News Business Crime & Financial Services 25th Nov 2020

Gavin Irwin explores the new criminal offences in the National Security and Investment Bill currently before parliament

On 11 November 2020, the Government published the National Security and Investment Bill[i] (‘the Bill’) with the purpose of modernising the UK’s powers to investigate and intervene in potentially hostile foreign direct investment that threatens national security. By any reckoning, the scheme is vastly more intrusive than the current one, the FT reporting that officials have acknowledged:

“the cost of complying with the new regime could be as high as £330,000 for a single transaction involving a large company [and] a total cost to businesses of about £40m a year”.

The Department of Business, Energy and Industrial Strategy (‘DBEIS’) press release[ii] states that the Bill will:

  • strengthen the UK’s ability to investigate and intervene in mergers, acquisitions and other types of deals that could threaten national security;
  • require investors and businesses to tell the government about proposed deals in a limited number of sensitive sectors, such as defence and AI;
  • extend screening to include assets and intellectual property as well as companies;
  • create proportionate new laws to protect national security from potential risk while ensuring the UK remains a global champion of free trade and an attractive place to invest; and,
  • provide slicker clearance processes and more certainty for business.

Seventeen industries have been identified as being of strategic significance.

The House of Commons Library Briefing Paper[iii], states that:

The Bill aims to introduce a new regime for reviewing and intervening in business transactions, such as takeovers [and] would:

  • enable the Secretary of State to “call in” acquisitions of sensitive entities and assets (“trigger events”) to undertake a national security assessment. This can happen up to 5 years after a trigger event has taken place;
  • establish a requirement for proposed acquirers of sensitive entities and assets to seek authorisation and to obtain approval from the Secretary of State before completing their acquisition; and,
  • create a voluntary notification system to encourage notifications from parties who consider that their trigger event may raise national security concerns.

The new criminal offences relate to:

  • completing, without reasonable excuse, a notifiable acquisition without the approval of the Secretary of State (‘SoS’);
  • failing, without reasonable excuse, to comply with an order (interim or final) of the SoS;

          (maximum penalty for conviction on indictment, 5 years’ imprisonment)

  • failing, without reasonable excuse, to comply with a requirement of an information notice (to produce documents) or an attendance notice (to give evidence);
  • intentionally or recklessly altering, suppressing or destroying (or causing or permitting such conduct) any information required to be provided under an information notice;
  • intentionally (but not recklessly) obstructing or delaying the making of a copy of information provided in response to an information notice;
  • knowingly or recklessly supplying false or misleading information to the SoS;
  • using or disclosing, without the consent of the SoS, information obtained from a public authority for the purpose of the exercise of the SoS’s functions under the regime (there being additional exceptions relating to the prevention, detection and investigation of crime);
  • using or disclosing, without the consent of the Commissioners, information obtained from HMRC for the purpose of the exercise of the SoS’s functions under the regime.

          (maximum penalty for conviction on indictment, 2 years’ imprisonment)

It should also be noted that the Bill creates a civil sanctions / monetary penalty regime as an alternative to criminal prosecution.

The Explanatory Notes to the Bill[iv] make clear that the CMA Mergers Framework[v], will remain in place, unaffected by the proposed changes in so far as it relates to:

“media plurality (an umbrella term covering a number of media-related considerations), the stability of the UK financial system, and the need to maintain in the UK the capability to combat, and to mitigate the effects of, public health emergencies, as public interest considerations”[vi],

The following concerns have already been expressed about the structure of the new regime (during consultations begun, but not concluded, by the Foreign Affairs and Defence Select Committees):

  • the need for such a radical overhaul, particularly given that there had only been twelve national security investigations undertaken within the existing regime;
  • the impact assessment published alongside the Bill indicates that there could be 1,000 to 1,830 transactions notified under the new system each year;
  • the expanded notification system will lead to a dramatic increase in cases subject to review, leading to bureaucracy as well as delay and doubts for potential investment decisions – a situation that might discourage investment;
  • pressure from interest groups might lead to the system being used for protectionism; and,
  • the implications of broad (or non-existent) definitions of relevant concepts, particularly given the wider set of proposed trigger events and the removal of existing thresholds.

It remains to be seen whether those concerns will be reflected in any significant amendment to the Bill as it passes through parliament.

 

Gavin Irwin


[i] https://publications.parliament.uk/pa/bills/cbill/58-01/0210/20210.pdf

[ii] https://www.gov.uk/government/collections/national-security-and-investment-bill

[iii] https://commonslibrary.parliament.uk/research-briefings/cbp-8784/

[iv] https://publications.parliament.uk/pa/bills/cbill/58-01/0210/en/20210-ENS.pdf

[v] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/384055/CMA2__Mergers__Guidance.pdf

[vi] Enterprise Act 2002, section 58


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