In Italy, the “Golden Power” allows the Italian government to protect certain domestic businesses from foreign influence. The government may intervene and control certain companies operating in sectors considered strategic and of national interest, including defense and national security, telecommunications, energy, transportation, and communications.
Why did the need to create this legislation arise?
In the 1980s, Italy’s economic climate was extremely unstable due to the worldwide oil crisis. This crisis drove many countries to pass laws and regulations to combat inflation. Italy’s response to this crisis resulted in the adoption of the Anglo-Saxon “Golden Share” legislation aimed at protecting certain public interests was adopted by the Italian government in Decree Law 332/1994 (“1994 Decree”). The 1994 Decree provided the Italian government with a range of “special powers” that it could exercise in the event that public companies in certain key sectors (such as public utilities) attempt to privatize. The Decree further allowed the Italian government to address its concerns that the privatization or acquisition of companies that were important to the Italian economy and industry might result in harm to public interest. The “Golden Share” legislation has been the subject of much criticism, especially in the European Union (EU), as it conflicts with the principles of free movement of capital enshrined in EU treaties. On the one hand, the legislation succeeded in protecting national interests. However, the Golden Share stood in stark contrast to the idea of the European Single Market, where both public and private enterprises are subject to the same competitive regime.
The Golden Share developed mainly because of the privatization of public enterprises. The legislation was also strongly criticized by the EU, because it gave the Italian government certain rights and powers to influence the decisions of private, domestic enterprises. The EU responded to the legislation in 2009 when the European Court of Justice sanctioned Italy, specifically, with respect to the Golden Share’s goal of protecting Italian companies from foreign interference. Responding to the sanctions, Italy passed Decree Law 21/2012[1] or “Golden Power”, which replaced the golden share instrument. The Decree Law No. 21 of 2012 outlines the objective and subjective scope, types, conditions, and procedures governing the State’s exercise of golden powers, which may also be implemented through secondary legislation. These powers are particularly applicable in the defense and national security sectors, as well as in specific areas deemed strategically important within the energy, transport, and communications sectors.
Among the golden powers are the ability to impose specific conditions related to procurement safety, the authority to veto certain resolutions proposed during shareholder meetings, such as those concerning company mergers or divisions, and the right to oppose the acquisition of equity investments in a company for any reason.
The criticisms directed at the previous Italian legislation by the Court of Justice remain relevant, also serving as an interpretative criterion for the new framework. These critiques emphasize the importance of achieving a proper balance between safeguarding the fundamental freedoms enshrined in the European Treaties and protecting the fundamental interests of a specific member state.
Specifically, the objections raised by the Commission and upheld by the Court of Justice revolved around the broad discretionary power held by Italian authorities. Ultimately, this power had the effect of discouraging investors, particularly those intending to establish a presence in Italy to influence the management of companies subject to the special powers’ regulations.
The guiding principle in the application of the current framework is the need to balance two fundamental requirements: protecting the fundamental freedoms outlined in the Treaties and the general interests of the member state. The Italian legislature, through Legislative Decree No. 21 of March 15, 2012, has introduced significant changes, including the expansion of the objective scope to all companies with activities of strategic relevance in specific sectors and a clear definition of the prerequisites, procedures, structures, and powers exercised through the administrative authority of the government, rather than through the prerogatives of the shareholder.
In fact, with this Decree, the Italian government can intervene in certain private matters under only the most exceptional of circumstances and has special powers that can be exercised in the corporate sphere where, in times of crisis and devaluation, domestic companies can be the object of speculators or competitive foreign investors.
The Golden Power, following the COVID-19 pandemic, was strengthened with the Decree Law 23/2020 (“Liquidation Decree”), which included new critical strategic sectors, including energy, transportation, water, aerospace, and communications (including broadband electronic telecommunication networks with 5G technology, etc.). Moreover, the Liquidation Decree extends the notification requirements to all purchases of shareholdings by non-EU foreign entities, requiring that the Italian business notify the Prime Minister’s Office if the transaction is likely to influence the ownership of tangible and intangible assets and resources deemed to be of strategic importance. This amendment grants the Italian government additional authority to protect sectors deemed strategically important to Italy, and to protect Italy and its citizens from possible foreign investment detrimental to national interests. However, foreign investors maintain the ability to challenge decisions taken by the government before Italy’s administrative and ordinary courts.
In the U.S., there is no national law like the Italian Golden Power, but there are specific laws that have similar impacts as the special powers exercised by the Italian government.
Compared to Golden Power, which is national in scope, in the U.S. each state is free to dictate certain rules and regulations concerning foreign investment in domestic entities. This creates an uneven and potentially discriminatory climate.
For example, in May 2023, the State of Florida passed a law that introduced new restrictions on foreign countries “of interest” and “of concern,” specifically the People’s Republic of China, the Russian Federation, the Islamic Republic of Iran, the Democratic People’s Republic of Korea, the Republic of Cuba, the Bolivarian Republic of Venezuela, and the Syrian Arab Republic. Bill 264 (SB 264) includes numerous restrictions that are clearly directed at certain countries, and the law has been criticized for targeting certain countries and cultures. Section 692.204 of the new law bans real estate investments in Florida by entities linked to China, including the Republic of China, the Communist Party, and others.
Moreover, Section 692.202 of the new law limits acquisitions by foreign countries in agricultural land defined Florida Statutes § 193.461. This limitation implies that a foreign principal can only acquire a de minimus and indirect interest in agricultural land in Florida. Therefore, the foreign principal will have an indirect interest only when an ownership interest in such land is the result of the foreign principal’s ownership of registered stock in a publicly traded corporation that owns the land and if the foreign principal’s ownership interest in the corporation is less than 5.319 % of any class of registered stock or less than 5.320 % in the aggregate in more than one class of registered stock.
The stated goal of Florida’s law is to combat cases of espionage or violence, and to protect “national security.” By way of example, Florida first discussed passing such a law following a 2021 incident involving Fufeng USA, a U.S. subsidiary of a Chinese company that planned to build a corn mill near a military base. The U.S. Air Force immediately showed concern, primarily citing possible national security risks.
In conclusion, the United States exhibits a fragmented approach to foreign direct investment, notably diverging from the more cohesive strategies seen in Italy and the European Union. Italy’s effective use of the “Golden Power” has been a significant tool in safeguarding strategic interests, but there are concerns about potential long-term discouragement of investments. On the other hand, Florida employs stricter and more precise regulations under Bill 264, demonstrating a commitment to safeguarding national interests and encouraging investments that provide substantial benefits to companies. The broader context of FDI in Florida reflects the intricate interplay between regulatory measures and the promotion of foreign investment.
The landscape of foreign direct investment reflects a diverse array of regulatory approaches, with each jurisdiction balancing the imperative to safeguard national interests and foster economic growth.
References
- Palombino F.M., Golden Power e Power to regulate a fronte dell’emergenza sanitaria: due facce della stessa medaglia, Democrazia e Diritti Sociali, Fascicolo Speciale, Pandemia, Normazione dell’emergenza e modelli d’intervento socio-economici, Edizioni Università di Cassino, 2020
Note
[1] “Provisions on special powers on corporate structures in the defense and national security sectors, as well as for activities of strategic importance in the energy, transport and communications sectors.”
