460 15 Excursion: Sovereign Wealth Funds
holders. However, some sovereign wealth funds can be bad for the firm or the host
country.
15.2 Community Law
The freedom of establishment applies to “natural persons” as well as “companies
and firms”. This means that even state-owned companies and firms can benefit
from it.
On the other hand, the provisions of the chapter on freedom of establishment
“shall not apply, so far as any given Member State is concerned, to activities
which in that State are connected, even occasionally, with the exercise of official
authority”.^1 According to the wording of the EC Treaty, there is no distinction be-
tween activities in the home country (outward direct investment) and activities in
the host country (inward direct investment).
Furthermore, the EC Treaty does not prevent restrictions or special treatment
for foreign nationals justified on grounds of public policy or public security.^2
Some restrictions are thus permitted on such grounds.
Degree of protection. In the absence of harmonisation at Community level, it is
generally for the Member States to decide on the degree of protection which they
wish to afford to such legitimate interests and on the way in which that protection
is to be achieved.
Constraints. They may do so, however, only within the limits set by the Treaty
and must, in particular, observe the principle of proportionality, which requires
that the measures adopted be appropriate to secure the attainment of the objective
which they pursue and not go beyond what is necessary in order to attain it.^3
In 2008, Germany passed legislation giving the federal government the right to veto any
foreign non-EU investment of more than 25% in key German firms. The new provisions of
the Außenwirtschaftsgesetz are aimed at state-owned sovereign wealth funds. The restric-
tions apply regardless of the size of the target firm. There are restrictions even in other
European countries. In the UK, reasons for review or restrictions are based on the Enter-
prise Act of 2002. In France, they are based on Decree No. 1739 of 2005.
No reciprocity. The absence of harmonisation means that there is no reciprocity
requirement under Community law. Restrictions applied by other countries are not
relevant.
In the US, the Committee on Foreign Investment in the United States (CFIUS) is a multi-
agency government committee that analyses the national security impact of foreign acquisi-
(^1) Article 45 of the EC Treaty.
(^2) See, in particular, Articles 46(1) and 58(1) of the EC Treaty.
(^3) Case C-112/05 Commission v Germany [2007] ECR I-8995. See also Case C-203/08
Konle [1999] ECR I-3099.