On April 6, 2022, the European Commission (“EC”) issued a communication calling for greater vigilance towards foreign direct investment (“FDI”) from Russia and Belarus, and guiding Member States on how best to screen and examine these investments going forward. The EU FDI alert follows the recently adopted EU sanctions package against both countries.
Overview of Russian Investment in the EU
In the period from 2015 to 2020, Russia accounted for around 1% of EU FDI (i.e., 643 deals with a total value of €15 billion). In 2020, Russian individuals and entities had control or influence in around 30,000 EU companies, in particular in the wholesale and retail trade, real estate, and professional, scientific, and technical sectors.
Two thirds of these investments were held by Russian individuals and families, while almost one third do not appear to have a known owner.
Guidance to Member States – Focus on Indirect Russian Investments and Close Cooperation
The EC cautions that there is a heightened risk that any investment related to a person or entity associated with, controlled by, or subject to the influence of the Russian or Belarusian governments (whether sanctioned or not) into critical assets in the EU may pose a threat to the security or public order. While the EU FDI Screening Regulation generally does not apply to investments made directly by entities established within the EU, the EC invites Member States to examine any indirect investments ultimately tied to Russia or Belarus, to the extent permitted by their domestic FDI regimes.
Notably, the EC also calls upon Member States to:
- use their screening mechanisms to prevent security and public order threats related to Russian and Belarusian FDI;
- ensure close cooperation between the public authorities in charge of sanctions and FDI enforcement;
- ensure close cooperation between (i) national authorities and (ii) national banks and institutions, as well as international financial institutions of which Member States are shareholders, to identify potentially threatening Russian and Belarusian investments and facilitate compliance with EU sanctions;
- fully implement the FDI Screening Regulation, through active participation in the cooperation mechanism; and
- ensure full compliance with the requirements of the Anti-Money Laundering Directive to prevent the misuse of the EU financial system.
Moreover, the EC yet again reiterates that it is critical that all Member States set up and enforce fully-fledged FDI screening mechanisms. The national FDI regimes should be comprehensive, allowing for a screening process before investments are made and taking into account the impact on security and public order in a Member State as well as the Union as a whole. National FDI legislation is already in force in 18 Member States. It is expected that the majority of the remaining Member States will follow suit soon.
 Communication from the Commission, Guidance to the Member States concerning foreign direct investment from Russia and Belarus in view of the military aggression against Ukraine and the restrictive measures laid down in recent Council Regulations on sanctions, OJ 2002/C 151 I/01.
 While the EC does not have the power to review and authorize FDI, nor, more generally, act as an overarching regulator, the FDI Screening Regulation facilitates cooperation between the EC and Member States on FDI to guarantee the protection of security and public order. In particular, the FDI Screening Regulation provides that Member States must notify to the EC and all other Member States the FDI undergoing scrutiny. The EC or other Member States can intervene if they wish by providing an opinion. If a third of Member States consider a particular FDI to likely affect security or public order in a Member State or in the EU, the EC must provide its opinion. While such opinion is not binding, it creates pressure on the host Member State, which should take due account of the EC opinion. For a more thorough description of the FDI Screening Regulation, and the recently published first EU FDI annual report, refer to our alert memoranda of October 16, 2020, available here, and of February 17, 2022, available here.
 National controls or screening mechanisms and actions shall be carried out in compliance with EU law and in particular the Treaty provisions on free movement of capital and freedom of establishment.
 Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, OJ L141, of June 5, 2015.
 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee of the Regions Trade Policy Review – An Open, Sustainable and Assertive Trade Policy, COM/2021/66 final.
 According to information provided on the website of the EC’s Directorate-General for Trade (last updated on December 3, 2021), 18 Member States have approved FDI legislation (Austria, Czech Republic, Denmark, Finland, France, Germany, Hungary, Italy, Latvia, Lithuania, Malta, the Netherlands, Poland, Portugal, Romania, Slovenia, Slovak Republic, and Spain) and the remaining nine have not (Belgium, Bulgaria, Croatia, Republic of Cyprus, Estonia, Greece, Ireland, Luxembourg, and Sweden).
 As of August 2021, Belgium, Estonia, Greece, Ireland, Luxembourg, and Sweden had notified the EC that they were planning, or were in the process of, adopting FDI screening mechanisms.