MP 2023/9 - Art. - An interview with Ivo Nobel on investment review in the Netherlands

Ivo Nobel is the head of the recently established Dutch Office for investment review (BTI), which is part of the Ministry of Economic Affairs and Climate Policy. BTI is responsible for reviewing investments in specific sectors in the Netherlands, such as the gas, electricity and telecoms sectors. Following the entry into force of the act on security review of investments, mergers and takeovers (Vifo Act) on 1 June 2023, the BTI has also become responsible for reviewing investments in specific vital operators or investments in companies active in sensitive technology. This is why the interviewers sit with Ivo Nobel to have a closer look at this new act and the future of investment review in the Netherlands.

On the day that football club Feyenoord was being honoured in Rotterdam as the Dutch national champion, three editors of our journal interviewed the Rotterdam-based Ivo Nobel, head of BTI. We met Nobel at the BTI office located within the Ministry of Economic Affairs and Climate Policy in The Hague. BTI is an integral part of the ministry. An interesting conversation took place with Nobel who was amid the team of officials who will soon have to review investments in vital providers or in relation to certain sensitive technology. For readers who would like an overview of investment review in the Netherlands as background to this interview, the editors have written a summary of the investment review system for which BTI is responsible (see box on the next page).

Introduction

Until recently, you worked at the Dutch competition authority ACM and before that at its predecessors OPTA and NMa. How did you end up at BTI and why did you choose to work for BTI?

I started my career with Frits Goldschmeding, the founder of Randstad, at the Goldschmeding Research Centre for Increasing Returns. The idea was to work on a PhD thesis on the impact of the Internet on intermediaries such as travel agencies and employment agencies in the Netherlands. I particularly found the practical approach very interesting compared to the more theoretical approach.

When I came across a vacancy at the Netherlands competition authority (NMa), I become immediately interested. It seemed more in line with my ambition and my wish to mainly undertake practice-oriented research. The vacancy was for an economic researcher within the directorate for merger control which was still a separate directorate at that time (now merger control is part of the directorate for competition; ed.). This was in 2004. There were about 20 of us at the time and we had to assess all kinds of concentrations, or at least examine and weigh the related economic evidence. I then spent almost 15 years within the NMa, the telecom regulator OPTA and then the ACM (into which the former two merged; ed.) on many different cases, including many telecoms mergers. I was also involved in the regulation of, for example, KPN (the former Dutch telecom incumbent; ed.), TenneT (the operator of the national electricity grid; ed.), Schiphol Airport and PostNL (the public postal services provider and former incumbent; ed.).

At some point, the Dutch parliament adopted an act to provide a framework for assessing investments in telecom providers, particularly in response to the outcry at the time over a possible takeover by the Mexican citizen Carlos Slim of the Dutch telecom provider KPN. This resulted in the enactment of the undesirable control of telecommunications act (WOZT).

In 2019, the Ministry of Economic Affairs and Climate Policy was looking for someone to set up a unit to carry out the investment review required under the WOZT. Due to my experience in assessing mergers and regulation in the telecoms sector, this was a good match. Since the BTI is part of the ministry, it was a new challenge for me to work in a policy-centred environment as compared to working at the ACM which (as an independent authority) was more remote from the ministry.

The ministry already reviewed investments under the Gas and Electricity Acts; that was done by my colleagues at the energy market policy directorate. At that time, there was also already talk of a more general investment review regime, which eventually resulted in the Vifo Act. Due to domestic developments and also the increase in investment review in other countries, I went to the governing council of the ministry quite quickly and suggested that the newly created unit should not only deal with investment review under the WOZT, but also all other laws that review investments, such as the Gas Act, Electricity Act, and a possible general investment review law (which eventually materialised as the Vifo Act). The substantial analysis of investment review differs per act: for investments in the energy sector, the review focuses mainly on the security of supply and for the telecom sector on national security. However, methods and processes of reporting are similar. Although the substantive review is different, the reporting process also requires expertise on our part. Bringing all investment reviews together in the same unit will give us more experience and make the process more professional and efficient. This ultimately lowers the burden on reporting parties. The governing council agreed to this plan, and a few years later, here we are together on the eve of the Vifo Act coming into force. In the meanwhile, I became the head of the BTI, part of the Policy Directorate for Top Sectors and Industrial Policy, which in turn is part of the Directorate-General for Business and Innovation. The minister ultimately takes decisions based on the advice from the BTI.

Do you still use your economic background and experience you gained at the ACM (and its predecessors) in your work at the BTI?

My experience at the ACM, specifically in merger control, certainly plays a role. I always had an interest in mergers and acquisitions, regardless of the sector involved. That interest remains undiminished in this role. Whether it is funeral companies or pig slaughterers, each sector is unique and requires certain knowledge, but the methods and processes are the same and do require some degree of expertise. I also like the dynamics of transactions and the required swiftness. It is no different in investment review than in merger control. The rule is: We do it as quickly as we can and as thoroughly as we have to. So the experience I gained at the ACM helps me in my current position as head of the BTI.

In addition, economic thinking or thinking in terms of future models and scenarios is something I still do at the BTI. This includes analysing which possible future scenario is the most plausible one without ruling out alternatives. Also, my economic background helps in interpreting the economic motives of a transaction. This is very relevant in my current role. If an investor is willing to pay 10 to 15 times the economic value of a company, that investor may also have motives of a non-economic nature for the transaction. This is something we then investigate more closely. My experience at the ACM helps me with that task.

Are there any differences and similarities between your position at the ACM and your current position?

At the NMa, we used to have the motto "Work that matters and is visible". I could identify well with that. I still find that motto important and it applies here at the BTI as well. This is very rewarding work. The visible character is perhaps a bit less than at the ACM and its predecessors, but here too there is enough internal visibility at the ministry. The biggest difference is that the areas in which we operate are more confidential because we are dealing with national security.

But in some ways, I am also back to square one. Just like how I once started in a small team of 20 at the merger control directorate of the NMa and put all our shoulders to the wheel to guard the competition in the market, here too we are with a team of a similar size and now putting our shoulders to the wheel to guard national security and keep unwanted state actors out of the Dutch economy. It gives me the same feeling: we are doing something good for society.

This is also reflected in the number of applications we receive for jobs; there are lots of people with different backgrounds and experiences who would like to come and work with us. We, therefore, do not notice a shortage in the labour market.

Are there differences between working at the BTI and the ministry compared to working at an independent administrative authority like the ACM?

The BTI is part of a ministry. That makes working there really different from working at the ACM. What we see and do here has to connect to policy. When policy is made, our colleagues ask us what our practical experiences are. It is good that there is such a feedback loop in our work.

In addition, the BTI has a particular position within the ministry because of national security and the confidentiality of certain information we receive and work with. Both physically and organisationally, this requires a different approach. Very practically, we can by no means carry out all the work in open workspaces at the ministry, and working from home is often not possible either. We are very well aware of the information security requirements here. The situation in terms of confidentiality and sensitive information has only increased because we are now also monitoring compliance with sanctions against Russia and Belarus. The BTI also oversees the ownership of unlisted companies. Because of the investment review, we have accumulated experience and expertise in finding out who is the natural person who ultimately owns or actually controls the company. We search public sources very carefully.

The confidentiality requirement of commercially sensitive information stated in notifications is again similar to merger control. For example, information that is price-sensitive for listed companies. This aspect is again similar to the ACM procedure.

How do you experience the tension between swiftness and transparency towards notifying parties on the one hand, and on the other hand deceleration and weighing up what information can be shared with parties at all?

The tension lies mainly in what we do say and not so much in what we don't say. We are obviously not allowed to share everything. So the challenge relates to that what we do share. Of course, we want to provide as much transparency as possible in 'state of play' meetings between the BTI and notifying parties. During those meetings we indicate the direction of the concerns and why there are concerns. But what exactly do those concerns focus on, we often cannot say.

We cannot give full disclosure. At the same time, this is the case with any regulator - including the ACM; one will never get 100% transparency. There is always an internal assessment with regard to information and documents that are or are not shared with the notifying parties. However, the balance at the BTI is different from that at the ACM. Some information cannot be shared, for example, because it concerns state secrets. Sharing information also becomes different as the proceedings progress in time. We often cannot be more transparent until later in the process.

For example, the BTI may receive information from its intelligence partners about a particular person involved in one of the companies. We may not share that information, but at the same time, we should make it clear to parties that there are concerns that require further investigation, or in extreme cases, action.

This kind of review is relatively new in the Netherlands and not every company will realise that an investor might also have other intentions than only commercial ones. I also realise that awareness of this takes time. In 2012, when the investment test was introduced in the Gas and Electricity Acts, a general investment test as is now enshrined in the Vifo Act was not conceivable. In this regard, a lot has changed in a decade.

We note that companies and organisations are already increasingly aware of their own profile and risk, but not every organisation is aware of potential threats. I would like to refer to the document "Threat Assessment State Actors 2", prepared by the Dutch general and military intelligence agencies – MIVD and AIVD – and the national terrorism and safety coordinator NCTV. You can see that this second version focuses even more on the economic security of the Netherlands, and gives a good overview of possible threats. I recommend everyone, and every company, to read that document. That way, everyone becomes increasingly aware of all possible threats and risks.

Vifo Act to take effect from 1 June

As far as we understand, the Vifo Act will come into force on 1 June 2023. Do you anticipate the same and expect an immediate boom in notifications?

We still assume that 1 June is the date at which the act comes into force. Based on the currently applicable provisions for electricity, gas and telecom, we receive 10 to 15 notifications on an annual basis; we have yet to receive a notification under the Gas Act. Based on the initial bill for the Vifo Act, we had expected around 50 notifications. You can also see that estimate reflected in the explanatory memorandum of the bill. The exact definition of what is considered sensitive technology under the Vifo Act was only laid down later in a ministerial decree. On the basis of the draft of that decree, we have revised our earlier estimate upwards. We now expect 50 to 200 notifications, as we expect that most transactions will involve a sensitive or highly sensitive technology.

The Vifo Act has a retroactive effect. Do you already have a list of transactions that have taken place since September 2020 that the BTI wants to retrospectively review?

There are a handful of transactions that are likely to qualify for assessment with retroactive effect. The power to assess retrospectively is also clearly specified in the law. These must be transactions that raise some concerns. We are also not just going to be involved with assessing transactions retrospectively. Of course, this limits the scope of power. Hence, I say we are looking at a handful of cases.

Will the BTI actively enforce against gun-jumping and how will that enforcement look like?

Absolutely. Failure to notify prior to implementing an investment is an offence under both the WOZT and the Vifo Act, although the WOZT has no standstill obligation and the Vifo Act does. Just as the ACM strictly enforces the obligation to notify, as it is the core principle of ex-ante review, so will we. We, therefore, have sufficient sanctioning powers. We can impose an administrative fine (up to 10% of global turnover), as well as possibly initiate a procedure under criminal law. In addition, the relevant party or parties will still have to file a notification.

The Vifo Act also provides for the possibility of imposing interim measures to prevent the exercise of control acquired via an unreported investment. So even in the worst cases, we can also intervene quickly.

The BTI specifically asks for certain detailed information about limited partners within a private equity structure. Does private equity receive special attention from the BTI?

We regularly contact authorities in other countries and exchange a lot of experiences on private equity risks in particular. The risks of private equity are basically the same as for non-private equity parties. Private equity investments are often structured through limited partnerships. Because of this structure of private equity the actual motives of the limited partners can sometimes remain hidden. Specific agreements between the general partner and certain limited partners may also ensure that these limited partners are not so passive and then have a larger influence than what you would generally expect from a limited partner; perhaps they might even have control. The question then is whether these investors are genuinely passive, or whether there is something more to it.

Which threats and issues are currently the main focus within the BTI?

We review all transactions reported to us. To get a better picture of what threats and risks are involved, and where the focus is nationwide, I refer to the document which I already mentioned: "Threat Assessment of State Actors 2".

International cooperation

How does international cooperation work, within the EU through the Commission, but also more broadly, bilaterally or multilaterally with other authorities?

National security is of course a national competence, unlike competition law where the EU has independent competence. With regard to investment review, the European Commission has a coordinating and facilitating role. The premise of the FDI screening regulation is that there are no legal obligations but rather tools. The European Commission also facilitates meetings between the various 'contact points' that exist in the member states. In the Netherlands, the BTI is that 'contact point'. We ensure the coordination and exchange of experiences and stay abreast of all developments.

Moreover, it is an added value to stay in good contact with each other; especially in international transactions spanning several Member States. Since you keep each other informed about the measures taken, we can coordinate if necessary. Of course, not everything is shared and what is shared differs per Member State.

Any transaction in respect of foreign investments that are notified to us must be reported within the EU system. The Dutch regime is broader because investments by Dutch investors must also be reported. These latter transactions are therefore not reported within the EU network. Unless we think the European investor is just a front for a foreign party.

In that respect, it could be argued that the functioning of the working groups on investment review under the facilitating role of the European Commission is somewhat akin to the European Competition Network (ECN).

Investment review has existed in other countries for some time, for example in France, Germany and the United States. Has the BTI already been able to benefit from their experiences and implement best practices?

Indeed, we have had a lot of contact with countries and authorities that have had an investment review for some time. In general, the relatively 'newer' regimes have a lot of contact with established regimes.

Next to those contacts, we should not underestimate contacts with other ministries in the Netherlands. It is often very useful to receive specific knowledge about certain industries from ministries within whose competence that industry falls. Suppose we assess a transaction related to the port of Rotterdam, it is useful to obtain information from the Ministry of Infrastructure and Water Management. We already have points of contact at each ministry as well. The BTI is a central hub between all other ministries. We actually operate in a kind of hub-and-spoke model. Of course, that is a very dangerous thing to say to a bunch of competition lawyers, but it is a nice metaphor. This model is a best practice we have adopted from other countries.

The possibilities of cooperation are also explicitly mentioned in the Vifo Act. While responsibility lies with the Ministry of Economic Affairs and Climate Policy, in cooperation with the Ministry of Justice and Security, it also lies with other ministries whose policy domain is concerned. Therefore, all of those ministries can then also be represented in the case team. So depending on the case, sometimes we will also involve colleagues from other ministries in our team.

Investment review and competition law

Any measures, or as an ultimate remedy even a ban under the Vifo Act, will have to take into account possible merger control by the European Commission. Art 21(4) of the Merger Regulation 139/2004 limits Member States' additional power of review when the Commission has jurisdiction under the Merger Reg. Do you expect the BTI to feel limited when reviewing a transaction which also has been notified to the Commission under the Merger Reg? Or should the BTI in that case cooperate more proactively with the Commission (despite the substantive difference in review)?

There are often multiple regulators who assess different aspects of the same transaction. In the Netherlands, for example, a transaction can also be reported for review to the ACM under competition law. It is quite possible that the ACM prohibits a merger while we have identified no concerns from a national security perspective, or vice versa. In such a case, we have our own competence and do not enforce it within each other’s domains.

Nor will we actively seek agreement or alignment for any remedies we might want to impose. The type and nature of any measures are obviously very different with us than with a competition authority. Of course, the starting point does remain that a company will have to be effectively able to implement those measures.

The Vifo Act contains competition law concepts. To what extent will the BTI involve the ACM when it comes to interpreting competition law concepts in some cases?

A very deliberate choice was made to align with the competition law concept of control. This concept is now well established and there is extensive case law and decisions on this concept.

Should any questions arise now about the interpretation of this term, or any other competition law concepts, we will contact the ACM if necessary. The team at the BTI and myself, of course, already have experience in competition law at the ACM.

Future of BTI and investment review

A while ago, the BTI had 6 full-time employees; now even more. How big is the team currently? How do you see the future and development of the BTI? What do you still need? Where are the challenges?

Currently, our team consists of 14 people. This includes the persons responsible for enforcing the sanctions regime. We trace all tips and leads together with the team in order to establish whether natural or legal persons are who they claim to be. Who is the actual owner and/or interested party? We do this after the notification, but also on our own initiative or in response to tips and information we receive from third parties. Sometimes we get market intelligence that a certain company may have links to Russia, or that there is actually a Russian pulling the strings. Then we will investigate the same.

In addition, our work in the future will focus even more on identifying risks to Dutch economic security.

Do you feel that companies and their advisers are adequately prepared for the Vifo Act?

On the one hand, yes: many companies and lawyers now know about this new law. But on the other hand, they don't. This is because the scope of the law is much broader than the investment tests we have known so far. This is because there is no turnover threshold for notifications in addition to the broad scope of what is considered sensitive technology. So the Vifo Act applies to companies of all shapes and sizes. Even if you have €1,000 turnover, if you are active in the field of sensitive technology, you will have to report a transaction. So that also applies to start-ups. I wonder if they will always realise this when an investment is made in a start-up engaged in sensitive technology.

There will soon be an economic security desk for companies at the Netherlands enterprise agency (www.economischeveiligheid.nl; ed.). It will inform companies on the broader range of economic security and thus also on the Vifo Act. Questions can also be asked at this desk. Hopefully, that will clear up some of the questions and ambiguities. Indeed, we are currently receiving many informal requests from parties. The BTI is also trying to provide the necessary information on our own website (www.bureautoetsinginvesteringen.nl; ed.).

Under the WOZT, the BTI has already been able to review a number of investments. What lessons could notifying parties and their lawyers/advisers learn from this?

My two most important tips to notifying parties are: (1) communicate your corporate structure as openly and transparently as possible, and (2) provide the BTI sufficient explanation of elements in that structure which are atypical, or deviate from standard market practice. That makes it easier for us to make the review and will speed things up.

As for open communication, I can add that the BTI and its partners have a lot of knowledge and ability to interpret details, which may perhaps not be telling to the notifying parties but may actually be very relevant to us.

As for the explanation of atypical elements, I can add that we do note when something is anomalous or atypical. Of course, there can also be legitimate reasons for this. That is precisely why I say: be transparent about this. It helps us interpret these kinds of elements better if parties explain why something atypical was chosen. When it comes to an atypical transaction structure, for example, it is useful to know what the motives were for the parties to do this.

In addition, we appreciate it when parties give informal advance notice of their notification. This allows us to assess notifications more quickly after the formal notification, as we can then line up the right people in advance, both internally at the BTI and externally at the relevant ministries.

• 1999Master's degree in economics, Erasmus University Rotterdam, 1999

• 2010Master in 'economics for competition law', King's College London

• 2008Senior official, Independent Post and Telecommunications Authority

Mr. F.A. (Felix) Roscam Abbing

Advocaat bij Freshfields Bruckhaus Deringer en daarnaast redactielid van dit tijdschrift.

Mr. W.W. (Wessel) Geursen LLM

Senior jurist bij de Autoriteit Consument & Markt en daarnaast redactielid van dit tijdschrift.

Mr. D.J.M. (Martijn) de Grave

Werkzaam bij rechtbank Rotterdam en redactielid van dit tijdschrift.