France strengthens its control over foreign investments

In an international context marked by geopolitical tensions and health crises, the French Minister of Economy, Finance, and Industrial and Digital Sovereignty, Bruno Le Maire, announced the permanent implementation of the strengthened foreign investment control mechanism introduced by Decree No. 2020-892 of July 22, 2020. Effective January 1, 2024, this measure marks a significant shift in the country's investment policy.

In French law, Article L. 151-1 of the Monetary and Financial Code establishes the principle of freedom of financial relations between France and other countries. The exceptional regime for the control of foreign investments in France thus aims solely to protect activities that "participate in the exercise of public authority or are likely to undermine national interests."

With the decree of December 28, 2023, this system is strengthened and extended to new sectors of activity. From now on, the control exercised by the Directorate General of the Treasury and the CIIEF will automatically intervene when a non-EU investor crosses the threshold of 10% of the voting rights in a listed French company operating in a strategic sector. The crossing of the 25% threshold is maintained for unlisted companies.

As a reminder, a foreign direct investment (FDI) corresponds to "the acquisition of financial assets representing at least 10% of the capital of the invested company." Unlike a simple financial investment, its objective is "to acquire a lasting interest in a resident institutional unit of another economy and to exercise significant influence over its management within the framework of a long-term relationship."

This lowering of the threshold is accompanied by an extension of the scope of sectors subject to control. Activities related to the transformation and extraction of critical raw materials, activities essential to the security of penitentiary establishments, as well as the takeover of branches in France of foreign entities are thus added to the list of sectors already concerned.

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Although this measure demonstrates France's desire to better protect itself against the risks of foreign interference and strategic dependence, it is accompanied by an explicit and transparent legal framework aimed at reassuring investors.

Unlike the United States, for example, France specifies the exhaustive list of sectors subject to control. It also supports the implementation of this regulation by publishing standard authorization request forms, guidelines, and a frequently asked questions section. Furthermore, the FDI restrictiveness index developed by the OECD shows that France's control mechanisms are less coercive than those implemented by the United States, China, or Canada.

This legal transparency seems to be bearing fruit since in 2023, for the fourth consecutive year, France ranked first in Europe in terms of attracting foreign investments.

However, the strengthening of the FDI control system and the extension of its scope reflect an increase in the state's power of supervision over foreign investments and send a signal of vigilance to stakeholders. From now on, foreign investors must integrate this parameter from the beginning of their due diligence and initiate a constructive dialogue with the relevant authorities from the early stages of the operation.

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