On October 17, 2017 the Department for Business, Energy & Industrial Strategy (BEIS) published a Green Paper on the Government’s review of the Enterprise Act 2002 and its powers in relation to foreign investment and national security. The Green Paper sets out the approach the Government proposes to take in both the short and long term to reform and strengthen its powers for scrutinising the national security implications of particular types of investment.
The Government notes that while most investment into the UK’s economy raises no national security concerns, there is a risk that having ownership or control of critical businesses or infrastructure could provide opportunities to undertake espionage, sabotage or exert inappropriate leverage and that is why the Government wants to reform how it scrutinises investments for national security purposes.
Through secondary legislation, the Government proposes to amend the turnover threshold and share of supply tests within the Enterprise Act 2002. This will allow the Government to examine and potentially intervene in mergers that currently fall outside the thresholds in two areas: (i) the dual-use and military use sector (which covers the design and production of military items such as arms, military and paramilitary equipment, and ‘dual-use’ items which could have both military and civilian uses); and (ii) parts of the advanced technology sector (namely businesses involved in the areas of multi-purpose computing hardware and quantum-based technology). For these areas only, the Government proposes to lower the turnover threshold from £70 million to £1 million and remove the current requirement for the merger to increase the share of supply to or over 25 per cent.
The Government intends to make more substantive changes to how it scrutinises the national security implications of foreign investment. The potential reforms include: (i) an expanded version of the ‘call-in’ power, modelled on the existing power within the Enterprise Act 2002, to allow the Government to scrutinise a broader range of transactions for national security concerns within a voluntary notification regime; and/or (ii) a mandatory notification regime for foreign investment into the provision of a focused set of ‘essential functions’ in key parts of the economy, for example the civil nuclear and defence sectors. Mandatory notification could also be required for foreign investment in key new projects and/or foreign investment in specific businesses or assets.
For transactions that the Government scrutinises (whether notified under a mandatory regime, voluntarily notified or otherwise called in by the Government):
- as under the existing regime, the Government would be able to approve, impose conditions on, or, in extremis, prevent or unwind a transaction;
- any intervention could only take place when necessary and proportionate for national security reasons and would be subject to safeguards and an appropriate review mechanism.
The Government will consult further on any detailed proposals in a White Paper.
The Government has requested responses to the proposed shorter term reforms and the secondary legislation by November 14, 2017 and responses in relation to the longer term reforms by January 9, 2018. The Government wishes to use the responses to the Green Paper to develop the proposals further.
(BEIS, National security and infrastructure investment review, 17.10.17)