Free movement of capital: Commission scrutinises French law establishing authorisation procedure for foreign investments in certain sectors

Tuesday, April 4 2006

The European Commission has decided to send a formal request to France submit its observations on the provisions of Decree 2005-1739 of 30 December 2005, which creates an authorisation procedure for foreign investments in certain sectors of activities that could affect public policy, public security or national defence.

After informal dialogue on this text, the Commission has expressed its concern that some of these provisions could act as a disincentive to investment from other Member States, in contradiction with EU Treaty rules on the free movement of capital (Article 56) and the right of establishment (Article 43). The Commission's request takes the form of a letter of formal notice, the first stage of infringement procedures under Article 226 of the EC Treaty. France is asked to send its reply within two months. Depending on the analysis of this reply and the continued dialogue that has taken place on this Decree, the Commission will decide whether or not to issue a formal request to the French Government to amend the legislation in the form of a 'reasoned opinion' .

Although objectives of public policy, public security and national defence may require measures that restrict the fundamental freedoms established by the EC Treaty, the Commission is concerned that the authorisation procedure detailed in the French decree lacks the required proportionality with regard to these objectives.

The Commission considers that the authorisation of investment operations provided for in the Decree might not be suitable for reaching the intended objectives, if the damages that the procedure is supposed to prevent may occur without any investment operation. France is also asked to justify that the procedure would not go beyond what is necessary to the extent that foreign investment operations might not necessarily induce the risks that motivate the requirement for authorisation.

In addition, France is asked to clarify why companies established in the EU but under the control of third-country investors could be submitted to the more stringent procedure applicable to third-country companies, whereas that a company legally and genuinely established in a Member State should normally be treated as a national of that Member State.

The Commission is also concerned by the fact that investments in companies could require authorisation because only a marginal share of the turn-over originates from activities that relate to public policy, public security and national defence.

Finally, the Commission considers that the inclusion of casinos within the scope of the decree is unsatisfactory given that casinos should be covered by the appropriate transposition of the Money Laundering Directive (2005/60/CE).

The Commission has requested further clarifications in order to assess the compatibility of the provisions of Decree 2005-1739 with Community law, both on the freedom of capital movement and on the right of establishment as guaranteed by Articles 56 and 43 of the Treaty respectively.

The latest information on infringement proceedings concerning all Member States is available at:

http://europa.eu.int/comm/secretariat_general/sgb/droit_com/index_en.htm