UK Markets close in 9 mins

UK strengthens powers to block deals on national security grounds

·Senior City Correspondent, Yahoo Finance UK
·3-min read
British Prime Minister Boris Johnson, Conservative Party leader and MP for Uxbridge and South Ruislip, leaves 10 Downing Street for the weekly cabinet meeting, currently being held at the Foreign, Commonwealth and Development Office (FCDO), in London, England, on November 10, 2020. (Photo by David Cliff/NurPhoto via Getty Images)
British Prime Minister Boris Johnson leaves 10 Downing Street for the weekly cabinet meeting in London, England, on November 10, 2020. Photo: David Cliff/NurPhoto via Getty Images

The UK government is introducing tough new powers to intervene in foreign deals on national security grounds, following a series of corporate controversies involving Chinese activity in the UK.

The government will on Wednesday table new legislation allowing it to intervene and block “potentially hostile foreign direct investment that threatens UK national security”.

The new rules will cover deals occurring in 17 sensitive sectors, such as defence, AI, and communications.

Foreign companies looking to acquire British assets in any of these sectors will have to notify the government of deals so that Whitehall can assess the national security implications. The government has the power to block any transactions it deems threatening.

A failure to notify the government of any relevant deals will carry harsh new penalties. Companies will be liable for a fine worth 5% of their worldwide turnover or £10m, whichever is bigger. Directors could face imprisonment for up to five years.

READ MORE: China's Huawei banned from UK 5G network

The government holds the power to review deals for up to five years after they close and any transactions that complete but are subsequently deemed to be covered by the act will be declared legally void.

The new powers will cover not only the acquisition of UK companies but also the acquisition of intellectual property registered in the UK and the building of significant shareholdings in UK companies — two things currently outside of the government’s purview.

“The UK remains one of the most attractive investment destinations in the world and we want to keep it that way,” Business Secretary Alok Sharma said in a statement. “But hostile actors should be in no doubt – there is no back door into the UK.

“This Bill will mean that we can continue to welcome job-creating investment to our shores, while shutting out those who could threaten the safety of the British people.”

The new rules follow increased scrutiny of Chinese investment in the UK. Earlier this year, UK Prime Minister Boris Johnson reversed an earlier decision to allow Huawei to work on Britain’s 5G infrastructure, citing national security concerns. In April, the government also intervened to block a Chinese takeover of British chip designer Imagination Technologies.

The National Security and Investment Bill is the most significant overhaul of UK takeover law in a generation. The bill will update the powers held by the government under the 2002 Enterprise Act. Under the 2002 law, the government has the power to intervene in deals that have national security implications but only if the companies involved were of significant size.

The government said in a statement that the existing powers “do not reflect the threats we face today”. It added that the new bill would bring the UK government’s authority in line with other developed nations such as France, Germany, and Australia.

Watch: Qualcomm CEO on weak Q2, points to 5G, Huawei ban

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting