National Security and Investment Bill — House of Lords, 2021-02-04
Topic: Mixed Topics
Karan Bilimoria (Crossbench, Unknown): My Lords, the National Security and Investment Bill has a number of provisions: a separate national security screening regime, a broadening of the range of investments in scope, a statutory requirement for parties to notify relevant transactions in the most sensitive areas of the economy, and a new process for business investors supported by a call-in power to enable the BEIS Secretary of State to assess deals that may give rise to national security risks. The Bill allows for a retrospective call-in decision for up to five years, with criminal sanctions attached, and a predictable statutory process The CBI, of which I am president, supports the principle of the legislation in protecting national security, which will always be a priority. However, the current drafting makes the practical application of the Bill difficult for business. It could lead to additional burden, complexity at a micro level and, potentially, an unintended deterrent to investment at a macro level We heard from a wide range of businesses and members who share concerns about the Bill in its current form, from technology and digital to facilities management, to pharmaceuticals, to higher education, to financial services and to defence. There is a concern for a broad subsection of the business community. For example, the Russell Group says that if reporting under either the mandatory or voluntary regimes leads to delays or concerns from the business community over its ability to do business with universities, this could harm its members’ ability to attract investment to all parts of the UK in future With no set de minimis thresholds for transactions caught by the legislation, there is a risk that a high volume of notifications will inadvertently represent relatively low-risk activity driven by a maximalist approach from legal teams and counsel. The extraterritorial nature of the provisions of the Bill means that many transactions involving target suppliers supplying goods and services outside the UK will be caught in the notification requirements. Against a backdrop of the maximalist approach in business, there is a real concern about the Government’s capacity to process the projected number of notifications while the regulation is in its infancy According to the CFIUS annual report, 231 notices were filed with the US investment screening regime in 2019, with 113 resulting in subsequent investigation. The Government currently estimate that there will be up to 1,800 annual notifications under the regime, and there is concern that the true predicted estimates could reach up to 10,000, although the Government say that the number of transactions called in would be no more than 100. Can the Minister confirm that To allow for greater efficiency in the system, the UK might wish proactively to utilise the benefits of a white-list process for countries and/or companies. That could be incorporated through future trade deals if the legislation provides flexibility. However, this investment regime should not have the unintended consequence of deterring foreign investment just when the UK needs to increase its attractiveness to foreign investment, and just as we have come through the pandemic and established the UK as an independent trading nation post Brexit We are the second or third largest recipient of inward investment in the world. We have always been a gateway to the European Union, and we need to continue to be a gateway, including for foreign direct investment. The requirements for mandatory reporting in 17 sectors across the economy will vastly increase reporting requirements for business, damage the competitiveness of key sectors such as the tech sector, which relies on investment in start-up and scale-up, and create an impossible workload for British officials Companies across key sectors of the economy, from finance to universities, are also concerned that the UK regime is more onerous than its equivalents in the US, France, Germany and Australia, with more stringent thresholds for transactions and less clear guidance in areas. I ask the Government: have they carried out clear benchmarking and taken the best of all other existing regimes before coming up with our legislation now We should not forget the SMEs, which do not have the legal departments to wade through the complex provisions of the Bill. We want to work with business, and direct engagement with the Business Department has so far been very good. The Government have shown a willingness to consider targeted changes to the Bill, to ensure that business can help to make it a success. I will run through a few of these changes, which could include a de minimis; making sanctions for transactions for mandatory filing that has not been made more workable; reducing the extra-territorial application of the call-in power; and introducing a fast-track process for less risky transactions, clarifying the time limits on the exercise of the call-in power. That could include creating checks and balances beyond the threat of judicial review, such as appraisal from an expert panel drawn from Whitehall and industry, introducing detailed guidance for investors. When qualifying assets are authorised for access for export through the UK Export Council regime, consideration should be given to exemption for the call-in. Further changes could ensure that for key sectors there is scope for the mandatory regime to be as clearly and narrowly defined as it is for those sectors that are of material interest to national security. There should be clarifications that IP provisions would not mean that companies exporting sensitive goods with de facto transfer of IP would not need to double report, if they had already received an export licence The City of London has given feedback and commented that the Bill represents a significant expansion of the UK’s FDI regime, given that since the Enterprise Act intervention regime was introduced in 2002, nearly 20 years ago, there have been just 12 interventions on the basis of national security. It appears that a new regime will see a large increase in the Government’s workload. Once again, the City of London said that it seems to be a much stricter regime than those brought in by other countries, including the USA, Australia, Japan and many in Europe. City sources also said that they recognise that it now sits alongside the new Office for Investment, a unit designed to attract high value and strategic FDI into the UK To conclude, the University of Cambridge—I declare my interest—says that it stands ready to work with the Government to protect Britain from emerging national threats by hostile foreign actors. The university understands and fully supports the dual thrust of the Bill materially to expand the Government’s ability to manage risk and foreign investment on national security grounds while avoiding adversely impacting the UK’s economy, global competitiveness and attractions as a forum for inward investment. However, it is concerned about the possible adverse impact of some elements of the Bill on higher education and the rest of the business sector.