C-54/99

I I— The legislative framework

3. On the basis of those provisions, the Council, by Directive 88/361/EEC of 24 June 1988 for the implementation of The relevant Community provisions 1 — Before the entry into force of the Treaty on European Union, which completely modified Chapters 1, 2 and 3 of Title II, that is, Articles 103 to 113 of the EEC Treaty, Arti- 2. Before the entry into force of the Treaty cle 106(1) of the EEC Treaty provided that 'each Member State undertakes to authorise, in the currency of the on European Union, which profoundly Member State in which the creditor or the beneficiary resides, any payments connected with the movement of goods, services or capital, and any transfers of capital and earnings, to the extent that the movement of goods, services, capital and persons between Member States has been * Original language: Italian. liberalised pursuant to this Treaty'.

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5. In France, Law N o 66-1008 of 4. As from 1 January 1994, the Treaty on 28 December 1966 governing financial European Union replaced Articles 67 to 73 relations with foreign countries (herein- of the EC Treaty with Articles 73b to 73g. 3 after: 'Law No 66-1008') provides in Arti- cle 1 that: 'Financial relations between France and foreign countries shall be free. That freedom shall be exercised in accor- dance with the detailed rules laid down in this Law, in compliance with the interna- Article 73b (now Article 56 EC) provides tional commitments entered into by that '[w]ithin the framework of the provi- France'. sions set out in [Chapter 4 of Title III,

2 — OJ 1988 L 178, p. S. 3 — The Treaty of Amsterdam has since definitively repealed Article 3(1)(c) confers on the French Gov- Articles 67 to 73a of the EC Treaty (Article 6(39) of the Treaty of Amsterdam). ernment in particular the power, 'for the

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purpose of ensuring the defence of national shall be the subject, at the time they are interests', to 'make the establishment and undertaken, of an administrative declara- realisation of foreign investments in France tion'. subject to declaration, prior authorisation or supervision ...'.

Finally, Article 13 provides that a series of operations closely connected with the for- 6. Decree No 89-938 of 29 December mation or modification of companies, 1989, adopted pursuant to Article 3 of investments of a limited amount, invest- Law No 66-1008, provides in Article 11 ments in specific categories of enterprise or that 'Foreign direct investments undertaken undertaken for the purpose of acquiring in France shall be free. Such investments agricultural land 'shall be exempt from the

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administrative declaration and the prior 8. It is apparent from the observations authorisation provided for in Articles 11 submitted by the French Government that and 12'. 4 the action giving rise to those proceedings was brought following two measures taken by the Minister for French Economic Affairs, deferring the implementation of foreign investments intended for the Eglise de Scientologie de Paris. The first measure dates back to 27 April 1995 and concerns sums of money paid by the American Church of Scientology in order to take over the entire assets of the Église de Scientolo- gie de Paris. The second measure, adopted III — The national proceedings and the on 29 November 1995, concerns invest- question referred for a preliminary ruling ments by the English Church of Scientology which intended, on behalf of the American Church, to extinguish all the debts of the French Church. 5

7. On 1 February 1996 the Association 'Église de Scientologie de Paris' and the Scientology International Reserves Trust On 29 January 1996 the applicants in the submitted to the Prime Minister an 'appli- main proceedings contested the decision of cation for the repeal' of Articles l i b and 27 April 1995 before the Tribunal Admin- l i e of the Decree of 29 December 1989 istratif de Paris (Administrative Court, relating to the system of prior authorisation Paris). At the same time they submitted to for certain categories of foreign direct the Prime Minister the application for investment. repeal which gave rise to the main proceed- ings.

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9. The associations in question brought the IV — Substance matter before the Conseil d'État, requesting that it set aside the decision of refusal implied by the Prime Minister's silence concerning their application for repeal. They pleaded ultra vires and incompatibil- 11. The question referred by the Conseil ity of the French legislation with Arti- d'État is effectively an application for cles 73b, 73c of the EC Treaty (now review of the legality of a system, such as Article 57 EC), 73d, 73e of the EC Treaty the French system of prior authorisation of (repealed by the Treaty of Amsterdam), 73f foreign investments, the legality of which is and 73g of the EC Treaty (now Articles 59 dependent solely on whether it can be EC and 60 EC). regarded as 'justified' within the meaning of Article 73d(1)(b) of the Treaty.

The Community case-law on prior super- vision procedures relating to capital move- ments

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13. I shall therefore move on to the judg- ments given in the 1990s, once the process Article 4 provides that Member States may of liberalisation of the movement of capital take (or maintain) measures to prevent infringements of their laws and regulations or lay down procedures for the prior 7—Judgment in Case 203/80 Casati [19811 ECR 2595, paragraphs 9 and 10. In the Luisi and Carbone judgment declaration of capital movements for pur- (Joined Cases 286/82 and 26/83 [1984] ECR 377, para- graph 34), the Court again proposed this interpretation of the provisions on free movement of capital, declaring that it must be 'acknowledged that Member States are empowered to verify that transfers of foreign currency purportedly 8 —Judgment in Joined Cases C-358/93 and C-416/93 Bordessa intended for liberalised payments are not diverted from that and Others [1995] ECR I-361. The case arose from the fact purpose and used for unauthorised movements of capital. In that Spanish customs officials had arrested Mr Bordessa and that connection, Member States are entitled to verify the confiscated the ESP 5 000 000 in his possession at the nature and genuineness of the transactions or transfers in frontier because the export of that sum had not been question' (patagraph 33). previously authorised by the competent authorities.

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poses of administrative or statistical infor- tions imposed on the Member States in this mation. Article 73d(1)(b) expressly matter by Community law'. 9 acknowledges that Member States have the more general right to adopt in this connection 'measures which are justified on grounds of public policy or public security'.

The Advocate General observed in this regard that 'the objectives invoked by the 9 — Point 21 of the Opinion. In support of that interpretation, the Advocate General pointed out that, as early as its Spanish Government can be attained just as judgment in Luisi and Carbone, the Court had declared that effectively by means of a requirement to the power of the Member States (which was linked to the incomplete liberalisation of the movement of capital) to make a declaration. Such a declaration impose controls for the purpose of verifying the nature and genuineness of liberalised capital movements did not would fully satisfy the dual need to identify authorise them to subject the transfer to 'the discretion of the administrative authorities' and that, at any event, in the the individuals who transfer vast sums of matter of the free movement of goods, any power to make it money across frontiers (and, as a result, to subject to an import or export authorisation was not permissible. In particular, in the judgment in Case 124/81 prevent such operations from being carried Commission v United Kingdom [1983] ECR 203, at paragraph 18, the Court had declared that 'a system out anonymously) and to arrange for any requiring the issue of an administrative authorisation additional investigations designed to verify necessarily involves the exercise of a certain degree of discretion and creates legal uncertainty for traders'. The possible links between the transaction in Court had also added that the objective pursued could be attained if the authorities confined themselves 'to obtaining question and certain crimes. That would be the information ... of use ... , for example, by means of achieved, furthermore, quite certainly, declarations signed by the importers, accompanied if necessary by the appropriate certificates' (point 19 of the without in any way infringing the obliga- Opinion).

other hand, 'a prior declaration... may be adversely affect public policy'. Law No 96- one of the requisite measures which Mem- 109, which modified the system established ber States are permitted to take since, by Law No 66-1008, and Decree No 96- unlike prior authorisation, it does not entail 117, which amended the 1989 decree, suspension of the transaction in question therefore inverted the logic of the French but does still allow the national authorities system of supervision of foreign invest- to exercise effective supervision in order to ments, in so far as the provisions now in prevent infringements of their laws and force are based on a system of ex post facto regulations' 10 (paragraphs 24 to 27). declarations of investments and not of prior authorisation thereof. In the present sys- tem, a declaration has the same status as an application for authorisation. Conse- quently, the fact of providing for prior authorisation meets the objective of safe- guarding national public policy; on the one hand, the transaction is suspended only for Arguments of the parties a limited period — one month at the most — and, on the other, deferment measures concern only extreme cases where there is a genuine threat to public policy. 14. In the present case, the French Govern- ment argues that its system, unlike the Spanish system, does not impose a require- ment of authorisation for all transactions involving movements of capital to or from foreign countries, but only for those which are expressly mentioned in Article 11a of the Law of 1966. According to the French Government, whereas Article 3(1) of Law No 66-1008 of 28 December 1966 provi- According to the French Government, prior ded that, 'in order to defend national authorisation is essentially designed purely interests', the Government may introduce to protect the trader, who is uncertain as to a system of prior declarations or authorisa- the legality of the investment, from any tions or of supervision in relation to the subsequent measure which might jeopar- establishment or realisation of foreign dise the transaction already carried out. investments in France, Decree No 89-938, which defines the limits of the authorisa- tion system, expressly provides that author- isation is required only in specific cases, which include such investments 'as may

operates not only in cases where there is an The answer to the question must, in my actual threat to public policy, public health opinion, be in the affirmative. Arti- and public security, but also on the basis of cle 73d(1)(b), interpretation of which is mere suspicion that the transaction may sought, refers to measures intended to produce such effects. According to the prevent infringements of national provi- Commission, however, mere suspicion is sions or justified on grounds of public not sufficient to justify the restrictive policy or public security. That provision measure since it involves conferring on the does not absolutely and unconditionally administrative authorities power arbitrarily preclude such measures from being of a to block foreign investments. In order to prior nature and involving the suspension prevent such a consequence, the national of an investment transaction or the tem- legislation should provide for assessment porary blocking of capital at the frontier. criteria which are sufficiently precise and The phrase 'requisite measures to prevent' objective, that is, which are also amenable refers to measures of a preventive rather to review, where appropriate, by the courts. than a punitive nature, which, in principle, are not incompatible with authorisation measures which entail obstacles — even if for a limited period of time — to the import or export of capital into or from national territory.

Consideration of the question

necessary to block suspect transactions cle 73d(1)(b), and therefore compatible from the outset. This is a different situation with the relevant Community provisions? from situations which may arise through It is clear from the Court's case-law that, in the absence of prior supervision of the order to establish whether a national mea- movement of goods and persons, and more sure which produces restrictive effects on difficult to monitor. the free movement of goods, persons or capital within the Community is lawful, it is necessary to assess: (a) the nature of the national interests which the Member State intends to protect, (b) whether there is a genuine threat to the interest which the State intends to protect, (c) the need for, or Moreover, the fact that the authorities of rather the indispensable nature of, the the Member States can check the origin, measure in terms of the objective to be nature and purpose of a suspect transaction attained and (d) the absence of discrimina- before it is concluded and before such tory effects with respect to goods, persons verification entails the suspension of the or capital moving to or from other coun- transaction is in line not only with national tries. 12 interests but also with Community inter- ests, since safeguarding public policy and public security in one Member State may also be important to the rest of the Community, given that the effects of trans- actions which jeopardise public policy in one country very often extend beyond 18. With regard to condition (a), Article 4 national frontiers. of Directive 88/361 acknowledges that Member States have the right to 'take all requisite measures to prevent infringements of their laws and regulations, inter alia in the field of taxation and prudential super- vision of financial institutions, or to lay down procedures for the declaration of I am therefore of the opinion that, as capital movements for purposes of admin- Community law stands at present, the istrative or statistical information'.

17. But what conditions must such a be suitable for securing the attainment of the objective which they pursue; and they must not go beyond what is restrictive measure satisfy in order to be necessary in order to attain it' (judgment in Case C-55/94 [1995] ECR I-4165, in particular paragraph 37). 'justified' within the meaning of Arti-

With regard to public policy, it should be borne in mind that, according to settled Consequently, the content of the flow of case-law, that concept must be interpreted investments to and from foreign countries strictly and is subject to control by the cannot in itself constitute sufficient justifi- Community institutions and therefore by cation for restrictive measures. However, the Court. Indeed, as early as 1974, in the bearing in mind that the provisions of the Van Duyn judgment, 13 the starting point Treaty now in force relating to the free for a line of settled case-law, the Court movement of capital and the liberalisation vastly reduced the function of that safe- of payments are not separate but are in fact guard clause, stating in paragraph 18 that included together in Chapter 4 of Title II, 'the concept of public policy in the context the State may have recourse to the mea- of the Community and where, in particular, sures referred to in Article 109i of the EC it is used as a justification for derogating Treaty (now Article 120 EC) when the from the fundamental principle of freedom crisis in the balance of payments is caused of movement for workers, must be inter- either by capital flows or by sums in preted strictly, so that its scope cannot be payment for goods or services. 15 determined unilaterally by each Member State without being subject to control by the institutions of the Community'. The 14 — In the judgment in Case 36/75 Rutili [1975] ECR 1219, concerning freedom of movement for persons, the Court, Court therefore, on the one hand, declared in the course of interpreting Article 48(3) of the EC Treaty (now, after amendment, Article 39(3) EC), points out, with that restrictive national measures constitute reference to Article 2 of Directive 64/221/EEC of 25 Feb- ruary 1964 on the coordination of special measures derogations from the general Community concerning the movement and residence of foreign nation- system and must therefore be interpreted als which are justified on grounds of public policy, public security or public health (OJ, English Special Edition 1963- restrictively and, on the other hand, made 64 (I), p. 117), that grounds of public policy shall not be put to improper use by being 'invoked to service economic the concept of national public policy sub- ends'. See, in addition, the Court's judgments in Case 7/61 ject to its judicial control. Commission v Italy [1961] ECR 317 and Case 72/83 Campus Oil [1984] ECR 2727. 15 — Article 109i(1) of the EEC Treaty provides that '[w|here a sudden crisis in the balance of payments occurs and a decision within the meaning of Article 109h(2) is not 13 — Judgment in Case 41/74 Van Duyn v Home Office [1974] immediately taken, the Member State concerned may, as a ECR 1337. precaution, take the necessary protective measures'.

Moreover, unlike the Community provi- (a)], within the meaning of Article 73d and sions on free movement of goods or is therefore compatible with the provisions persons, those on the free movement of of the Treaty. capital permit not only the safeguarding of public policy and public security, but also protective measures designed to prevent 'infringements of national law and regula- tions'. It follows that, in the case of capital, the Member States retain more scope for action than they enjoy with regard to the 19. I now move on to conditions (b) and (c) movement of goods and persons, inasmuch relating respectively to the seriousness of as, in the context of movement of capital, the threat and to the proportionality of the the actual threat of infringement of measure in relation to the objective pur- national provisions, of whatever nature sued. I shall deal with these two points they may be, may justify the adoption of together because they concern closely inter- restrictive measures by the State. 16 There is related circumstances. no doubt, as the Court clearly stated in the Bordessa judgment, cited above, that the first example of possible measures to which Article 73d(1)(b) refers includes those 'jus- tified on grounds of public policy or public security'. With regard to the threat of infringements of domestic provisions or of adverse effects on national public policy, it is well known that, as the Commission has pointed out, in order to justify the adoption of restrictive national measures it is not sufficient for a general risk to exist but there must be an actual threat to public policy and public security or a threat of infringement of national provisions and therefore an abso- On the basis of those considerations, I am lute certainty that the capital could jeopar- of the opinion that national legislation, dise specific interests. such as the French provisions which are the subject-matter of the question referred for a preliminary ruling, which is intended to prevent infringements of national provi- sions or to safeguard public policy (in the abovementioned sense) or public security must be regarded as justified, from the The national measure constituting an point of view of its objectives [condition obstacle to the movement of capital must, moreover, as with goods and persons, be the only effective measure, in that it must 16 — Article 73d(1)(a) of the EC Treaty acknowledges that be proportionate to the threat of possible Member States have the right 'to apply the relevant infringement of domestic provisions and provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to principles, and must also be the sole their place of residence or with regard to the place where their capital is invested'. instrument of prevention.

It is therefore obvious that a measure adopted in order to prevent the infringe- ment of national provisions — such as, in In the Richardt judgment, cited above, the particular, a prior authorisation proce- Court, reiterating what it had stated in its dure — can refer only to types of transac- Campus Oil judgment of 1984, 17 declared tion, or to specific types of capital move- that 'the purpose of Article 36 of the Treaty ment, which are genuinely likely to give rise is not to reserve certain matters to the to an infringement of national provisions. exclusive jurisdiction of the Member States, In other words, the system must be con- but merely to allow national legislation to cerned with established or ascertainable derogate from the principle of the free facts. 20 Accepting national preventive mea- movement of goods to the extent to which sures for general categories of transactions this is and remains justified in order to would therefore amount to reproducing a achieve the objectives set out in the article'; generalised system of authorisation for in addition, that article, 'as an exception to investments originating in other countries, a fundamental principle of the Treaty, must similar to the Spanish system at issue in the be interpreted in such a way that its scope is Bordessa judgment, and would therefore, not extended any further than is necessary to a certain extent, be incompatible with for the protection of the interests which it is the provisions of the Treaty. intended to secure'. 18

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object and purpose of the investment. It is cle 36, moreover) provides that national therefore only in relation to specific trans- protective measures 'shall not constitute a actions or to particular and well-defined means of arbitrary discrimination or a fields of activity that national authorities disguised restriction on the free movement can consider that there is a genuine threat of capital and payments as defined in to public policy and public security or a Article 73b'. risk of infringement of national provisions, and that they are therefore entitled to adopt measures, including the requirement of prior authorisations. This observation cer- tainly applies to investments in fields under exclusive State control, such as, in particu- lar, national defence. In the Conegate judgment, concerning the interpretation of Article 36, the Court held that 'a Member State may not rely on grounds of public morality in order to prohibit the importation of goods from other Member States when its legislation contains no prohibition on the manufacture It follows that, in circumstances such as or marketing of the same goods on its those of this case, in which a religious territory'. The Court added that 'although association is called to answer charges of it is not necessary ... that the manufacture fraud and tax evasion, the Member State and marketing of the products whose concerned may, by means of a measure importation has been prohibited should be adopted specifically for the purpose, sub- prohibited in the territory of all the con- ject the investments intended to finance stituent parts, it must at least be possible to that association to prior verification where conclude from the applicable rules, taken it establishes that there is a risk that the as a whole, that their purpose is, in association may infringe national provi- substance, to prohibit the manufacture sions, especially those of criminal law. and marketing of those products'. 21

2 3 . O n the basis of those observations, I propose that the Court answer the question referred by the French Conseil d'État for a preliminary ruling as follows:

Article 73d(1)(b) of the EC Treaty (now Article 58 EC) must be interpreted as not authorising a Member State to introduce or maintain in force a system of prior authorisation applicable to direct investments from abroad, where such investments may adversely affect public policy or public security, without defining the types of investment for which an application for authorisation must be submitted to the national authorities.

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