site.btaBill on Security-Related Screening of Foreign Direct Investments Passes on First Reading at Committee Stage

Bulgaria's National Assembly Economic Policy and Innovation Committee on Wednesday passed on first reading a bill to amend and supplement the Investment Promotion Act that was moved by Movement for Rights and Freedoms (MRF) Floor Leader Mustafa Karadayi on June 22.

The draft legislation sets up a mechanism for the implementation of Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union and thus harmonizes national legislation with the EU acquis, said Yordan Tsonev MP of MRF, presenting the bill. The idea is to safeguard the Bulgarian economy in particular and the EU at large from "corrosive capital" investments, i.e. investments or acquisitions that can potentially damage national security or public order in Bulgaria and, in a broader sense, the security of Bulgaria's European and Atlantic partners, the reasons to the bill read.

The bill is particularly important considering that the malicious (mainly Russian) corrosive capital tends to increase on a global scale, especially in the context of the unprovoked Russian military invasion in Ukraine, the reasons point out. The bill is expected to safeguard key sectors of national security, defence and public order.

Scope of Regulation

The investments subject to regulation by the bill comprise, among others, critical infrastructure, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, sensitive facilities, land and real estate crucial for the use of such infrastructure, critical technologies and dual use items, including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies, nanotechnologies and biotechnologies, supply of critical inputs, including energy or raw materials, and food security.

Interdepartmental Council

The bill establishes an Interdepartmental Council for Foreign Direct Investments Screening on Grounds of Security or Public Order under the Minister of Innovation and Growth. The Council will be a standing body which will consider foreign direct investment applications and will authorize or refuse to authorize a foreign direct investment. The members of the Council will represent various central-government departments, the State Agency for National Security and the State Intelligence Agency.

The draft legislation defines "foreign investor" as a natural person who is a national of a third country, a legal person which has its head office in a third country, a legal person which has its head office in an EU Member State and which is directly or indirectly controlled by a natural person who is a national of a third country, a legal person which has its head office in a third country, or another legal entity organized under the laws of a third country.

Under the proposed revisions, a foreign investor will have to obtain authorization from the Interdepartmental Council in order to make a foreign direct investment of a value exceeding EUR 1 million or its lev equivalent. "The threshold is subject to debate," Tsonev said, adding that when drafting the bill the MPs adhered strictly to the EU regulation.

Exceptionally, a foreign direct investment which does not exceed this threshold may be subject to consideration and approval by the Interdepartmental Council if, under the criteria established by the EU regulation, it may affect security or public order or expose them to a risk.

The Interdepartmental Council's decisions on applications for foreign direct investment authorizations will be communicated to the foreign investor and will be appealable according to the procedure established by the Administrative Procedure Code. 

Under the bill, bad-faith investors will be liable to a fine or pecuniary penalty of 5% of the value of the investments or BGN 50,000, whichever is the larger.

Rumen Gechev MP of BSP for Bulgaria said that before the draft legislation comes up for a second reading, it should be clarified which Member States have implemented this EU regulation and why, and whether the value of the investments that will be subject to screening has been fixed. Tsonev replied that the threshold is a mere proposal that can be discussed. Other floor leaders said they will abstain from backing the bill at the committee stage because they have observations concerning the completeness of its wordings.