In the rapidly evolving landscape of Finland’s defence and security sector, understanding regulatory requirements as well as the latest legal practices is crucial for both domestic and international businesses when navigating this complex field. This article provides a brief overview of certain aspects to be considered in connection with investments in the defence and security sectors. It discusses defence and security procurement, key legislation and recent legal precedents.
Investing in defence and security – certain key considerations
The technology sector in Finland includes a prominent group of early stage, scale-up and established companies that develop or produce technologies with dual-use elements. More traditional defence and security sector entities are considering whether and to what extent they should be investing in various R&D efforts, technologies and/or production capabilities. While the general consensus is on the side of recognising the importance of defence and security in the current global environment, the industry would welcome more direct messages from governments in terms of tangible demand. Nevertheless, investments in the defence and security sector are expected to increase.
Both the European Investment Bank1 and the Nordic Investment Bank2 have recently stepped up their support for the defence and security sector. The EIB’s Board of Directors has approved an updated definition of dual-use goods and infrastructure eligible for EIB Group financing. In practice, the EIB no longer requires that dual-use projects eligible for financing derive more than 50% of their expected revenues from civilian use.
The EIB Group will also update its rules for security and defence SME financing. This will open dedicated credit lines managed by European banks and other intermediaries for dual-use projects. The NIB’s Board of Directors has recently approved the reviewed Sustainability Policy for public consultation. The amendments to the policy allow the bank to offer financing for security and defence. As a result, the NIB can consider providing financing to dual-use equipment, projects, facilities, services, technology and other defence equipment. Weapons and ammunition are still excluded.
When making equity investments in the defence and security sector, whether in a form of, for example, minority investments (starting from a stake of 10%), joint ventures or acquisitions, the Finnish FDI regime must be considered. The Finnish FDI regime is not, per se, restrictive. Rather, it enables the government to monitor foreign direct and indirect investments via a notification procedure (the duration of which is a few months) and to restrict only if deemed necessary for the purposes of national interests. In the defence sector, all non-Finnish investors/acquirers fall within the scope of the regime, whereas in other sectors, such as the security sector, only non-EU/EFTA investors/acquirers are covered.
