National Security and Investment Bill and response to the National Security and Investment White Paper

Department for Business, Energy and Industrial Strategy written statement – made on 11th November 2020.

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Photo of Alok Sharma Alok Sharma The Secretary of State for Business, Energy and Industrial Strategy

I am today introducing the National Security and Investment Bill to update the Government’s investment screening powers and strike the right balance between maintaining an open economy and giving us the tools we need to intervene in cases of serious concern. I am also publishing the Government’s response to the public consultation on the “National Security and Investment” White Paper, an Impact Assessment for the Bill, and a revised draft Statement of Policy. In addition, I am launching a consultation on secondary legislation to define the sectors subject to mandatory notification.

This Government is a champion for free trade, recognising that inward investment is economically highly beneficial. Investment in UK plc boosts productivity by backing businesses to create good jobs and develop skills, and will help support our economic recovery from COVID-19. Since 2010/11, over 600,000 new jobs have been created in our economy thanks to over 16,000 FDI projects. During that decade, over $750 billion has flowed into the UK as a result of FDI. Investors value our legal system, our highly competitive tax regime, and a stable regulatory approach that cannot be replicated anywhere else in the world. The recently announced Office for Investment will build on the Government’s proud record and ensure that the UK remains a premier investment destination as we take advantage of our new status outside the European Union as an independent country.

An open approach to international investment must, however, also include appropriate safeguards to protect our national security and the safety of our citizens. The UK and our allies face continued and broad-ranging hostile activity from foreign intelligence agencies and others, who seek to compromise our national security. When it comes to investment, we are seeing novel means to undermine the UK’s national security that go beyond traditional mergers and acquisitions and also go beyond the reach of our current powers; such as structuring deals to obscure who is behind them. Such behaviour, left unchecked, can leave sensitive UK businesses vulnerable to disruption and espionage. It is crucial that the Government is able to fully combat these threats.

Our current powers to prevent hostile foreign investment in our businesses are set out in the Enterprise Act 2002. Technological, economic, and geopolitical changes across the globe over the last 20 years mean that reforms to the Government’s powers to scrutinise transactions on national security grounds are required. Currently, subject to minor exceptions, target businesses must have a UK turnover of over £70 million or meet a combined share of supply test before Government can intervene on national security grounds. This means that businesses below the £70 million threshold, including those at the very forefront of technological breakthroughs and national security-sensitive innovation, are too often beyond the scope of the present legislation. The Government is also unable to intervene in acquisitions of sensitive assets whose transfer might have national security implications.

The Government is therefore legislating to update its powers to respond to these changing threats and to bring our regime in line with that of our Five Eyes allies and other security partners.

More security for British businesses and people

The National Security and Investment Bill will require notification and clearance of investments in businesses in key sectors, such as defence and artificial intelligence, to our new Investment Security Unit. A full list is provided at the end of this statement and today we are publishing a consultation paper on the definition of these sectors. This consultation will be used to refine the definitions so that they are clear, allow parties to self-assess whether they need to notify, and are narrowly focussed on the specific parts of sectors where risks are most likely to arise. This approach will ensure that the regime is targeted and proportionate, and keeps Britain firmly open for business. The Bill will bring us into line with other countries, such as the USA, whose Committee on Foreign Investment also operates a mandatory notification model that investors will be familiar with.

Other investments can also be notified to the Investment Security Unit or proactively “called in” by the Government for national security assessments. This maintains the current flexibility under the Enterprise Act 2002 so that the Government can address national security risks wherever they arise in the economy. The Bill will cover acquisitions of assets, including intellectual property such as trade secrets and software, so that the risks of such transactions can also be fully scrutinised. This combined approach will provide a proportionate defence against hostile actors targeting sensitive sectors in ever more novel and complex ways.

Transactions subject to mandatory notification will not be allowed to proceed without Government approval and any deal that is completed without approval will be automatically void in law. This approach is in line with powers under the French and Italian regimes.

The regime will be underpinned by both civil and criminal sanctions, creating effective deterrents for non-compliance with statutory obligations, in line with many of our allies’ screening regimes, including France and Germany.

The new powers are not limited by turnover or share of supply thresholds, meaning acquisitions of companies of any size, in any sector, can be examined, providing the Secretary of State reasonably suspects that the transaction has given, or may give rise to, a national security risk.

We have increased the period for “calling in” non-notified transactions which the Secretary of State reasonably suspects may raise national security concerns, to up to five years after they take place – and only those which take place from the point of Bill introduction onwards. Again, this is similar to the French, German and Italian regimes and will help to ensure that the risks posed by hostile actors seeking to complete deals in secret can be addressed. As outlined above, by notifying transactions (including after they take place) which are not covered by mandatory notification but may nonetheless be of potential national security interest, businesses and investors will be able to get a decision and achieve deal certainty.

Once a transaction has been called in and a full assessment process has been carried out, where the clear legal test is met, the Government will be able to impose remedies on transactions. This includes, in the small minority of cases where it is the only appropriate way to address the risks posed by the transaction, blocking or unwinding a deal. For the avoidance of doubt, the Government expects that the vast majority of transactions will be cleared outright, that only a small minority are likely to require conditions, and that only those transactions that present the most serious risks are likely to be blocked. Nonetheless, is vital we have all the necessary tools available to keep this country safe and such remedies are consistent with the approach under our existing legislation.

The Business Secretary will be the single decision-maker for the new regime and will act with advice from the Investment Security Unit, policy experts in government and with full information from the interested parties, including the ability to hear evidence from the parties in person. This will ensure consistency of decisions across all sectors, that there is a single avenue of approach for business and investors through the Business Department, and that a pro-business outlook underpins the very heart of our investment screening process.

Slicker investment routes and more certainty for businesses

We will make any interactions with government simpler and quicker by providing clearance to most transactions within 30 working days, with notifiable investments submitted through a new digital portal. Timelines for assessments will be set out in law and not set by the Government on a case-by-case basis as at present under the Enterprise Act 2002, which can take many months to receive clearance.

The digital portal will be available upon commencement of the new regime. In the meantime, businesses and investors can contact the Government to discuss potential transactions of interest by email at: investment.screening@beis.gov.uk

The National Security and Investment Bill requires notified transactions to be either cleared or “called in” within 30 working days of the notification being given and accepted. If a transaction is cleared, then there is no further opportunity after this point for the Government to intervene (unless false or misleading information was provided), so businesses and investors can achieve maximum certainty.

Once a transaction has been “called in”, the Government will then have 30 working days, extendable – in cases where the specific legal test is met – by a further 45 working days, to carry out a full assessment of the transaction. That may include gathering further information about the deal, identifying the nature and extent of the risks it may pose, and working with the parties to explore potential remedies.

These statutory timescales will enable business and investors to plan their affairs with clarity about when they can expect decisions and give them the confidence they need to do business in the UK. Again, any transaction cleared following such an assessment cannot be re-examined by the Government at a later date (unless false or misleading information was provided) and the outcome of all cases requiring the imposition of final remedies must be published by the Business Secretary.

This, alongside the publication of an annual report as required by the Bill, reflects the Government’s commitment to providing the greatest level of transparency possible within the confines of a national security regime. Businesses, investors, and their advisers will be able to use this information to attain greater certainty about their own activities and the types of prospective transactions which should be notified.

A regime in line with our allies

We are not acting in isolation. Many of our closest allies, including our Five Eyes partners and France, Germany, and Japan, have similarly reformed their powers in this area over the last few years.

Like us, the United States has also recently introduced mandatory notification requirements in specific parts of the economy to respond to the changing threats. In July, the Australian Government also released draft legislation requiring foreign investors to seek approval to acquire a direct interest in sensitive national security businesses. We will continue to work with like-minded countries to address the shared risks that we face, including through the vector of investment.

The UK’s proportionate updates build on the best practice established around the world by like-minded countries and deliver a balanced regime that provides the Government with the flexible powers it needs while keeping our country firmly open to investment.

The Government has been clear for a number of years about its intention to introduce legislation in the area of national security and investment. As we re-build from COVID-19 where sensitive British businesses may be vulnerable, we must go further and ensure that the Government can intervene in any deal across the economy that raises risks.

In summary, the Government believes that the final package of reforms introduced to Parliament in the National Security and Investment Bill today strikes the right balance between maintaining the openness and attractiveness of the UK as a destination for inward investment, while also providing the Government with the appropriate powers it needs to protect the country.

I will lay both the Government Response to the White Paper consultation and the accompanying Bill before Parliament. I will place copies of the Impact Assessment, the draft Statement of Policy, and the consultation on secondary legislation to define the sectors subject to mandatory notification, in the libraries of the House.

List of sectors with activities to be covered by mandatory notification

  1. Advanced Materials
  2. Advanced Robotics
  3. Artificial Intelligence
  4. Civil Nuclear
  5. Communications
  6. Computing Hardware
  7. Critical Suppliers to Government
  8. Critical Suppliers to the Emergency Services
  9. Cryptographic Authentication
  10. Data Infrastructure
  11. Defence
  12. Energy
  13. Engineering Biology
  14. Military and Dual Use
  15. Quantum Technologies
  16. Satellite and Space Technologies
  17. Transport