Court: Dutch Cabinet was allowed to ban U.S. takeover of DigiD firm Solvinity

The Dutch government has thus far acted within legal boundaries when it blocked the acquisition of Amsterdam firm Solvinity, a Rotterdam judge said in a ruling on Tuesday. The tech firm, which is contracted to manage the national DigiD login system, was targeted for a takeover by U.S. multinational Kyndryl. The plan was blocked on national security concerns, prompting Solvinity to ask the court for an injunction against the government's obstruction while its appeal on the ban is considered.

State Secretary Willemijn Aerdts issued the decision to prevent the acquisition in late May. The Cabinet member is responsible for issues related to the digital economy and sovereignty, and answers to Economic Affairs Minister Heleen Herbert.

The 42-year-old D66 politician made her move after receiving a formal report that determined the acquisition posed potential risks to the public. The report was produced by the Bureau Toetsing Investeringen as part of its role to assess whether "investments, mergers, and acquisitions may pose a risk to national security."

Aerdts is due to issue her review of Solvinity's objection by the end of September. The judge ruling on the injunction said the ban can remain in place for now, because it will not cause irreversible harm if Solvinity and Kyndryl have to wait for this decision.

The DigiD system is used by people in the Netherlands who need to access personal government information from a wide variety of offices, including tax authorities, benefits programs, and immigration services. It is also used as a secure method to access patient records from hospitals, and to connect with insurance providers.

A massive amount of criticism emerged after the proposed acquisition was announced, considering the possibility of a company in New York being able to access confidential information about Dutch citizens and residents of the Netherlands. The concern was about the prospect of Kyndryl handing over that information should U.S. authorities ever exert pressure on them, or the ability for Kyndryl to pull the plug on DigiD without warning.

News of the takeover caught the Cabinet off-guard, even though the existing DigiD contract was eventually extended. Despite this, the Cabinet is issuing a new tender for DigiD to take sovereignty, defense, and security into consideration.

The potential acquisition drew the ire of ordinary people, various experts, and politicians alike. Since its launch in 2003, the government has increasingly driven residents to the DigiD platform, and is now considered to be a critical aspect of digital infrastructure.

In statements published on May 26, the Cabinet and the organization cited the Telecommunications Act as giving the Cabinet the right to temporarily or permanently block such acquisitions. Specifically, Aerdts cited Article 14a, which allows for ministers to take action to prevent a party from taking over a controlling stake in telecom companies when that "could lead to a threat to the public interest.

The law goes on to say that the acquiring party itself does not need to be suspected of wanting to "enable abuse" or cause an "intentional outage." A relationship to a state, entity, or person suspected of wanting this capability is enough to gauge the situation as threatening. Further, if any party involved in a significant acquisition fails to comply with the investigation, a minister can also consider this to be a threat to the public.

The Telecommunications Act cites several specific disruptions, including breach of confidential communications either telephonic or over the internet, and disrupting access to online services. This includes interrupting the "availability, reliability, or confidentiality" of products and services that impact the the rule of law, the ability to provide services, military matters, and national security tasks.