Proposed definition of "particularly sensitive sectors" in the Investment Screening Act

The definition of "particularly sensitive sectors" is key in relation to the scope of the Investment Screening Act. The reason is that investments in Danish companies operating in these sectors will be subject to authorisation if the foreign investor gains influence that corresponds to an ownership interest of 10 %. In its draft Application Order, the Business Authority specifies what is meant by particularly sensitive sectors.

Investeringsscreening på smartphone og kaffe ved siden af

Mandatory sectoral authorisation regime

The Investment Screening Act introduced two screening mechanisms:

A mandatory authorisation regime for investments in particularly sensitive sectors. It applies to all foreign investors who gain "direct or indirect possession or control of no less than 10 % of the shares or voting rights or similar control by other means".
A voluntary cross-sectoral notification regime. This regime applies to non-EU/EFTA investors who gain "possession or control of no less than 25 % of the shares or voting rights or similar control by other means" in companies other than those operating in particularly sensitive sectors.

The definition of particularly sensitive sectors is of paramount importance, because it is determinative as to whether investors established in the EU/EFTA fall within the Investment Screening Act and for investors established outside EU/EFTA, it is determinative as to whether the relevant threshold is 10 % or 25 %. In the Investment Screening Act, the relevant sectors are described using general terms such as "critical infrastructure". In its draft Application Order, which has just been circulated for consultation, the Business Authority has therefore specified the relevant sectors in more detail.

Specification of particularly sensitive sectors and references to the relevant provisions in the Investment Screening Act and in the Application Order
Sector	Defence industry	IT security services or processing classified information	Dual-use products	Other critical technology	Critical infrastructure
Investment Screening Act	S. 6(1)(i)	S. 6(1)(ii)	S. 6(1)(iii)	S. 6(1)(iv)	S. 6(1)(v)
Application Order	S. 7	S. 8	S. 9	S. 10	S. 11

The defence industry

Based on the proposal in the Application Order, the defence industry will include Danish businesses "developing or producing weapons, war material or other technology for military use which appear on EU’s common list of military equipment" and businesses "providing services to the national defence which are of particular importance to its operations."

Whether a business falls within the first category can be easily established by consulting the common military list of the EU and checking if it produces any of the listed equipment. The second category of businesses is less clear. The national defence has many private suppliers, and it is not clear when supplies are deemed to be "of particular importance to its operations", making the supplier subject to the mandatory sectoral authorisation regime.

It follows directly from the Investment Screening Act - and is repeated in the Application Order - that if a Danish business is subject to the Danish War Material Act and the screening mechanism provided for in that Act, then investments in such business will not be covered by the Investment Screening Act. This is understood to mean that only where an investment is subject to screening under the Danish War Material Act will it be exempt under the Investment Screening Act. Accordingly, special financial agreements that generally fall outside the scope of the War Material Act may fall within the scope of the Investment Screening Act.

IT security services or processing of classified information

Based on the proposal, businesses "developing or producing IT products and components used for protection of classified systems or information", whether alone or as subcontractors, and businesses providing services for processing of classified information will be deemed to operate in a particularly sensitive sector.

It means that not only businesses producing or developing services for protection of classified information, alone or as subcontractors, will be covered by the Act. It will also apply to businesses delivering such services even if they have not taken part in the development of them.

Dual-use products

The definition of businesses active in the production of dual-use products was already clear from the Investment Screening Act, which refers directly to businesses that produce any of the dual-use products listed in the EU regulation export control. The common EU list of dual-use items in the regulation is a detailed listing of all dual-use items and can be consulted to determine if a Danish business produces any of those products. Therefore, the Application Order does not provide any further information about the nature of these products, referring simply to the definition in the Investment Screening Act and its reference to the EU regulation.

Other critical technology

In contrast, the definition of other critical technology is not clear from the Investment Screening Act. It is stated that other critical technology includes technology other than products that are related to the defence industry, IT security functions or processing of classified information, and dual-use products.

Based on the Application Order, a business will be deemed to operate in the field of other critical technology if it develops or produces any of the following technologies:

Artificial intelligence and machine learning for autonomous vehicles, imitations of human beings, positioning data analysis and biometric identification
Industrial robot technology
Semiconductors for use in integrated circuits, including technologies that support the production of such semiconductors
Technologies for protection of information security with a view to availability, integrity or confidentiality in IT systems, and defence against IT attacks
Aerospace technology for launch of satellites, persons and other supporting communication technology
Technologies for industrial energy storage, energy conversion and energy transport
Quantum technology in connection with quantum computers, quantum sensors, quantum cryptography and quantum communication
Nuclear technology except products for use in the healthcare sector
Nanotechnology, including advanced materials with graphene
Biotechnology related to synthetic biology
3D prints for production of industrial-use components.

It is stated explicitly in the Application Order that the business will not be covered if the technology developed or manufactured is intended for "products for consumers and these products are generally available, including toys and domestic use consumer products."

The proposed definition serves to clarify which businesses fall within the scope, and any remaining uncertainty may be eliminated by asking the Business Authority to undertake a so-called pre-screening.

Critical infrastructure

The definition of "critical infrastructure" was not clear at the time when the Investment Screening Act was passed. In the Application Order it is proposed to specify in detail when a business will be deemed to operate in the critical infrastructure industry. Initially, it is established that critical infrastructure means "infrastructure, including facilities, systems, processes, networks, technologies, assets and services, which are necessary to maintain or restore functions that are essential to society." And further that the specific definition will be determined on the basis of "sectors essential to society", some of which are underlying "functions that are essential to society". Infrastructure will be considered as critical if it is necessary to maintain or restore underlying functions that are essential to society. If the Danish business owns, operates (outsourcing), develops or produces technology that constitutes critical infrastructure, then the business operates in a critical infrastructure industry.

The Application Order then lists 11 critical infrastructure sectors, each with several subsectors. The 11 overall sectors are:

Energy
Information and communication technology
Transport
Emergency and civil protection
Health
Drinking water and food
Wastewater and refuse collection
Finance and economy
Meteorology
Exercise of public powers in general
General crisis management

As an example of a subsector, central data storage (data storage centres), satellite, radio and television transmission, and news communication delivered to fulfil a public service obligation under the Danish Radio and Television Broadcasting Act are mentioned as a subcategory of 2) IT and communication technology. As in the case of other critical technology, it will be possible to make a pre-screening request to the Business Authority to determine if the business operates in a critical infrastructure industry.

Pre-screening option

It is proposed in the Application Order to introduce a pre-screening process with the Business Authority. This pre-screening right will not be available in relation to all questions of application, however. Pre-screening will only be possible to clarify three questions: whether a business operates in “critical technology”, whether a business operates in “critical infrastructure”, and whether a contemplated new business is exempted as a greenfield investment.

Consultation period

In addition to the Application Order, a draft “order on procedures, etc. in connection with application for authorisation for or notification of certain foreign direct investments or special financial agreements in Denmark” (the Procedural Order) and a draft “order on disclosure of confidential information on certain foreign direct investments, etc. in Denmark to other authorities” (the Confidentiality Order) have been sent for consultation.

The deadline for commenting on the three draft orders is 15 June 2021.