The foreign direct investment (FDI) screening regime is a legal framework established to review and filter foreign investments, in particular those potentially impacting national security and public order. The current Romanian FDI screening regime, as is the case for many European Union (EU) Member States, is based on the EU Regulation 2019/452 (EU FDI Screening Regulation), which was implemented in Romania through the Emergency Government Ordinance no. 46/2022, as amended and supplemented (EGO 46).

Authors: Cosmin Pohaci, Partner & Andreea Tudor, Managing Associate at Ijdelea & Associates

Scope and Legal Framework. Screening criteria in Romania

One of the critical points adopted through OUG 46 was the establishment of the Commission for the Screening of Foreign Direct Investments (CEISD) as the primary authority responsible for assessing foreign investments, with relevant roles also for the Romanian Competition Council, the Supreme Council of National Defence (CSAT) and the Romanian Government.

The regime mainly applies to investments in sectors considered sensitive, such as, among others, critical infrastructure, IT and communications systems, financial activities, energy, transport, and agriculture.

For an FDI to undergo screening, it must cumulatively meet criteria including:

Investment by a non-EU or EU investor acquiring control, directly or indirectly, over a Romanian company. Nevertheless, in certain cases, screening can be triggered even by acquisitions of a small, minority stake, or by other forms of control or active involvement in management. Other types of transactions and investments, such as intra-group reorganizations, business acquisitions, assets acquisitions and greenfield investments may also be subject to FDI screening;
The investment falls within a list of sensitive sectors as provided under CSAT Decision no. 73/2012;
The value of the investment exceeds EUR 2 million. Investments below this threshold may also be screened if they pose risks to national security or public order based on specific criteria.

If triggered, the obligation to obtain FDI authorization entails primarily the submission of a notification with CEISD, providing ample information with respect to the investment, the investor and the target company, all of which requiring confirmation by means of relevant supporting documents to be annexed to the FDI notification. An examination fee in amount of EUR 10,000 (in RON equivalent) also needs to be paid by the investor prior to submitting the FDI notification file.

On average, the approximate duration of the FDI screening process in Romania is two – two and a half months, unless the FDI notification is deemed by CEISD to require additional, more detailed review, in particular in case of investments posing potential risks to national security.

Why is FDI screening important? Implications for investors

First, FDI screening is important because it helps EU Member States identify and address security or public order risks related to foreign investments. It ensures that investments do not compromise national security by potentially giving foreign investors control over critical infrastructure, advanced technologies, supply chains or sensitive data. While foreign investment brings about the undoubted advantage of an increased global economic integration, screening mechanisms protect against espionage, sabotage, and undue foreign influence on sectors vital to national stability.

Moreover, FDI screening allows governments to balance attracting quality investments with mitigating risks, promoting sustainable economic growth while safeguarding essential security interests. With more EU Member States broadening the definition of national security beyond military concerns, screening regimes have become more comprehensive.

The extensive scope and relatively low financial threshold make Romania’s FDI screening regime relevant for a wide range of foreign investments. Investors must be aware of the screening obligations and prepare for possible delays or conditions imposed by the CEISD. Non-compliance with the FDI screening requirements, including the standstill obligation, provision of incorrect or incomplete information, or failure to notify CEISD altogether, can lead to significant fines and legal consequences such as the annulment of the investment.

In Romania, the FDI regime allows for conditional approvals, where the investment is authorized but subject to compliance with specific safeguards or modifications. Conditions imposed may include restrictions or obligations designed to mitigate identified risks to security or public order, such as limitations on the investor’s involvement in certain activities, requirements to maintain operational autonomy, or notification obligations. In cases of significant concern, investments may be prohibited if they are deemed to pose an unacceptable risk.

Amid this FDI screening process, CSAT can be involved in in-depth review for potential security risks, issuing binding opinions that may impose conditions or prohibitions later adopted by the Romanian Government.

Why is the FDI Screening regime in Romania stricter than that of other EU Member States?

Romania duly complied with its obligation to implement the EU FDI Screening Regulation and went further. In most of its key elements, EGO 46 broadened the scope and imposed stricter rules on FDI:

With respect to investors, it provided that both non-EU and EU investors (including Romanian persons and entities) are subject to FDI screening. It is worth noting that the EU FDI Screening Regulation and the FDI legislation adopted by several EU Member States do not, at present, require EU investors (without non-EU control) to notify their investments;
In regard to the type of investments that may be subject to screening, EGO 46, by reference to CSAT Decision no. 73/2012, establishes no less than 13 sensitive sectors of activity which may entail the obligation to notify the FDI. In practice, CEISD tends to apply an extensive interpretation of these fields, resulting in most activities being susceptible to be caught under this list;
In relation to the value of the investments, the FDI screening regime in Romania provides a threshold of only EUR 2 million which, if exceeded, and subject to the other conditions being met, requires the investor to notify CEISD in view of obtaining the clearance. This threshold is lower than those established by most other EU Member States.

Overall, it is safe to posit that the FDI screening regime in Romania is stricter than legal framework adopted by many of the other EU Member States. This trait is primarily due to heightened concerns over national security and public order, particularly in the context of geopolitical risks, Romania’s already proven exposure to interferences from external entities, as well as the still fragile state of Romania’s economy. The broad scope and the low financial threshold reflect Romania’s cautious approach

Stricter rules also stem from Romania’s aim to prevent unauthorized foreign control or influence over strategic assets, reflecting lessons from recent global trends where foreign investments have triggered security concerns. The introduction of severe penalties for non-compliance, including fines up to 10% of global turnover, underlines Romania’s determination to enforce the regime rigorously.

In a telling, and somewhat chanceful, turn of events, the European Commission is currently on the verge of updating the EU FDI Screening Regulation, with a legislative proposal being under discussion for over a year. Among others, the proposed changes, if and when finally adopted, will broaden the scope of FDI screening and impose stricter rules on investors. In other words, it will steer the EU FDI legislation closer to where the Romanian FDI legislation is right now. In that sense, it validates Romania’s approach, and one could argue that, on this particular matter, Romania seems to have been ahead of its time.

For balance, it must also be pointed out that, while the FDI screening regime in Romania appears to be mostly a success, there are certain aspects which may, and should, be ironed out. In this respect, we note that either through amendments to the primary legislation, or through secondary legislation, a greater degree of clarity should be provided in relation to when an investment must be notified as well as examples of criteria used to reject authorization requests. Also, it would be extremely helpful for investors to know what type of conditions may be imposed in the cases where a conditional authorization is granted, so they may accommodate such potential obligations in the transaction documents.

Conclusion

Romania’s FDI screening mechanism is a robust system aligned with the EU FDI Screening Regulation, including with the one in its envisaged amended version, focusing strongly on national security grounds and well-addressing Romania’s strategic necessity to safeguard key economic and security assets against foreign influence or disruptions while balancing its interest in investments.

While not without its natural share of relative shortcomings, the Romanian FDI screening regime has so far mainly represented an accomplished implementation of EU’s objectives with respect to ensuring a solid and safer economy for its Member States in these troubling times.

Providing a broad scope and imposing stern rules, the Romanian FDI screening regime has become a key component to any significant transaction, making it a critical consideration for all potential investors in the country.