In March 2020, the Swiss parliament adopted the Rieder Motion regarding "Protection of the Swiss Economy Through Investment Controls" and instructed the Swiss Federal Council to draft the necessary legislative basis. On 18 May 2022, the Swiss Federal Council initiated the consultation on the legislation to screen foreign investments. The consultation concluded on 9 September 2022 and its results are currently being evaluated. What does the introduction of a screening process of foreign investment mean for Switzerland as a business hub and will Switzerland now become less attractive to foreign investors?
Calls for Screening Foreign Direct Investments
Acquisitions of Swiss enterprises by foreign investors make the headlines regularly - notable examples are the acquistion of Gategroup by Texas Pacific Group in 2001 (takeovers by Merrill Lynch and the Chinese HNA Group followed at a later stage) and the acquisition of Syngenta by ChemCina in 2017. The most recent example is the 1.5 billion Swiss Francs investment into Credit Suisse by the Saudi National Bank.
Contrary to other States (such as the European Union, the United States, the United Kingdom, India or China), Switzerland does not yet screen or restrict foreign direct investments. This fuels fears that Switzerland could lose know-how and jobs as a result of increasing foreign participations in Swiss companies. The large share of investments from emerging markets and States with lower standards regarding environmental social governance brings additional uncertainties when the decision-making center of Swiss companies relocates abroad. Further, supporters of the new legislation argue that the countries from which a large portion of the investments into Switzerland originate do not grant reciprocal rights to Swiss investors and protect their own enterprises from Swiss takeovers.
Plans for Screening Foreign Direct Investments
The Investment Control Law ("ICL") aims to prevent takeovers of Swiss companies, which endanger or threaten public order or security according to Article 1. The draft envisages a authorization requirement in two scenarios: if takeovers are planned by foreign States or actors close to foreign States or if enterprises in critical areas are concerned (for example in the sectors of defence, energy, transport or health). Acquisitions of companies falling below a threshold of 50 full-time employees or a yearly revenue of less than 10 million Swiss Francs shall not be subject to approvals. In case an authorization is required, the Secretariat for Economic Affairs decides with involved administrative units if an approval can be granted directly or if a screening process must be initiated. In case a screening process is opened, involved administrative units decide on the approval after consultation with the Federal Intelligence Service. If the approval is not granted or the involved units cannot agree, the Swiss Federal Council shall take the ultimate decision.
Arguments against an ICL
The Swiss Federal Council and many voices in the Swiss economy oppose the introduction of an ICL and argue that the costs of such a procedure will outweigh its benefits. Further, Switzerland already has instruments in place to prevent unwanted foreign acquisitions. Companies important for public order or security are held by the Swiss State or are protected by special legislations. Further, competition law and merger controls further have a regulatory effect.
Outlook
It remains to be seen if and how an ICL can be compatible with the constitutional economic freedom and if screening requirements of foreign investments will be worded concisely enough to prevent legal uncertainties and delays in cross-border M&A transactions. Swiss companies should keep an eye on developments around an ICL and confirm before planned acquisitions if they fall within the scope of the ICL.