The Accountant – Issue 1 of 2021 (MIA Publication)

The National Foreign Direct Investment Screening Office established in April 2020 evaluates and screens project proposals to ensure that direct investments from outside the EU do not create issues of security and good order to Malta and to the EU in general.

The Accountant met with Screening Office Chairperson Mr Mario Galea (MG) and Chief Operations Officer Ms Bethany Magro (BM) to get a closer look at the new mechanism and what it means for CSPs.

What is the main function of the NFDISO?

MG: The purpose of the Screening Office is to facilitate investment and yet protect the interests of Malta and the EU. The Act LX 2020 came into force in October last year and stems from European Regulation 2019/452, establishing a framework for the screening of foreign direct investments in member states. So our role is to assess projects for any potential risks.

We take a wide approach to security and our priority is to safeguard public order in its broader sense. The NFDI Office’s interest in not only to protect strategic assets such as data or technology, but we are careful to examine the impacts of proposed investments on the wider social wellbeing of citizens.

How do you set out to achieve this in practice?

BM: The Screening Office evaluates proposed economic projects by non-EU investors, including takeovers and transfer of shares , to establish whether they expose national and EU interests to any form of risk. If they do not, the investment is cleared for progression.

If we identify risk potential, the screening process is triggered: The Office requests detailed information and conducts due diligence before sharing the file with the other EU partners for cross-checking. This also means that the Office is simultaneously screening investments made in other member states and raises concerns if a project in another country poses risks to Malta. The final decision on projects undergoing screening in Malta lies with the National Office. Once the investment is reviewed by the Commission and other Member States the Office may either give final approval or set out mitigating measures on the project.

Does the screening process extend to CSPs too?

MG: Technically, it is the company directors that are responsible for the investment projects, but screening depends on the particular case and it may involve other persons associated with the project, including CSPs. Certain mitigation measures, for example, could affect CSPs directly.

In which cases is the notification required?

BM: There are three main conditions under which a notification is required: when the UBO is a Non EU national; when the investment is critical as provided for in the Act and the Regulation ; and when the economic activity is a foreign direct investment that has long lasting links with Malta. All three criteria must be satisfied before a notification is submitted.

Do CSPs need to file information with the Screening Office if they would have already registered with the Malta Business Registry?

MG: The Office is empowered by law to obtain information from other government institutions, but we typically exercise that prerogative only in cases where regulators are involved. CSPs are encouraged to apply for Office approval before registering the project with the MBR, if the conditions for screening exist. Nonetheless, approval shall be obtained before any investment is undertaken in Malta.

Has the Office referred any applications for screening so far?

BM: The Office received over 900 applications for pre evaluation since its launch and 10 projects were subject to the EU screening mechanism. In other cases, the Office issued an approval against a set of conditions to monitor the investment for a period of time.

How long does the process take in general?

MG: No two cases are the same, but evaluations normally take a couple of days at most. Screening depends on the nature of the project and the variables involved – due diligence on investors from poorly regulated countries, for example, will move at a slower pace.

As a general estimate, the entire notification process takes about three weeks. But again, this depends on the time taken for CSPs to gather the information we request, the due diligence and feedback from the EU. Initially, there were no timelines established on the screening mechanism, but that has changed, and it is now the National Offices that determine deadlines for other countries.

How does the Office enforce the legislation?

BM: There are provisions in the Act for the imposition of fines, which are rather hefty. The Office is also in the process of establishing a Compliance and Monitoring Unit which will perform checks on companies to ensure that they are observing the terms of the approval. It is the responsibility of the parties involved in the investment to observe the provisions and to submit complete and correct information.

Does the process apply equally to public calls for procurement?

MG: Public procurement is technically outside the remit of the Act, but the Office may intervene in cases of long lasting projects that involve non-EU UBOs.

How will CSPs know whether an investment requires notification?

BM: We are available to guide CSPs with their applications, and professionals are always welcome to check with the Office whether a particular project requires notification.

MG: The Office was not set up to increase bureaucracy, but to support the investment process. It is in the interest of CSPs that projects are thoroughly evaluated for risks. Stakeholders, including CSPs, have responded positively to the efforts of the Office; ultimately, we are all pulling the same rope to ensure business transparency and protection of the country’s reputation.

Bethany Magro holds a business management degree and is presently finishing a master’s degree with the University of Bath. She currently holds the post of Chief Operations Officer at the National FDI Screening Office.

Mario Galea is a graduate in management with an MBA from the University of Malta. He held the posts of CEO at INDIS (MIP) and Malta Enterprise and presently holds the post of Chairman, Identity Malta.