Two important information to remember from the Annual report on the control of foreign investments in France in 2022

Published on 9 May 2023, the Annual Report on the Control of Foreign Investments in France in 2022 mentions two important information. First, it presents the sanction procedure in the event of a breach of the rules on controlling foreign investments in France, which would suggest that the French Treasury could consider opening investigations in this area.  Second, it mentions that the temporary lowering to 10 percent of the voting rights of a French listed company of the threshold triggering the application of this control established because of the COVID-19 epidemic will be made permanent.

1. On 9 May 2023, the French Directorate General of the Treasury (Direction générale du Trésor) published its Annual activity report on the control of foreign investments in France in 2022 (Rapport annuel d’activité sur le contrôle des investissements étrangers en France en 2022).  Under the supervision of the French Minister in charge of economic affairs, this service oversees the implementation of this control by reviewing notifications for the authorization of a foreign investment or a prior opinion on whether such investment shall be prior allowed, leading the French Joint Committee for Foreign Investments in France (Comité interministériel des investissements étrangers en France), and investigating possible infringements to the French rules on control of foreign investments.
2. In addition to interesting statistical information on the practice of foreign investment control in France in 2022 and the assessment of last year’s activity in this area by Mr. Bruno Le Maire, French Minister of Economic Affairs, Finance and Industrial and Digital Sovereignty (ministre de l’Economie, des Finances et de la Souveraineté industrielle et numérique), and Mr. Emmanuel Moulin, French Director General of the Treasury (Directeur general du Trésor), this annual activity report contains two important pieces of information worth detailing below.
3. First, page 16 of the Annual activity report on the control of foreign investments in France in 2022 includes a diagram presenting the sanction procedure in the event of a breach of the rules on this control.  Four infringements are listed in this diagram:
   • closing an investment without authorization;
   • non-compliance with all or part of the conditions set out in an authorization;
   • total or partial non-execution of an order (injonction) of the French Minister in charge of economic affairs; and
   • obtaining an authorization by fraud.
4. The Annual activity report on the control of foreign investments in France in 2021 did not mention the existence of sanctions or a sanction procedure.  Referring to the sanction procedure in the annual activity report for 2022 could suggest that the French Treasury would consider opening one or more investigations into possible breaches of the rules on control of foreign investments in France.
5. As a reminder, the sanctions in the event of a breach of the rules on control of foreign investments in France are harsh and of 3 types, which can be applied together to the same breach:
   • commitments, contracts and/or contractual clauses allowing directly or indirectly the performance of the investment concerned are deemed null and void ab initio (French Monetary and Financial Code (Code monéraire et financier), Art. L. 151-4);
   • the French Minister in charge of economic affairs is empowered to impose any or all the following administrative sanctions, following an adversarial investigation by the Treasury (French Monetary and Financial Code, Art. L. 151-3-1, and L. 151-3-2):
     • an order, to which a period penalty payment may be coupled (if necessary), for the purposes of presenting a notification for the authorization of the investment concerned, modifying said investment or restoring the status quo ante at the expense of the perpetrator of the breach; and/or
     • a fine, the amount of which may not exceed the highest of the following ceilings: twice the amount of the investment concerned, 10 percent of the target’s worldwide consolidated turnover or one million euros if the perpetrator is a natural person and 5 million euros if it is a legal person;
   • French courts may decide any or all the following criminal penalties after a police or a criminal inquiring judge’s investigation (French Customs Code (Code des douanes), art. 459(1)):
     • a prison sentence which cannot exceed 5 years;
     • the confiscation of the investment concerned, and the direct and indirect profits generated by it; and/or
     • a fine which the amount shall be set between the amount of the breach and twice that amount.
6. Secondly, page 17 of the Annual activity report on the control of foreign investments in France in 2022 specifies that the temporary threshold consisting in having 10 percent of voting rights in a French listed company and triggering the control will become permanent.
7. The following three types of investments fall within the scope of application of the control of foreign investments in France (French Monetary and Financial Code, Art. R. 151-2, indent 1):
   • the acquisition of the control of an entity governed by French law;
   • the purchase of all or part(s) of a branch of activity of an entity governed by French law; or
   • the meeting, directly or indirectly, alone or in concert, of a threshold consisting in having 25 percent of the voting rights of an entity governed by French law.
8. In July 2020 and due to the COVID-19 epidemic, this 25 percent threshold has been temporarily lowered to 10 percent until the following 31^st December.  The reduced threshold of 10 percent only has applied to operations falling within the scope of application of the control of foreign investments in France, carried out by a natural or legal person who is not a national of a Member State of the European Union or the European Economic Area and targeting French listed companies (French Decree No. 2020-892 of 22^nd July 2020 concerning the temporary lowering of the control of foreign investments thresholds in French companies which shares are admitted to trading on a regulated market, Art. 1^st).  The reduced threshold has led to the implementation of a summary control procedure by the French Treasury.
9. The reduction to 10 percent of voting rights in a French listed company threshold has been renewed for the years 2021, 2022 and 2023.  It should normally cease to be in force on next 31^st December (French Decree No. 2022-1622 of 23 December 2022 concerning the temporary lowering of the control of foreign investments thresholds in French companies which shares are admitted to trading on a regulated market, Art. 1^st).  Last 3^rd January, the French Minister of Economic Affairs, Finance and Industrial and Digital Sovereignty indicated that he would like this reduction to be made permanent.  The Annual activity report on the control of foreign investments in France in 2022 confirms that said reduction to 10 percent should become permanent according to terms which remain to be defined on the day of this communication.