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Working with government

Being aware of government’s business screening requirements when doing business will allow you to be mindful of any national security threats.

Last Updated 11 June 2024

Countries around the world, including most G20 nations, have introduced or are considering government regulation to manage national security risks associated with different types of international business, including foreign investment.  This is primarily due to record levels of activity by state-owned entities, concerns about state sponsored espionage, as well as quickly evolving national security threats. 

The National Security and Investment Act 2021 (NSI Act)

The NSI Act gives businesses and investors the certainty and transparency they need to do business in the UK while protecting the UK's national security. It provides the Government with powers to screen investments to assess and address any national security risks.

Investors and businesses must notify and receive clearance from the UK Government before making qualifying acquisitions relating to 17 defined areas of the economy. The UK Government can request to review any qualifying acquisition that may pose a national security risk.

Further information on the NSI Act is available at GOV.UK.

Outward Direct Investment (ODI)

As set out in the Deputy Prime Minister's speech on Economic Security in April 2024, the UK government is taking action to prevent outbound investments which could present national security issues, fuelling technological advances that enhance the military and intelligence capabilities of countries of concern. 

Our guidance aims to help UK businesses understand the security risks associated with international collaborations, and how businesses can best protect themselves when operating in these environments. Guidance on how the National Security and Investment Act could affect people or acquisitions outside the UK outlines how the National Security and Investment Act can apply to Outward Direct Investment (ODI), including where that ODI involves asset transfers alongside the investment.

In August 2023, President Biden issued an Executive Order on addressing US investments in certain technologies and products in countries of concern. This order seeks to limit and regulate investment from US firms in a narrow set of Chinese technology sectors: semiconductors and microelectronics, quantum information technologies, and artificial intelligence. This requirement would apply to all US persons, wherever they are located, and therefore has extraterritorial implications. The US government is currently developing the regulation, which will be bring the Executive Order into force.

It is important that you are aware of any national security requirements for the country that you plan on doing business in, including any changes to the UK's legislative environment. 

Looking beyond your organisation

Greater levels of global scrutiny may mean that your business ventures and who you are doing business with is subject to a review by government. 

The following threats will be important for you to consider, alongside the direct threats to your business, as it will give you an indication of the wider implications of your commercial decisions. 

  • Proximity

Your physical surroundings may determine if national security concerns exist in relation to your business ventures with overseas parties. 

If your premises are in close proximity to sensitive or critical infrastructure then your business interactions with overseas parties may receive more scrutiny from the relevant jurisdiction, as the location can give hostile actors more opportunity for espionage and disruption activities. 

  • Cumulative risk

You should also consider if cumulative risks exist in the sector you operate in and the supply chains that you are a part of. If there is a pattern of similar investments from the same investors, resulting in aggregated ownership, there may be national security concerns which affect you.

  • Supply chain

It is also worth considering your supply chains and the supply chains you are a part of as these are often targeted by hostile actors as an easier way to get access to the information and assets they want.

If you are a supplier to a sensitive or critical entity, then their national security concerns will be relevant to you.

If you are an exporter you should be aware of the UK Strategic Export Control List as it will determine whether the product, software or technology you intend on exporting is ‘controlled’ and therefore requires an export licence.

Once you have your export licence, you should still follow a risk based approach to determine which mitigation measure you should put in place for your business venture.

A facility in the UK was jointly purchased by two foreign parties. While the sale of the facility posed some investment risks, such as a loss of reputational value, there were larger national security concerns.

The facility was recognised as critical national infrastructure and provided services to thousands of homes and employed hundreds of people in the UK. Additionally, having access to the facility would give the investors access to highly sensitive technology, some of which is controlled by treaties that the UK had with other countries.

One worry of the investment was that the acquirers could install a backdoor system, giving them the power to stop the provision of services and use them as leverage in future diplomatic rows.

The national security threats and the lack of early consultation with government led to strong media attention and delays in completing the transaction till contractual mitigations were agreed.

There are a number of things you can do to make the process easier

  • Conduct early risk assessments

Regardless of whether you are a buyer, a seller, or are considering a collaboration, conducting an early risk assessment to determine if national security concerns exist will allow you to be more informed about possible outcomes and have a better negotiating position.

This will also give you a good indication of any challenges you might encounter and what kind of legal and security expertise you may want.

  • Be informed about the parties you do business with 

In view of tightening international regulations on international business, parties that are directly or indirectly state owned, controlled, or even influenced can expect additional checks on their investments or engagements. This may also be true for private companies who are based in authoritarian states where there is little distinction between state-owned and private entities.

Being well informed about the parties you are doing business with, including the entities in consortiums, will enable you to better mitigate any risks that exist. It will also give you a better insight into any additional national security processes which you may need to follow.

  • Take a global view of national security

Early identification of countries where you are planning on doing business will allow your legal, security, and strategy teams to be better prepared to engage with the authorities in that country as well as relevant authorities at home.

  • Engage with any reviewing bodies early

Most jurisdictions which have national security and investment review frameworks provide foreign investors with the opportunity to obtain formal or informal guidance from the reviewing authority.

Whether you are a buyer or a seller, early engagement will provide you with clarity and could avoid time-consuming barriers later in the process. This could also include government departments who govern the sector you operate in, as well as reviewing and screening authorities.

  • Understand the process and timeline for any national security reviews

The process and timelines for screening investments can vary depending on the country and can often be much more complex if you do not engage early.

Understanding the process, timelines, and any disclosures you may need to make is the best way to ensure your commercial decisions are not delayed.

  • Consider mitigation measures as a part of your deal strategy

As part of your overall strategy, and especially if national security concerns are present, you should start considering mitigation measures prior to engaging with government. Informal consultation with authorities can also help identify what kind of actions may be required of you.

This will provide you with the time you need to consider your commercial options, the implications, and even address any risks upfront by modifying the terms of the deal.

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