into German law is now taking place in the final step with the so-called 17th AWV amendment. If a non-EU investor intends to acquire 20% or more of the voting rights in a German company in certain future-oriented sectors, a reporting obligation and a prohibition on enforcement with criminal sanctions will apply in the future. This concerns areas of activity such as artificial intelligence, autonomous driving, subsectors of robotics, semiconductors and cyber security. In the area of particularly sensitive critical infrastructures, such as electricity and water supply (cross-sector investment review) or also the defense sector (sector-specific investment review), an initial audit threshold of 10% applies. The inspection threshold of 25% remains in place for all other German companies in the context of the cross-sector investment review. However, this does not entail a reporting obligation.

Below you will find an overview of the changes

The 17th AWV amendment aims to further strengthen the rules for investment screenings by expanding the scope of application. In addition, it is now expressly stipulated that, beyond the acquisition of voting rights, the acquisition of control and management rights is also subject to review. The 17th AWV amendment confirms the existing practice of subjecting share increases/additions to investment screening again, even if the thresholds had already been exceeded prior to the transaction.

Expansion of the catalog of regulatory examples in the cross-sector review regime (Section 55a (1) AWV)

Within the scope of the cross-sector review regime, the reportable facts (so-called regulatory examples) will be increased from 11 to 27. The German government considers the security policy significance of the sectors or technologies covered by these case groups to be particularly high. The new case groups define additional cases in which an impairment of public order or security is particularly likely. A threshold of at least 20% of the voting rights applies.

  1. High-quality Earth remote sensing systems (from the Satellite Data Security Act); (no. 12);
  2. artificial intelligence that could be misused (no.13);
  3. autonomous motor vehicles or unmanned aircrafts (incl. drones) and essential components or software (no. 14);
  4. specific subfields of robotics (no. 15);
  5. certain semiconductors such as integrated circuits on a substrate and discrete semi-conductors as well as optoelectronics (no. 16);
  6. IT products and components for the protection of IT systems, the defence against cyber attacks and IT technology for the investigation of criminal offences and the preservation of evidence by law enforcement agencies (no. 17);
  7. air carriers within the meaning of Regulation (EC) No 1008/2008 and aerospace companies that develop or manufacture certain dual-use goods or technologies intended for aerospace use or for use in space infrastructure systems (no. 18);
  8. nuclear technology developer or manufacturer (no. 19);
  9. developers or manufacturers of goods and essential components of quantum technology (no. 20);
  10. additive manufacturing (3D printing) developer or manufacturer (no. 21);
  11. network technologies, particularly in the area of 5G networks (No. 22);
  12. smart meter gateways and security modules for them (no. 23);
  13. companies that employ persons who provide services important to the Federal Republic of Germany in the field of information and communications technology, e.g., digital radio (no. 24);
  14. raw material producers, processors and refiners as detailed on the EU list of critical raw materials (no. 25);
  15. goods that are legally protected as secret patents (no.26) and
  16. enterprises that directly or indirectly manage an agricultural area of more than 10,000 hectares (no. 27).

The legislator has partly concretized the underlying terminology of the EU Screening Regulation – either by referring to specific German or EU laws such as the Satellite Data Security Act or certain item numbers of Regulation 428/2009. This approach is to be welcomed as it leads to a clearer delineation of the relevant activities than the EU rules. Other member states have merely "copied" the EU rules 1:1 into their national law.

Changes in the sector-specific review regime

In future, in the sector-specific review regime, reference will be made to all military equipment as defined in Part I Section A of the Export List. Previously, only individual list items in the defense industry sector were covered. A newly introduced second case group covers certain defense technology to which secret patents or certain secret utility models relate, develop, manufacture, modify or hold. These patents and utility models are classified as state secrets based on an examination. For reasons of secrecy protection, affected companies must ensure that the patents and technologies are not published and that there is no outflow of know-how abroad. While the third case group of the sector-specific regulation (products with IT security functions for processing classified information of the public sector) remains largely unchanged, the 17th AWV amendment introduces a fourth category of "defense-related" facilities as defined by the Security Clearance Act, i.e. Facilities outside the jurisdiction of the German Federal Ministry of Defense that serve to establish or maintain defense readiness and whose impairment, in the absence of short-term substitutability, poses a significant threat to the ability to function, in particular to equip, command and support the Bundeswehr and allied armed forces as well as civil defense. The fourth category covers companies that are directly involved in the construction of defense equipment, for example.

Adjustment of the initial review thresholds

The initial review thresholds in the context of the cross-sector investment review are now staggered. Previously, a review threshold of 10% applied to all regulatory examples of Section 55 (1) AWV (old version). However, due to the principle of proportionality, the legislator now considered it necessary to limit the particularly strict initial review threshold of 10% in the future to critical infrastructures (within the meaning of nos. 1 to 7 in Section 55a (1) AWV) and the defense sector (sector-specific review). This is to be welcomed, as the 10% review threshold for all reportable acquisitions and the associated penalty-based enforcement prohibition was perceived as too far-reaching a burden on transaction practice. For the other case groups no. 8 to 27 of Section 55a (1) AWV, a review threshold of 20% now applies. Otherwise, no reporting obligation applies to companies. The general review entry threshold is 25% in the area of cross-sector investment reviews for all other companies.

Atypical Acquisition of Control as a New Record and Control Factor

The 17th AWV amendment now clarifies that, in line with the previous practice of the BMWi, "additional acquisitions" above the initial review thresholds also fall within the scope of the investment screening. However, the undifferentiated approach still envisaged in the draft bill has not been chosen. Instead, the legislator has opted for a graduated model. For reasons of proportionality, the review relevance of acquisitions is now limited to certain thresholds that are particularly relevant under company law. These are the thresholds of 25%, 50% and 75%, which, when reached or exceeded, are directly associated with a consolidation of shareholder positions and correspondingly extended rights of influence or control under company law.
What is new and particularly relevant is that control rights outside of formal voting rights can trigger an examination by the BMWi (but they do not trigger a reporting obligation). The German government refers to the appointment of supervisory bodies, management boards as well as veto rights for strategic business decisions and extensive information rights. For the interpretation of these undefined terms, it is useful to refer to antitrust law, as the examination of (co-)control rights is a standard part of merger control.

Change in procedural law

The existence of a notification obligation in the area of cross-sector review in accordance with one of the specifically regulated case groups of the new Section 55a (1) AWV and a parallel (alternative) application for the issuance of a clearance certificate for activities that are not specifically named are mutually exclusive in the future. I.e., it is not possible to apply for clearance certificate along with a notification. In addition, it is clarified that the BMWi can switch from the cross-sector to the sector-specific review and vice versa. The practice of the last few years shows that more and more cases are at the interface of the areas of application of cross-sector and sector-specific investment screening. Often, it can only be determined in the further course of the procedure, after receipt and examination of detailed information, which examination procedure is actually relevant in the specific case.

Implications for investors

Germany and the EU still have one of the most open investment review regimes in the world. In this respect, the latest adjustments are to be welcomed as an approximation to international standards. In practice, prohibition decisions are still likely to be issued only in exceptional cases. Nevertheless, the 17th AWV amendment will have far-reaching effects on foreign investments in Germany. The number of reportable transactions is likely to more than double. Considering the severe sanctions (including up to five years of imprisonment in case of a wilful violation), it is to be welcomed that the draft law provides more legal certainty than the undefined terms in the EU Screening Regulation. From the perspective of M&A practice, the differentiated screening thresholds of 10%, 20% or 25% for the initial acquisition and the defined thresholds for the additional acquisition of voting shares are also positive. Investors and target companies would be well advised to pay even more attention to the preparation of the AWV investment review in view of the expansion of the reportable regulatory examples and the corresponding penalty-based prohibition of enforcement as well as the sometimes still long duration of proceedings. A corresponding time frame should be planned for a possible notification of the transaction to the BMWi.

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