By its law of 11 November 2021 (“Law 174/2021“), the Moldovan Parliament approved the rules for controlling investments in sectors important to state security. Law 174/2021 also applies to local and foreign investors and entered into force on November 19, 2021.

Which sectors are affected?

These are: (a) activity in the hydrometeorological and geophysical field; (b) management of radioactive waste; (c) the exploitation of energy (including electric power, natural gas and petroleum products), transport, water and sanitation, aerospace, defense, electoral infrastructure; (d) exploitation (operating area) artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, quantum and nuclear technologies, nanotechnologies and biotechnologies; (e) providing protection for cryptographic information; (f) the production and purchase for resale of means of protecting state secrets; (g) production of explosives for industrial use and distribution activities; (h) aviation security activities; (i) the design, production, maintenance and operation of aircraft and components; (j) the design, production, maintenance and operation of systems and components used in air traffic management and the provision of air traffic services; (k) the design, maintenance and operation of airports / heliports, including safety equipment; (l) management of airports, bus stations, rail traffic, inland waterways, ports and docks for river traffic; (m) television broadcasts / audiovisual services; (n) provision of fixed or mobile electronic communications networks and / or services; (o) provision of services in national ports; (p) services of geological study of subsoil resources and / or exploration of natural resources; (q) the production, export, re-export, import of arms, munitions and military equipment, products, technologies and services that can be used in the manufacture and use of nuclear weapons , chemical, biological and missile; and (r) administration of state public registers, information security.

In addition, the government is empowered to determine which assets are important to state security and which will fall within the scope of Law 174/2021.

Which transactions fall within the scope?

Investment operations (transactions) (by any person (s)) who, by whatever means, directly or indirectly, individually or jointly, including as the ultimate beneficial owner (s) ( s), in relation to any sector concerned, directed / targeted: (a) holding of control (the control criteria being determined in application of the Civil Code), purchase / obtaining or increase of qualified participation in a company, including in a company already invested in a sector; (b) enter into certain types of concession agreements, as regulated in more detail; (c) entering into a public-private partnership, as subsequently regulated; (d) conclude investment agreements with the Moldovan government, in accordance with the regulations in force; (e) engage in sales transitions of assets that are part or owned by companies with investments in a relevant industry and with a value equal to at least 25% of the value of the assets of the respective companies (in accordance with to their last financial statement); and / or (f) conclude, on behalf and / or on behalf of a company having investments in a relevant sector, one or more related financial transactions (loans / credits or assistance) with persons from other States and which are controlled directly or indirectly by the governments of other states.

Where, when and how to apply

Before investing in a relevant sector, any potential investor is required to obtain the approval of the Council for the Promotion of Investment Projects of National Importance (the “Council”), composed of the Prime Minister, the principal ministers of the country. countries and heads of various public authorities. .

The investor’s request must be accompanied, among other things, by (i) information on the share capital of the investor and his or her ultimate beneficial owner (s), (ii) the value of the investment, (iii) information on the countries of operation and the main trading partners, (iv) the financial statements for the last three years, (v) information on the source of funds, (vi) the date of the planned investment, (vii) the extracts criminal record relating to the shareholders / ultimate beneficial owner (s), and (viii) a statement of the intention to invest individually or in concert. All documents will probably need to be filed in due form, i.e. apostilled, translated, etc. Law 174/2021 empowers the government to issue additional mandatory documents.

Applications are reviewed within 45 days of receipt, while within the first 30 days, the Board may request additional information from the applicant. So far, there is no indication in Law 174/2021 that an application can be filed electronically.

The Board can either admit or reject an application, or issue a conditional approval, while setting the time limit for fulfilling the condition (which should not exceed 90 days after receipt of the conditional approval).

What are the risks and penalties incurred?

The conclusion or completion of transactions without the prior approval of the Board may entail the following legal consequences (depending on the specific transaction implemented):

• Decision of the Board to suspend the investor’s voting right, right to call a general meeting of shareholders, right to include questions on the agenda of the general meeting of shareholders, to propose members to management bodies , receive dividends / net income, etc. ; and or
• Board decision to suspend ongoing transactions.

Upon receipt of the Board’s decision (s), the investor may choose to: (a) request prior approval (within a timeframe, as regulated) from the Board, or (b) sell its stake or place end of the current transaction (s). If a third party takes control of the investment in a relevant sector following the put option of the initial investor as mentioned herein / change of control mechanism but without the prior approval of the Board, the Government will dispose at least six months after becoming aware of the change of control to require the resolution of the transaction and the recovery of damages (regardless of the substantive law applicable to the sale).

Failure by the investor to exercise the aforementioned options in a timely manner will result in (a) the duty of local management to cancel the investor’s shares in that company and issue new shares of the same class / value (with subsequent communication of such implemented measures to the Board), and / or (b) a decision by the Board to the investor to terminate the current transaction (s) within 30 days of receipt and recovery of the damage -interests by the investor.

The decisions of the Council are subject to appeal before the administrative court, but until a final and irrevocable judgment is rendered, their effect cannot be suspended by the court or a decision of judicial procedure.

Conclusion

Law 174/2021 appears to be an attempt to transpose EU FDI mechanisms into Moldova. However, the scope of the law also covers investors from Moldova. At present, investments in these sectors from Member States like Malta are not possible. The text leaves room for interpretation and asks for more detail in some parts to reduce the “stress” it may have already caused.