National Security and Investment Bill

Nickie Aiken Excerpts

2nd reading & 2nd reading: House of Commons
Tuesday 17th November 2020 Commons Chamber

[Nickie Aiken (Cities of London and Westminster) (Con)]

First, I note that I am the only woman on the Government Benches speaking in the debate today. That is not because many of my colleagues do not wish to. For example, my hon. Friends the Members for South Ribble (Katherine Fletcher) and for Rutland and Melton (Alicia Kearns) cannot speak today because they are self-isolating or shielding and our virtual Parliament does not allow them to take part in these debates. The sooner we allow Members who are having to self-isolate and shield to take part in debates, the better.

I welcome the Bill and the work it will do not only to protect British business and our national security, but to provide more safety and comfort to companies and individuals from abroad investing in the United Kingdom. There is a clear need for the Bill to secure new investment as we transition into a genuinely independent trading nation for the simple reason that legislation in this area was last written at the beginning of this century, and it has not kept up with business and advances in technology since then.

I regularly speak to financial and professional services based in my constituency of the Cities of London and Westminster, and the legislation technology lag is often a key concern. I am glad that the Government are taking action to prevent the lag from growing any greater. As we recover from covid-19, it is essential, for the economy to recover, that we remain a vibrant and attractive destination for global investment. The actions taken under the Bill to make interactions with the Government simpler, more transparent and swifter than the current regime have to be welcomed for the benefits to both domestic business seeking international capital and those investing from abroad alike.

The Bill, as I understand it, will also create an investment screening regime in line with those that already exist in other nations around the world—many have been mentioned today—meaning that investors will be familiar with the processes that they will likely have to undertake. I am pleased that my right hon. Friend the Secretary of State is keenly aware that we must strike a balance between preserving national security and enshrining the UK’s world-leading position as an investment location. Of course, we are aware that it is only a small minority of rogue players who might pose a risk to our national security, so we must welcome legitimate investment as openly as possible. I hope the Government will continue to work with businesses as the Bill progresses to ensure that that balance is maintained.

Having said that, I understand that the Government predict, in their impact assessments, that less than 1% of all mergers and acquisitions and asset transactions will result in voluntary notification to Government. Some of the magic circle law firms based in my constituency believe that the Government may have underestimated those figures and, indeed, even if they are correct, it will none the less result in a much greater number of transactions being reviewed than is currently the case. They are concerned that the increased administrative burden of more reviews might deter investors. I would welcome a response from the Minister on that point.

I am pleased that the Bill’s focus is on national security concerns and that it will not enable the Government to intervene for wider economic reasons. This appears to remove the potential for any political interference when reviewing mergers and acquisitions. I would welcome assurances from my hon. Friend the Minister that it is the Government’s intention to take the politics out of that as much as possible. Furthermore, I am reassured that the new investment security unit will be within the Department for Business, Energy and Industrial Strategy, rather than across Government—although I take the point made by my hon. Friend the Member for North West Norfolk (James Wild)—meaning greater consistency and potential speed in decision making. It is about that speed. As has been said already today, 30 days should really mean 30 days if we are to ensure that we do not block investment.

Finally, the Bill is to be welcomed in the broader context of other legislation before the House. I spoke last week in the Second Reading debate on the Financial Services Bill, brought forward by Her Majesty’s Treasury. Taken together, I believe the Bills represent a clear indicator that across Government, this Administration understand the priority and impact the financial and professional services, many based in the City of London, have on UK plc and the wider global economy. They will lead the recapitalisation of the economy post covid-19 and they will finance the Government’s levelling up agenda. It is right that we do what we can to ensure that they can operate safely and securely as technology advances in the financial marketplace.

I hope that my right hon. Friend the Secretary of State and ministerial colleagues will continue to consult business as the Bill progresses through the House. Should I be able to act as a conduit to the business community in my constituency, I would be delighted to help. I commend the Bill to the House.

National Security and Investment Bill (First sitting)

Nickie Aiken Excerpts

Committee stage & Committee Debate: 1st sitting: House of Commons
Tuesday 24th November 2020 Public Bill Committees

[Matt Western]

Q I am thinking about Cambridge and so on, which are moving into more commercial areas.

Charles Parton: Where academia sets up a company, and that involves itself with China, yes, that should be under the purview of the Bill. There is a separate question about when Chinese companies hire or fund—whichever you like to say—UK academics to carry out a specific piece of research for them. Universities are working on that, and that is a very urgent question. Again, I think that a much stricter regime should be put in place to stop the seeping out of technologies that could be used in the military field or the repressive one. I am not convinced that that is there at the moment; I am sure it is not. That might be a separate question. It may or may not be one that requires parliamentary legislation—people who are experts on that can make up their mind—but some form of consultation with the Government, or perhaps a sanctions regime, needs to be put in place so that that does not happen.

On the question of intellectual property rights, China has a very rigorous campaign to get hold of our IP. Some of it is stolen through cyber, and I am sure our intelligence services and others are doing their best to combat that. I am not sure about the degree to which this Bill can act as a defence against Chinese abuse. It can certainly try to encourage companies to raise their own defences, but the UK has an organisation—the Centre for the Protection of National Infrastructure—that aims to put out that advice and help. I do not know whether it is strong enough in its actions and shield; that is outside my area of expertise. It is certainly there, but perhaps it, too, needs strengthening.

[Nickie Aiken (Cities of London and Westminster) (Con)]

Q It is a pleasure to serve under your chairmanship, Mr Twigg. Mr Parton, thank you for your time today. You said that small firms may come under pressure to be bought up, and are often targeted. What is your view on how this Bill can strengthen national security by ensuring that firms—particularly small firms—are not taken over by legitimate, friendly actors, which further down the road are bought up by China or whoever? Does the Bill protect us from that type of long-term acquisition?

Charles Parton: I suspect that there is a limit as to how far down the line one can go, but where activity is still going on in the UK—that is to say, where UK individuals are still running that company in the UK on behalf of a friendly foreign country, and the company is later bought up—that should be covered by this Bill. Otherwise, you are absolutely right: you may find a company in Liechtenstein buying it; then the company gets bought by the Chinese, and the technology gets siphoned out. There has to be a defence against that.

If a company is bought by a friendly country and the technology is exported, and nothing is happening in the UK, then I cannot see how extraterritoriality would be applicable.

National Security and Investment Bill (Second sitting)

Nickie Aiken Excerpts

Committee stage & Committee Debate: 2nd sitting: House of Commons
Tuesday 24th November 2020 Public Bill Committees

[Peter Grant (Glenrothes) (SNP)]

Q Good afternoon. I do not know whether your saw much of the previous witness’s evidence, but she commented on how countries such as the United States have a limited number of excluded or exempt countries—including the United Kingdom—that are not covered by their equivalent legislation. What are your thoughts on how the Bill does not have any provision to exempt entire countries from its scope?

Michael Leiter: I was able to see part of Dr Lenihan’s excellent testimony, which was quite informative and good. First, to clarify, although the US does make distinctions for exempted countries—obviously those are the UK, Australia and Canada right now—that exemption is extremely narrow. It limits those countries only on mandatory filings, and only if investors from those countries fulfil a fairly rigorous set of requirements. So, although Canadian, UK and Australian investors were quite excited before CFIUS reform, when the regulations about excepted investors were promulgated, that has had a minimal effect on those countries. It is not a significant advantage. Those countries are still subject to CFIUS review in the vast majority of investments they make. Now, that gives only half the story, because clearly investments from those nations go through a much less rigorous review, and come out with much better results than those from countries where the US has a more strained security relationship.

On what I see in the Bill, I would say a couple of pieces about the excepted possibility. First, as I read the Bill right now, it covers investments from other UK investors—not even simply those outside the UK. If my reading is correct on that front, I have to say that is probably not wise. We have already talked about the significant increase you could have, based to some extent on mandatory transactions as well as some other factors, and I think trying to take a slightly smaller bite of the apple and not including current UK businesses in the scheme would be well advised.

To the extent one has open trade and security relationships with certain countries, lowering the bar for review to exempt them, or including things such as dollar limits and getting rid of the de minimis exemption, might well make sense. That is another way of making sure that the Secretary of State can focus on those areas you think are the most sensitive from a security perspective. Whether we like to do so or not, that can be aligned to some extent with the country of origin of the investor. It is not always perfect—one must often look below that, especially when dealing with limited partners and private equity—but it is a relatively easy way to reduce the load you may experience if all these measures were implemented.

[Nickie Aiken (Cities of London and Westminster) (Con)]

Q There are 17 sectors included in the Bill, but are any sectors missing? Is there scope for future-proofing?

Michael Leiter: Right now, it is a very robust list. In fact, I would probably err on the side of going in the other direction. I think this is a good list of 17, but what is critical is that these sectors gain further definition about what this actually means. Let me give you a quick example: artificial intelligence. I invite you to go online and try to find more than 10 companies in the world right now who are doing well and do not advertise their use of artificial intelligence in one way or another. It is one of the most commonly used marketing terms there is: artificial intelligence and machine learning, all to serve you in your area of work. If one interprets artificial intelligence as encompassing all those businesses, there will be a flood of reviews. Now, if one focuses on those companies not using artificial intelligence but actually developing artificial intelligence, I think the definition of the mandatory sector will make much more sense. That is an area where I think the US is still finding its way. As Dr Lenihan noted, the US began with a set of listed sectors where transactions were more likely to be mandatory. They eliminated that and now focus purely on export controls, but again, it is not that a company uses export control technology; it is that it produces export control technology.

That may be too narrow for your liking, but if one mapped out your 17 sectors as currently described to their widest description, I think there would be very little left in the UK economy, except for some very basic manufacturing and some other services that would not be encompassed. This is a very broad list and, again, I think it will take some time to tune those definitions so they are not overly encompassing. Again, if you look at data infrastructure, communications, transportation —at their extreme, that is quite a broad set of industry descriptions.

[Sam Tarry (Ilford South) (Lab)]

Q Just thinking and reflecting on a few of your comments, Mr Leiter, if we are given the timescale that you have had at CFIUS—it has a long history, it has been here a long time and you have brought in a new and updated regime to meet the threats that the US Government see are coming towards us—how could we translate that to our context as we put together this regime here? Are there any particular lessons that we could use? Are there new threats that have been captured by the new regime that you now have in place?

Michael Leiter: Thank you for your question. I will do my best to provide some advice. I do so with some hesitation, because I readily accept from my experience working with the US and the UK that although we are related, we have two very different systems. The scale of our Governments and the scale of our private sectors are different, so one should always be very careful of trying to learn lessons from any other single country.

First, I would try to take this incrementally. This is a very big step and in trying to predict second-order and third-order effects of this—both the security effects, which may be positive, and the economic effects, which may not be as positive—I would tread carefully. I would start narrowly, then open up the aperture as necessary, rather than opening up quite wide and then narrowing it down.

Secondly, I think it will take some time, and not only to develop the administrative capabilities to handle this volume within the Government. I think you would have a significant amount of learning to do within your private Bar as to how this works, but also how to manage those voluntary filings. You are talking about including voluntary notifications across the economy, which I think is quite a sensible approach, but that requires a degree of collaboration between the UK security sector and the Secretary of State and the UK private legal Bar and commercial sector to understand where those national security threats and risks may lie. This is something that has developed in the United States over the past 20 years, but does not, in my view, yet exist fully in the UK.

Next, I would say that it is very important to consider how this should be applied for limited partners in private equity. Private equity plays a massive role both in UK and US investment and having clear rules about limited partners and the rights that may or may not implicate non-British ownership in those private equity funds is a very important step to take and one that should be clarified up front. It should not be approached without further clarification.

Lastly, I think it is important to build into the scheme the ability to evolve as technology evolves. I heard some of the questions about social media during the previous panel and it would have been very difficult to understand the sensitivities that are implicated by social media 10 years ago, or perhaps even five years ago. The ability for the review and notification to evolve with changing technology, access to data and new national security threats is critically important. The regime should be a living one that will evolve with those changed political or technological circumstances, not one that keeps still.

--- Later in debate ---

[The Chair]

Nickie Aiken.

[Nickie Aiken]

Q I forgot to say earlier that it is a pleasure to serve under your chairmanship, Sir Graham. Mr Cummings, thank you for your time today. Are there any particular areas in the Bill that concern you—that you think may put off the investment community from investing? Also, what would you say are the particular strengths of this Bill?

Chris Cummings: As for particular strengths, we feel that the aspects that deal evidently with national security are strengthening a regime that needed some modernisation.

On the protection of intellectual property, one of the key areas—it is absolutely essential for us as investors—is knowing that if we are investing in a particular company, we are doing so because, depending on the market and sector it is in, we feel that the intellectual property is clear, maintained and protected by clear legal contracts, and that if something goes awry, we, as investors, have recourse to legal sanctions.

There is much in the Bill to be commended. In terms of areas of weakness—forgive me; I feel I have touched on these—it is about ensuring that, as investors, our position is clear and understood. In investing in a company, when doing that not to try to take it over or seize the reins, it is to provide more of a long-term investment to support the company’s development. We do not feel that quite comes through in the way the Bill has been written at the moment. It has been written, rightly, for takeovers. We do not want to be hit by ricochet —by accident—in wanting to continue to support UK plc and find that new barriers have been erected that prevent us doing that, simply because this part of the investment landscape had not been completely thought through. That is a caveat, rather than a point for deep consideration.

[Nickie Aiken]

Q On the 17 sectors that were included in the Bill, do you think there are too many or do you think any sectors are missing?

Chris Cummings: That is something we are looking forward to engaging with. When you first hear it, 17 sectors sounds like quite a lot, but having worked through the 17 sectors and looked at some of the draft definitions, I think that each one is justifiable.

We would be keen to point out a few things to the Government. First, the greater the specificity around the definitions, the better. Secondly, we should not rush to change the sectors by adding to them too quickly. Investment needs a degree of stability, and legislative stability most of all.

Thirdly, in consulting with industry and thinking about the operations and practice, I would ask to have industry expertise around the table. We found time and again working with officials—they are hugely valuable, talented individuals, but do not come from a commercial background, almost by definition, although some do—that having the commercial insight, we can play a role in nudging in the right area, to ensure that nothing is hard-coded that would prevent a deal because the nuance has not been appreciated. Having that industry insight would be a big step forward, if it could be accommodated.

[Peter Grant]

Q Good afternoon. The Government’s impact assessment expresses the view that a national security regime such as this does not have much of an impact on overseas investors and their investment decisions, as long as they are comfortable that any interventions are appropriate and the regime is predictable. Do you share that view?

Chris Cummings: With any new piece of legislation, and certainly one of this character and this far-reaching, investors will always want to understand the motivations that led to it being introduced, how it will work in practice and whether we can give case studies as quickly as possible to prove that it does work in this way.

The important thing—I cannot stress this enough—is how it gets spoken about by Ministers. That enduring political support for investment carries such weight with investors. More than the words on the page, what matters is how it is presented—how Ministers then talk about the desire to continue to attract investment and how they make themselves available to investors.

All major economies, because of the covid-19 crisis, are seeking new levels of investment, whether for individual corporates or infrastructure investment, let alone Government debt. We feel very strongly that the UK has a tremendous story to tell. Introducing new legislation such as this at a time when, bluntly, we are looking for more investment to come into the UK, will require a degree more explanation. The way it has been phrased so far, as national security and almost as a catch-up activity with other developed jurisdictions, is fine. However, if Ministers make themselves very much available to investors to explain how this will work, and make a bonus of the pre-authorisation facility, so that if investors are troubled that an investment they are considering could attract attention, there is an ability within 30 days —that is a really important point: within 30 days—to have it pre-approved and then stood by, that will go a long way in the investment community.

As you can tell, we will have to paddle a little bit harder, but that has the potential to be a short-term explanation for a long-term gain. Potentially, that is fine, but I say again that we hope Ministers will seize the opportunity to explain this to investors, the course will be set and we will not see further iterations or scope creep from national security to other sectors, which then becomes a little more worrisome.

National Security and Investment Bill (Third sitting)

Nickie Aiken Excerpts

Committee stage & Committee Debate: 3rd sitting: House of Commons
Thursday 26th November 2020 Public Bill Committees

[Mark Garnier]

Q And the debt issue—the fact that debt holders can be more influential over businesses than equity holders?

Christian Boney: That is certainly fair. I think the level of influence and control that a debt provider will typically get in what I will call the ordinary courts means that it is less likely—I am certainly not saying it is impossible—to be at the level of getting such granular, sensitive, let us call it operational information, which is the kind of thing we would really be concerned about. It would more be focused on getting access to financial projections, financial performance and that kind of information, which, although it can still be sensitive, is probably less sensitive than operational data. A balance needs to be struck, it seems to me, in the context of this legislation. Not having debt providers obviously within scope does limit the legislation, but does it strike an acceptable balance? My personal view is that, on balance, it probably does.

[Nickie Aiken (Cities of London and Westminster) (Con)]

Q From your professional point of view and experience to date, what could be the long-term impact of the Bill on UK business and investors? Will the Bill help or hinder the global position on investing into the United Kingdom?

Lisa Wright: In many ways, the regime just brings the UK into line with major international peers. From that perspective, for people doing deals around the world who have already experienced those other regimes, it ought not to have any real negative impact at all, provided that BEIS can deliver on the aspiration set out of a slick and efficient regime, turning around notifications within sensible deal timeframes and providing the kind of informal advice and early engagement promised. That will be critical, particularly in the early stages of the regime. From that perspective, I do not think this should have a long-term negative impact on people wanting to do deals in the UK. As Christian was mentioning earlier, it may be a slightly different picture for the start-ups and the smaller companies where they are caught up in the mandatory sectors, but overall I think it is right that this can be viewed as the UK bringing itself into line with what else is going on around the world.

Christian Boney: I agree with that. That is the right assessment.

[Sam Tarry (Ilford South) (Lab)]

Q Picking up the idea of bringing us into line with global peers and equivalent countries, there are many different regimes and you both have incredible global experience legally. If you have experience of dealing with companies and transactions, mergers and so on, particularly in the US, you will know that it has the Committee on Foreign Investment in the United States, with its white list of almost green-lighted countries, which they can deal with slightly differently. Should we consider something like the US does with its more established regime and having not necessarily an approved list but different layers for our regime, from the most hostile countries through to those who are our closest allies?

Lisa Wright: It is certainly worth considering. I would imagine that those sorts of considerations will be going through the mind of the officials and the Secretary of State tasked with making these assessments and issuing the decisions. I can see there may be some sensitivities and a desire perhaps not to make that all transparent in terms of public documents. Perhaps they think they will deal with it over time through this engagement and, with advisers and parties coming to talk to them, you will get a sense of who is okay and who is not that. But I can see that perhaps they will not want to put that down in very great detail on a public piece of paper, not least because one might imagine it could change over time. I guess there needs to be a degree of flexibility to recognise that.

Christian Boney: I agree. I am certainly not a CFIUS expert, but my understanding of the exempt list of countries is that actually the practical impact is quite tightly drawn. I do agree with Lisa. I think we are likely to get the best sense of those countries that are viewed as more risky than others through the engagement process and as people’s experience of the regime develops.