Foreign Investment in Norway 2024

Foreign Investment in Norway 2024

Foreign Investment in Norway 2024

FOREIGN INVESTMENT 2024

NORWAY

Henrik Nordling, Alida Masvie Hovland

(CMS Kluge)

LAW AND POLICY

Policies and practices

  1. What, in general terms, are your government’s policies and practices regarding oversight and review of foreign investment?

The investment regime in Norway is liberal and open, and the government encourages foreign investments. The government’s general policies and practices regarding oversight and review of foreign investments are limited to the National Security Act. However, the ability to review a transaction is not contingent on the nationality of the acquirer, rather the Norwegian regime is based on assessing a national security impact that applies in all circumstances, including acquisitions by Norwegian companies. Naturally, the identity of the acquirer will be relevant in a substantive assessment of whether the investment generates a risk with regard to national security. In this sense, an assessment will be made of the nature and type of activities of the target with regard to their inherent sensitivity from a national security perspective. This will be reviewed against the identity of the acquirer and whether there are any risks that can be linked to it.

Norway has no currency restrictions. However, there are several other regulatory approval schemes linked to transactions, including merger control by the Competition Authority.

Main laws

  1. What are the main laws that directly or indirectly regulate acquisitions and investments by foreign nationals and investors on the basis of the national interest?

The review of acquisitions and investments by foreign nationals and investors on grounds of national security in Norway are governed by the Norwegian National Security Act of 1 June 2018 No. 24 (NSA). The NSA is intended to help prevent, detect and counter activities that present a threat to national security, and ensure that security measures are implemented in accordance with the fundamental legal principles and values of a democratic society. The NSA is meant to exist as a dynamic framework for the most critical security interests in our society, without detailed safety regulations.

The key provisions of the NSA are:

  • section 13, which allows a government ministry to adopt a decision to apply the NSA to undertakings within its field of responsibility;
  • chapter 10 on ownership control, which requires the notification of an acquisition of a ‘qualified ownership interest’ in a company made subject to the NSA by way of decision under section 1-3; and
  • section 2-5, which allows the government to prohibit any activity (including transactions) that can lead to a not insignificant risk to national security.

Scope of application

  1. Outline the scope of application of these laws, including what kinds of investments or transactions are caught. Are minority interests caught? Are there specific sectors over which the authorities have a power to oversee and prevent foreign investment or sectors that are the subject of special scrutiny?

The NSA does not distinguish between foreign and domestic investments. The rules of ownership control in the NSA are applicable regardless of the acquirer’s nationality, namely, the rules apply to both foreign and domestic acquirers without discrimination.

There are two facets to the Norwegian regime. This includes, on the one hand, the mandatory notification of investments in companies that have explicitly been made subject to the NSA, and, on the other, a broad general provision to order the notification of investments of concern.

First, as regards mandatory notification, investments must always be notified when the target is a company that has been made subject to the NSA by way of decision issued by a government ministry under section 1-3 NSA. Each ministry has a delegated authority, within its field of competence, to issue administrative decisions rendering a company subject to the NSA. This authority is discretionary, but limited to situations where a company:

  • handles classified information;
  • handles information, information systems, objects or infrastructure that are of vital importance for fundamental national functions, or of vital importance to national security interests; or
  • is engaged in activities of vital importance for fundamental national functions or vital importance to national security interests.

Prior to issuing a decision, a ministry must first give notice to the company in question. The company is given the opportunity to present its comments to the ministry.

Examples of undertakings that are covered by the provisions on ownership control are companies in the defense, telecommunications, transport and energy sectors, food and water supply and health services. However, there is no public list of which companies have been made subject to the NSA.

Acquisitions of ‘qualified interests’ in undertakings subject to the NSA must be notified. Currently, a ‘qualified interest’ is defined as:

  • at least one-third of the share capital or voting rights;
  • right to own at least 1/3 of the share capital; and
  • determinant influence on the undertaking by other means.

However, these thresholds will be significantly reduced in the near future, as a change in the law has been adopted which would include acquisitions of 10 per cent of the share capital, and recurring filing obligations if the following thresholds are crossed: 20 per cent,  one-third, 50 per cent, two-thirds and 90 per cent.

Second, as regards the general prohibition, section 2-5 NSA allows the government to adopt decisions necessary to prevent ‘activities’ that present a not insignificant threat to national security. This provision is purposefully broad and is designed as a ‘safety valve’ to ensure a means of reviewing and, possibly, blocking transactions that raise national security concerns. However, the preparatory works to the NSA clearly state that it should only be used in ‘limited and serious’ situations. To date, the provision is only publicly known to have been applied once.

Definitions

  1. How is a foreign investor or foreign investment defined in the applicable law?

The provisions on ownership control in the NSA are not directed specifically towards foreign investors or foreign investment as such, and apply both to foreign and domestic acquirers without discrimination. As a result, the NSA does not define terms such as ‘foreign investor’ or ‘foreign investment’. Rather, the objective of the NSA is to guard against investments that raise a national security concern.

Special rules for SOEs and SWFs

  1. Are there special rules for investments made by foreign state-owned enterprises (SOEs) and sovereign wealth funds (SWFs)? How is an SOE or SWF defined?

There are no specific rules for investments made by foreign SOEs or SWFs. The provisions on ownership control are applicable regardless of the acquirer’s nationality.

Relevant authorities

  1. Which officials or bodies are the competent authorities to review mergers or acquisitions on national interest grounds?

The competent authority to review mergers or acquisitions on national interest grounds is the individual ministry with competence for the sector in which the relevant undertaking is engaged. If the company does not fall within the sector of any ministry, the Norwegian National Security Authority has competence to conduct the review.

The ministries and the Norwegian National Security Authority have the power to approve an acquisition, but they cannot prohibit an acquisition. If an acquisition is to be prohibited, the decision must be taken by the government.

  1. Notwithstanding the above-mentioned laws and policies, how much discretion do the authorities have to approve or reject transactions on national interest grounds?

The NSA is intended to provide a dynamic framework to address the most critical security interests in Norway, and although there is a not insignificant margin of discretion, any prohibition decision must still be adopted according to general principles of administrative law.

PROCEDURE

Jurisdictional thresholds

  1. What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?

There are no nominative jurisdictional thresholds in Norway.

Mandatory notification applies only to acquisitions of ‘qualified ownership interest’ in a company that has been made subject to the National Security Act of 1 June 2018 No. 24 (NSA) by way of an administrative decision under section 1-3 NSA. Each ministry has a delegated authority, within its field of competence, to issue administrative decisions rendering a company subject to the NSA.

A ‘qualified ownership interest’ encompasses the situations where the acquisition will, overall, give the acquirer, either directly or indirectly:

  1. at least one-third of the share capital, participating interests or votes in the undertaking;
  2. the right to own at least one-third of the share capital or participating interests; or
  3. significant influence over the company through other means.

Item (3) has an open-ended wording and is meant to cover all other types of control over the company. According to the preparatory works to the NSA, this covers the situation where the size of the share entitles the owner to appoint the majority of the board and change the company by-laws.

However, these thresholds will be significantly reduced in the near future, as a change in the law has been adopted which would change the definition of ‘qualified ownership interest’ to include acquisitions of 10 per cent of the share capital, and a recurring filing obligations if the following thresholds are crossed: 20 per cent, one-third, 50 per cent, two-thirds and 90 per cent.

Notification of an acquisitions of a ‘qualified ownership interest’ is mandatory. Under the forthcoming amendment, a standstill obligation will also be introduced.

The Norwegian regime also includes a ‘safety valve’ provision under section 2-5 NSA allowing the government to adopt decisions necessary to prevent ‘activities’ that present a not insignificant threat to national security. This is a broadly worded provision which, according to the preparatory works to the NSA, can apply to acquisitions. However, it is important to note that it is meant to be used only in ‘limited and serious’ situations. To date, the provision has only been applied once.

National interest clearance

  1. What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees? Is filing mandatory?

The filing must be submitted to the relevant ministry responsible for the sector in question. If the undertaking does not fall within the field of responsibility of any ministry, the filing must be submitted to the National Security Authority. There are no filing fees connected to the process for obtaining national interest clearance of transactions and other investments.

There is no specific notification form, but pursuant to the Regulations Relating to the Protective Security Work of Undertakings (FOR-2018-12-20-2053), the acquirer must provide the following information as part of the notification:

  • the acquirer’s name, address, company register number, birth number or similar number;
  • the company register number of the company to which the acquisition relates;
  • the acquirer’s ownership share after the acquisition concerned is completed;
  • the ownership structure of the acquirer;
  • the names of the persons who are members of the acquirer’s board of directors;
  • the names of the persons who are members of the acquirer’s management;
  • possible relations between the acquirer and other existing owners of the company to which the acquisition relates;
  • the acquirer’s ownership interests in other companies that are covered by the NSA;
  • the acquirer’s ownership interests in other companies within the sector concerned;
  • the acquirer’s annual turnover and annual accounts for the last five years, to the extent this information is available; and
  • other circumstances that the acquirer believes may be of relevance for the assessment of whether the acquisition will be approved.

The objective is to ensure that the authorities are able to consider the investor’s total influence on the target, and the investor’s reliability.

In order for the acquisition to be subject to a mandatory notification under the NSA, the target must have been made subject to the NSA by a formal decision under section 1-3 NSA. There is no public overview of which companies have been issued with a section 1-3 decision. However, the National Security Authority may provide guidance on whether a company has been brought within the scope of the NSA, on a case-by-case basis.

  1. Which party is responsible for securing approval?

Any person ‘who wishes to acquire’ a qualified ownership interest in an undertaking that is subject to the NSA shall notify the ministry accordingly. The responsibility for obtaining the necessary approval thus, currently, rests on the investor.

However, a change in the law will extend the filing obligation to the seller and the target company, as well as the acquirer.

Review process

  1. How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?

Within 60 working days from the date of notification, the relevant ministry or the National Security Authority must inform the notifying party that either the acquisition has been approved or the matter has been referred to the government for further review. If the ministry or the National Security Authority submits a written request for further information within 50 working days of the notification being submitted, the review period will be suspended until the acquirer’s reply is received.

If the relevant authority does not consider the acquisition to be a potential threat to national security, it will clear the acquisition and notify the acquirer of the clearance. If the relevant authority identifies a potential threat to national security, it will refer the acquisition to the government for a final decision. There is no timeline for the government to issue a final decision.

There are no exemptions or any provisions regarding expedited or ‘fast-track’ procedures.

  1. Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?

Currently, the approval of the acquisition can be obtained prior to, or after, closing. The notification to the relevant ministry does not have a suspensory effect, and there are no penalties if the parties implement the transaction before the approval has been granted. However, if approval is refused, the transaction will have to be reversed.

However, and importantly, an adopted change to the law expected to enter into force in the first quarter of 2024 will introduce a mandatory suspension regime prohibiting the parties from closing prior to authorization. As it stands though, there are no specific sanctions that have been introduced for a violation of the suspension obligation.

The adopted change will also introduce a prohibition, within the context of the transaction, on the exchange of sharing information that can be used to undertake security-threatening activities. Consent for this exchange between the parties to the transaction can, however, be requested.

Involvement of authorities

  1. Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?

The NSA is silent on the issue of whether potential investors can engage in advance consultations with the authorities and ask for formal or informal guidance on the application prior to a filing being made.

Under general administrative law, the authorities are required to provide general guidance to a certain extent. To this end, pre-notification consultations can be conducted.

  1. When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?

There are no set rules on the involvement of advisors in the review procedure. However, external legal counsel are usually involved at some stage in the procedure.

The reviewing authority will request advisory opinions from relevant governmental bodies with expertise in the relevant specialist area. It will be the ministry that receives the notification that must assess the case and decide how it should be handled. The Police Security Service, the National Security Authority and the Intelligence Service are examples of relevant bodies it would be natural to consult in such situations.

There are no official informal procedures.

  1. What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?

Section 2-5 NSA allows the government to adopt decisions necessary to prevent ‘activities’ that present a not insignificant threat to national security. This provision is purposefully broad and is designed as a ‘safety valve’ to ensure a means of reviewing and, possibly, blocking transactions that raise national security concerns. However, the preparatory works to the NSA clearly state that it should be used only in ‘limited and serious’ situations. To date, the provision is only publicly known to have been applied once.

SUBSTANTIVE ASSESSMENT

Substantive test

  1. What is the substantive test for clearance and on whom is the onus for showing the transaction does or does not satisfy the test?

The substantive test is whether the transaction presents a ‘not insignificant risk of a threat to national security interests’.

That the activity must be able to lead to a not insignificant risk implies that there will be no intervention if this risk appears unlikely, or there is only a theoretical possibility of it. The threshold for probability must otherwise be seen in connection with the possible consequences of the activity in question. If the consequences for national security interests are catastrophic, the threshold for prohibiting an investment will be low. Conversely, the threshold can be raised if the consequences of the activity in question are considered small.

This proportionality assessment will have to be made where the consideration of national security interests is weighed against the negative consequences the decision will have for the company in question.

‘national security interests’ involves matters pertaining to Norway’s sovereignty, territorial integrity and democratic system of government, and general political security interests related to:

  • the activities, security and freedom of action of the highest state bodies;
  • defense, security and contingency preparedness;
  • relations with other states and international organizations;
  • economic stability and freedom of action; and
  • fundamental societal functions and the basic security of the population.

It is for the government to demonstrate that a criterion for intervention is fulfilled in order for it to issue a prohibition decision. In practice, however, the onus is on the notifying party to make the case that the transaction does not meet the requisite standard.

  1. To what extent will the authorities consult or cooperate with officials in other countries during the substantive assessment?

There are no express rules as to when the National Security Authority will consult with officials in other countries; any cooperation will depend on a case-by-case approach.

Other relevant parties

  1. What other parties may become involved in the review process? What rights and standing do complainants have?

The reviewing authority must, as a general rule, obtain relevant opinion from government bodies as a basis for assessing the acquisition’s risk potential and whether the acquirer represents a threat to national security. Beyond this, the authority may seek to obtain any information that it deems relevant for its review of the matter.

There are no express rights for third parties in the review procedure.

Prohibition and objections to transaction

  1. What powers do the authorities have to prohibit or otherwise interfere with a transaction?

The National Security Act of 1 June 2018 No. 24 (NSA) allows for a transaction to be prohibited or subject to commitments if it leads to a ‘not insignificant risk of a threat to national security interests’. The scope of this right is broad, and a prohibition decision can be accompanied by ‘any measures’ necessary to give full effect.

  1. Is it possible to remedy or avoid the authorities’ objections to a transaction, for example, by giving undertakings or agreeing to other mitigation arrangements?

Yes. The authorities have the power to authorize a transaction subject to commitments that eliminate the national security concerns. There are no specific rules on what types of remedies can be offered, or whether these include both structural and behavioral commitments.

In October 2022, the government authorized, subject to commitments, the acquisition of a qualified interest in GlobalConnect AS parent company (Nordic Connectivity AB, based in Sweden) by Mubadala Investment Company, an Abu Dhabi-based fund. The commitments relate, essentially, to:

  • prevent sensitive information about Norwegian security interest from flowing to unauthorized persons;
  • ensure timely notification to the Norwegian authorities in the event of any future security-threatening changes of ownership; and
  • imposing certain restrictions on the resale of shares.

Challenge and appeal

  1. Can a negative decision be challenged or appealed?

Yes, a decision by the government to prohibit an acquisition can be appealed before the ordinary courts pursuant to the general rules regarding review of administrative decisions.

The judicial review is limited to reviewing whether the government had a legal basis for its decision, whether it was in compliance with the procedural rules and whether the refusal to approve the acquisition was arrived at on the correct factual basis. A court may also decide whether the decision was in accordance with the principles of objectivity and equality in administrative law.

If the court finds that the refusal to approve the acquisition was unlawful, the court will invalidate the refusal. The authorities may, however, issue a new prohibition after a further review of the case, provided the grounds for invalidation were, in this review, found to have been rectified.

A prohibition decision may be appealed before the courts by either the acquirer or the seller of shares or other ownership interests, as both will have the necessary standing.

Confidential information

  1. What safeguards are in place to protect confidential information from being disseminated and what are the consequences if confidentiality is breached?

Under the Norwegian Freedom of Information Act, the starting point is that any document that is sent to or from an administrative authority is accessible to the general public. However, there are many exceptions to this main rule. For example, information that qualifies as trade secrets is generally excluded from disclosure.

The disclosure by the reviewing authority of confidential information can lead to a stand-alone damages award.

An adopted change to the law will also introduce a prohibition on the exchange of certain types of national security information between parties to a transaction subject to review. Here, parties must seek consent from the competent ministry to exchange this information.

RECENT CASES

Relevant recent case law

  1. Discuss in detail up to three recent cases that reflect how the foregoing laws and policies were applied and the outcome, including, where possible, examples of rejections.

Section 2-5 of the National Security Act of 1 June 2018 No. 24 (NSA) has been used only once, in the blocking of the sale of Bergen Engines in March 2021.

At the turn of the year 2020–21, the Russian company TMH International tried to buy the naval propulsion provider Bergen Engines. Bergen Engines produces maritime engines for both the Norwegian and United States navies. The company possesses technology to produce advanced engines.

Bergen Engines was initially not covered by the NSA, and neither buyer nor seller were obligated to notify the relevant ministry. However, two of the largest shareholders in TMH were Russian citizens with alleged close connections to the Kremlin and Russian presidency, which raised concerns for the government.

On 9 March 2021, the government decided to prohibit the transaction. Because Bergen Engines was not covered by the NSA, the government had to apply the ‘safety valve’ under section 2-5 NSA. The government’s decision rested, essentially, on the close links that two of the acquirer’s individual shareholders had with the Russian authorities. These close links, in turn, created a risk that classified information pertaining to machinery on board Norwegian Navy vessels would fall into the hands of the Russian government – a risk made more acute given that Norway shares both a land and sea border with Russia, and the Russian Northern Fleet is stationed just beyond the border in Murmansk.

More recently, in October 2022 , the government authorized, subject to commitments, the acquisition of a qualified interest in GlobalConnect AS parent company (Nordic Connectivity AB, based in Sweden) by Mubadala Investment Company, an Abu Dhabi-based fund. The commitments relate, essentially, to:

  • preventing sensitive information about Norwegian security interest from flowing to unauthorized persons;
  • ensuring timely notification to the Norwegian authorities in the event of any future security-threatening changes of ownership;
  • imposing certain restrictions on the resale of shares; and
  • this indicates that specific national security concerns can be handled in a pragmatic manner, although this requires preparation and dialogue between the parties and the authorities.

UPDATE AND TRENDS IN FOREIGN INVESTMENT IN NORWAY

Key developments of the past year

  1. Are there any developments, emerging trends or hot topics in foreign investment review regulation in your jurisdiction? Are there any current proposed changes in the law or policy that will have an impact on foreign investment and national interest review?

On 31 March 2023, the Ministry of Justice issued a proposal with several significant changes to the NSA review regime. these were subsequently adopted by parliament in June 2023 and are as follows.

  1. lowering the thresholds for triggering events. Currently, the NSA defines a qualified interest as 1/3 the share capital. Under the proposal, this threshold would be lowered to 10 per cent as well as introducing recurring filing obligations each time the following thresholds are breached: 10 per cent, 20 per cent, one-third, 50 per cent, two-thirds and 90 per cent;
  2. introducing a standstill obligation for acquisitions of qualified interest;
  3. introducing a prohibition on the sharing of certain information between the parties;
  4. introducing criminal sanctions for failure to notify an acquisition; and
  5. extending the scope of companies that can be made subject to the requirements of the NSA.

Currently, only item (5) has entered into force. It is expected that the other items will enter into force in Q1 2024.

* The information in this chapter was accurate as at December 2023.

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