On 31 March 2023, the Norwegian government proposed amendments to the Security Act. The proposal will notably tighten the rules on ownership control by expanding the scope of companies that are subject to a notification obligation. Of equal relevance is that the threshold for notification will be reduced, and both the acquirer and the target enterprise may be subject to a notification requirement.
The amendments are intended to strengthen the ability of the Norwegian government to control economic activities which may pose a risk to national security. The proposal notes that, over time, nefarious actors have shown an increasing willingness to exploit Norwegian vulnerabilities through investment activities. The proposal is part of an international trend consisting of increased control of foreign investment.1
A watershed moment in Norwegian FDI control, and which is heavily referenced in the proposal, relates to the blocking of Rolls Royce's sale of engine factory Bergen Engines AS to the Russian company Transmashholding Group (TMH). Bergen Engines manufactures engines for Norwegian and American navy, among other things. The Norwegian government decided to block the sale under the Security Act. However, the case triggered a debate as to whether the Norwegian authorities' policy instruments were sufficient to safeguard Norwegian security interests in when facing international investments constituting a potential security risk.
Overview of the proposal
i) Expansion of companies subject to a notification order
Currently, only companies that are of decisive importance for fundamental national functions are subject to the Security Act. Under the proposal, the material scope will be softened and extended to include more companies. If the Norwegian Ministry of Justice and Public Security finds that a company controls information, information systems, objects or infrastructure, or engages in activities of decisive importance to national security interests, a decision shall be adopted to include the company under the Security Act, including the rules on notification obligation. This will be relevant in cases where the activity cannot be directly linked to a “fundamental national function”.
The proposal also implies that the Ministry may decide that companies that are of significant importance to fundamental national functions, and activities that are of significant importance to national security interests, but which, in exceptional cases, cannot be directly linked to a fundamental national function, shall be covered by the rules on the obligation to notify.
In addition, suppliers in classified procurements with supplier clearance will be subject to the notification requirements.
ii) Several types of acquisition will be subject to notification
Currently, the obligation to notify relates only to the acquisition of a "qualified ownership interest" in a company which is subject to the notification obligation. The proposal once again softens and expands the scope of acquisitions covered by the Security Act. Under the contemplated changes, acquisitions of 10 percent or more of the share capital, share or votes in the enterprise are subject to a notification. By comparison, the current requirement is one-third of the share capital etc. The proposal also implies that indirect acquisitions in undertakings and acquisitions together with related parties will be covered by the obligation to notify.
iii) Prohibition on sharing of information in acquisitions
Parties to a transaction that is subject to the notification requirement, will under the proposal be forbidden from sharing information which can be used to threaten national security until the transaction has been completed. However, the prohibition against information sharing does not apply to information that is publicly available. A waiver from this requirement can be applied for and granted by the relevant Ministry for the sector in question and/or the National Security Agency.
iv) Standstill obligation for notifiable transactions
Under the current rules, transactions that trigger a notification obligation can be completed prior to authorisation under the Security Act. The proposal introduces a suspension obligation, much akin to that under the merger control rules, that acquisitions that are subject to notification cannot be carried out until the notification has been processed and approved by national authorities.
v) Sanctions for failure to file
The proposal implies that violations of the rules on ownership control, including the filing obligation and standstill obligation, can result in administrative fines or even criminal sanctions.
1For example in the EU: Regulation (EU) 2019/452 on foreign direct investment, and in the UK: The National Security and Investment Act (NSI) of 4 January 2022.