Swiss Investment Control: Federal Council Defines Principles


The Swiss Federal Council has given initial contours to the planned draft bill for a Swiss investment control regime. Investment control in Switzerland shall, according to this proposal, not only serve to protect public order and security, but also to ensure effective competition in case of involvement of foreign states or state-related investors. Under the planned regime, acquiring control over Swiss companies by foreign investors shall be subject to review in certain industries if the companies provide non-substitutable services or if state entities in security-relevant areas are critically dependent upon them. Furthermore and regardless of the sector, review is envisaged for investments by foreign states or state-related actors.


Switzerland has traditionally been open to foreign direct investment and does not yet have formal mechanism for the systematic review of foreign investment projects (investment control).

Conversely, investment control regimes are common internationally. For example, 18 Member States of the European Union have notified the European Commission that a screening mechanism exists in their national jurisdictions. Most major economies – including all G7 member states – also have investment control regimes in place. Legislation evolves dynamically and generally towards a tightening of investment controls. Increasingly, investment control mechanisms also cover critical technologies such as artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, energy storage, quantum and nuclear technologies, as well as nano- and biotechnology.

Against this background, investment control also entered the political agenda in Switzerland. The parliamentary motion Rieder (18.3021) demands that the Federal Council create the legal basis for a control of foreign direct investment in Swiss companies and establish an approval authority for this purpose. Despite the Federal Council’s assessment that Switzerland’s liberal policy in the area of direct investment has proven its worth and contributes to securing jobs and know-how in Switzerland, both the Council of States and the National Council approved the parliamentary motion Rieder in June 2019 and March 2020, respectively.

On August 25, 2021, the Federal Council presented the key points of its proposal for Swiss investment control.

Cornerstones of Swiss Investment Control

(i) Objective

Rules in the area of investment control shall be targeted, efficient and administratively lean, without impeding economically desirable direct investments. From the perspective of the economic entities concerned, the rules shall be non-discriminatory, transparent and proportionate, thus ensuring legal certainty.

According to the Federal Council, two objectives shall be pursued with investment control:

  • Protect the public order and security against threats or endangerment entailed in acquisitions of Swiss companies by foreign investors;
  • Prevent substantial distortions of competition by acquisitions of foreign state or state-related investors.

The objectives hence go beyond the mere protection of public security in that investment control shall also protect effective competition. The Federal Council is thus not limiting itself to a minimal proposal, but aims at enforcing the guarantee of economic freedom including the competitive neutrality of state actors against foreign state actors as well.

(ii) Notification requirements

In implementation of the double objective, investment control shall encompass two groups of cases: First, the Federal Council provides for a sector-specific review, aiming at protecting public order and security. Second, in case of takeovers by states or state-related investors, a sector-independent review is envisaged to prevent any distortions of competition.

The sector-specific review shall apply in the event of threats or endangerment to public order or security. For the Federal Council, the following alternative circumstances are to be considered:

  • A company with a service that cannot be dispensed with and cannot be replaced in the short term will fail;
  • Critical dependencies
    • of the Swiss Armed Forces from suppliers of critical armament components;
    • of state authorities from suppliers of central security-relevant IT systems;
    • of international space infrastructures with Swiss participation from suppliers of critical components.
  • Access by a malicious actor to a large amount of particularly sensitive personal data.

A threat to public order and security shall be considered if (i) a sector is affected that is subject to the notification and approval requirement and (ii) one of the above-mentioned threats exists. The Federal Council has so far left open what industries are to be covered by investment control. However, it is partly clear from the criteria outlined above what sectors will be subject to investment control. For example, the security and defense sectors are likely to be covered. In particular, acquisitions of companies in the security-related technology and industrial base (STIB) that provide components for critical operational systems of the Swiss Armed Forces may raise public order and security concerns. Secondly, activities in the aerospace sector, for example, are potentially relevant to security. By way of example, the acquisition of a company that supplies key components for international space infrastructures with Swiss participation, e.g. within the framework of the Galileo program, would be covered by investment control. The blanket clause concerning services that cannot be dispensed with or replaced in the short term will have to be defined in more detail. For example, critical infrastructures or the supply of essential goods could be encompassed by this category.

The concept envisaged by the Federal Council differs from that of German investment control, where the threat to public order and security is generally examined irrespective of the sector concerned (sections 55-59 of the German Foreign Trade and Payments Ordinance). The definition of the sectors concerned will be of decisive importance in the legislative process. First, it will determine whether investment control in Switzerland will have a broad or narrow scope. Secondly, a clear definition of the industries is crucial to avoid legal uncertainty among the potentially affected companies.

The sector-independent review is to be applied to takeovers by state-owned or state-related foreign investors. However, the examination of the existence of «substantial» distortions of competition would be challenging in practice, so that at least the definition of de minimis rules is recommended in the further legislative process. In addition, there is an inherent risk of politicization of the procedure, since the involvement of foreign state actors is likely to give rise to fears of an outflow of knowledge and technology to a foreign power.

(iii) Notification Thresholds

The Federal Council proposes that foreign direct investment should only be subject to a notification requirement if it involves the acquisition of control over a domestic company. Under merger control law, an enterprise acquires control over a previously independent enterprise if it «obtains the possibility, through the acquisition of participation rights or otherwise, of exercising a determining influence over the activities of another enterprise.» (Article 4 para. 3 let. b Federal Act on Cartels and other Restraints of Competition [CartA] in conjunction with Art. 1 Ordinance on the Control of Concentrations of Undertakings [MCO]). With the requirement of acquisition of control, the threshold for notification is set at a high level compared to other countries, where notification obligations regularly exist for shareholdings of 10% or 20%.

On the other hand, there is apparently no turnover threshold for the notification obligation. Unlike in merger control law, where the domestic target company must generally achieve a turnover in Switzerland of CHF 100 million, in investment control the notification obligation would apply regardless of the size of the target company. The Federal Council has left open how the term «domestic company» is to be defined. As part of the consultation process, it is to be determined whether Swiss subsidiaries of foreign groups should be considered domestic target companies or not.

(iv) Review Procedure

According to the Federal Council, the review procedure should include two stages. In a short Phase I, it would be examined whether an in-depth approval procedure is required or not. If there are no concerns that the acquisition will endanger public order and security, the acquisition can be completed. In Phase II, with a longer deadline, a more in-depth examination takes place.

The Federal Council proposes to entrust the State Secretariat for Economic Affairs (SECO) with the implementation and coordination of investment control. The procedure provides for a consultation with other Federal offices. In case of disagreement between the offices involved or in case of consensus to prohibit the acquisition, an escalation to the Federal Council would take place. This means that only the Federal Council would have the competence to order a non-approval. It follows from the principle of proportionality that, in addition to approval and non-approval, the possibility must also be open to grant approval subject to conditions.

The two-stage procedure seems appropriate and has proven its worth in merger control law. The Federal Council does not yet specify any timelines for Phases I and II of the investment control procedure. A coordination with the timelines under merger control law (1 month for Phase I and up to 4 months for Phase II) would be expedient in order not to delay merger projects unduly.

As far as can be seen, there is no right of appeal in the event of non-approval by the Federal Council. This means that political aspects will play their role in proceedings. The refusal of the right of appeal seems difficult to justify against the background of Article 6 para. 1 ECHR. The discussion about a «Lex Syngenta» or «Lex China» shows the danger of politicization of investment control. The granting of a right of appeal therefore seems worth examining not only from the point of view of fundamental rights, but also with regard to the realization of the intended legislative objectives.

Next Steps and Relevance for Practice

The Federal Council has defined the cornerstones of the Swiss investment control with due restraint. The proposal mentions a manageable number of risks that could give rise to concerns that a foreign direct investment could endanger public security and order or distort competition due to the involvement of foreign states. However, the planned legislation also creates considerable legal uncertainties for foreign investments, as it operates with undefined legal terms and will require a detailed case-by-case examination for many investment projects in order to clarify the existence of a notification obligation.

The Federal Council’s proposal for public consultation will be submitted in March 2022. After the consultation procedure, the deliberations in the Swiss Parliament are scheduled, so that the enactment of the Swiss investment control legislation is not expected before 2023. It is not yet possible to estimate whether the Federal Council’s bill will be able to gain majority support and what changes it will undergo.

If Switzerland were to introduce investment control, foreign investors would in future have to take into account not only merger control, but also investment control law risks; according to the Federal Council’s proposal, this would be irrespective of the size of the companies involved in the concentration. How many concentrations will actually be subject to scrutiny depends on the specific legal formulation of the control criteria, but also on the definition of a domestic target company. If Swiss investment control is introduced, companies must expect a period of legal uncertainty, at least until a decisional practice of competent authorities has been established. It can be assumed that any investment control will also contain civil and criminal sanctions in the event of infringements of the investment control legislation.

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