National Security and Investment Bill (Fourth sitting)

Peter Grant Excerpts

Committee stage & Committee Debate: 4th sitting: House of Commons
Thursday 26th November 2020 Public Bill Committees

[Simon Baynes]

Q I think that Mr Palmer’s point, if I understood him correctly, was that if we bring the Bill in, we create a tougher regime than there is at the moment. I think he used the example of Ireland, and I hope I am not misrepresenting what he said, but he said it was potentially an environment that would have a less structured regime, and therefore could take business away from us, to put it crudely.

David Offenbach: We have the issue that we do not know what difference being out of the European Union is going to make to future investment; but Ireland has been very attractive for many years, partially because of the tax regime—and for lots of other reasons—so will people choose Dublin rather than London if they want to do business? They might very well, but the fact that Britain is open to trade is an important part of the British economy. People will still come here and work here, open businesses and enjoy the infrastructure of the technology and the various businesses that are already here, and that they can feed off, so I am not worried about that in the medium term.

[Peter Grant (Glenrothes) (SNP)]

Q I see from the profile that we have been given that you have considerable experience in land transaction—the legalities of land transactions—as well as company law and so on. Given that part of the Bill that we have not looked at much so far is about controls on the purchase and acquisition of land and other physical assets, as well as companies, are you comfortable with the fact that the processes for controlling potentially hostile purchases of land assets are similar to those being proposed for company takeovers or company acquisitions? Is there any reason why there needs to be different processes for them both?

David Offenbach: It does not need to be any different at all. I was pleased that land was included. Certainly one knows from seeing property transactions and looking at title deeds, sometimes where the owners of these companies are or purport to be is very curious. The Bill covers that very adequately.

[Peter Grant]

Q One important distinction is that while companies legislation is almost entirely reserved to the UK Parliament, a lot of legislative authority for land registration is devolved to the Scottish Parliament and the Scottish Government. Is there a risk of an unintended consequence—that we end up with legislation being passed here that could have an impact on the devolution of land use and purchase regulation to the Scottish Parliament?

David Offenbach: I do not know. I am sure that officials in the Minister’s Department have thought about whether or not this is an issue for the devolved Administration, but I do not think it is a problem.

[Peter Grant]

Q Finally, going back to the acquisition of companies, although it could also be relevant to the acquisition of properties, a key factor is going to be the identity of the person or the business who wants to make the acquisition. That is okay if everybody can see who the owner is. Is the Bill tight enough to give adequate protection against a potentially hostile buyer who sets up a holding company under an anonymous name in some offshore jurisdiction, so that the ultimate buyer of the asset in the United Kingdom is not made public? Is the Bill strong enough to protect against anybody using that as a way of buying up assets that they would not have been allowed to buy up if they had done so in their own name?

David Offenbach: Yes, it is. The first thing that will be looked at is where is the beneficial ownership. It is, first, follow the money and, secondly, follow the beneficial ownership.

[Peter Grant]

Q But what about once you get to the point where you follow the beneficial ownership and find that it is a company registered somewhere offshore, where the identities of the directors, who have ultimate control, or the shareholders, are not made public?

David Offenbach: Then you block it.

[Peter Grant]

Q So you are suggesting we need to block any purchase of a sensitive asset from a company whose ultimate controlling partner is registered in a tax-haven type regime overseas. Would you go as far as that?

David Offenbach: Yes, I am sure that is what the security unit will do. If it cannot be established where the beneficial ownership is, then they will block it, and so they should.

[Peter Grant]

Q You were suggesting earlier that the definition of the national security interest needs to be widened to include other national interests such as the strategic economic interest. Are you suggesting that there are some businesses or some assets in the United Kingdom that, although they do not have any national security implications, should not be allowed to be bought over by a company whose ultimate controlling partner remains anonymous?

David Offenbach: Well, I remember there was an outcry years ago when Michael Portillo was a Defence Minister and they were going to sell the Ministry of Defence. There was an outcry and it was withdrawn. Should Admiralty Arch become a hotel or is that an asset? These are the sort of issues which, if they come up, will be dealt with at the time. I like to think that certain things are fairly sacrosanct. We would not sell Buckingham Palace or Windsor Castle to a foreign buyer if we did not know who they were—or at all, in fact.

[Andrew Bowie (West Aberdeenshire and Kincardine) (Con)]

Q Mr Offenbach, thank you very much. I have a very quick question. You ran through a long list of acquisitions at the beginning of your evidence, most of which I think you would suggest were not in the national interest, although people may disagree. Given the Bill as it stands, which, if any, of those acquisitions would have been thwarted or prevented by it? Which, if any, of those acquisitions would have fallen foul of running the risk of being a threat to national security?

David Offenbach: The answer is that one is not quite sure. That is why I want to widen the definition. The reason why there are 17 different areas and categories in the Bill is that it is hard to know what national security is at any particular time and how it is reflected in the business that is actually being considered. The only way to make sure that something does not slip through the net is to have a slightly wider definition. There is no definition of national security itself in the Bill, which is perhaps why strategic, research and development, innovation or other issues should be brought in. Then one can be quite sure one has not accidentally lost an asset where there are national security issues.

--- Later in debate ---

[Matt Western]

Q I wonder, Mr Butler, if you would elaborate on, and give more examples of, the sorts of international threats that you see us facing, in terms of not just national security but economic security, and the links between the two.

Creon Butler: In my view of economic security broadly, the biggest existential threat is climate change, frankly. We are going through a ghastly pandemic. Fortunately, it looks like we can see the way out of it, but I do not think that at any point we felt that this particular virus was an existential threat to mankind more generally. My view of climate change is that it is, and it is very close. In any broad assessment of national and economic security, I would put climate change as one of the most important issues. That is why the accelerating efforts both within Governments and in the private sector to deal with it are crucial.

In terms of other kinds of threats, we have had this particular pandemic, which as far as we can see is not an existential one; there could be other pandemics that are. That is why infectious diseases have been so high on our risk register in the past. Steps to ensure that we do not face future pandemics that are even more serious than this one in terms of the threat to human life, or the economy, are a very important priority. Those are two examples of broader threats beyond hostile powers that we should incorporate in our approach to national and economic security.

[Peter Grant]

Q Good afternoon, Mr Butler. You highlighted the problem of identifying the fact that an acquiring party may have hostile intent towards us if we do not know who is really in control and who the ultimate owners are. One way of addressing that is simply to have a built-in presumption against allowing any acquisition of a security-sensitive asset or business by a company whose ultimate owners are not identified. Do we need to go as far as that? If not, what else could we do to protect ourselves from hostile elements, which will undoubtedly use that back-door access, if it is left open?

Creon Butler: It is a good question. It is something I worked on when I was in the Government. There is a pending proposal in relation to property, to ensure that no foreign company can invest in UK property without some means—whether their own register of beneficial ownership or a regime put in place in the UK—of ensuring that transparency. That is in relation to ownership of property. It did not go much broader than that, because it involves a major bureaucratic process and there is the issue of not interfering too much with the way the economy works. If we did do that, it would help in relation to one of the national security concerns we have, which was highlighted in the Bill, where a hostile power buys some property close to a very sensitive site.

I need to think about it a bit more, but I do not think it would make sense at this stage to require that we can identify the ownership of every single investment. For example, in the US they do not have consistently strong beneficial ownership rules. You might find a situation in which several US investments in the UK did not meet those transparency requirements. If they were in non-sensitive sectors and did not pose a threat to us at all, it would create a considerable burden.

Thinking it through on my feet, the logic would be to do something of that kind, where it related to sectors that we knew to be sensitive. Indeed, those are already covered by the mandatory notification case. Where you have the mandatory notification, it will presumably trigger information about who owns the company that is making that investment. If that is not clear now, that may be the route to make sure that this element is covered.

[Peter Grant]

Q To be clear, you mentioned in your answer the need to regulate foreign-registered companies from certain types of acquisitions. Does that also apply to UK-registered companies, which are in turn owned by foreign companies? The bad guys will set up a UK company to do all the bad stuff through. Do you agree that we need to follow the chain of ownership and control right back to the ultimate controller?

Creon Butler: Absolutely. We currently have a public register of beneficial ownership for all UK-registered companies. That was a major and important step. There are issues about whether we are doing enough to enforce those legal requirements. That area could be looked at helpfully in this context. When that regime was designed, the view was that market forces, external pressures and gathering information from NGOs and others would ensure that the information on the register was accurate. I am not sure that we can now be sure that is the case. We want to get that transparency for UK-registered companies, and we may need to do more in that direction, particularly through the enforcement process in Companies House.

[Stephen Flynn (Aberdeen South) (SNP)]

Q Thank you, Mr Butler, for your evidence so far. It has been incredibly enlightening. It is probably fair to say that national security—what is tantamount to national security—is an ever-evolving feast, particularly given the technology that is now available. Do you feel that the scope of the Bill, particularly the consultation of the 17 sectors that have been included, satisfies your concerns around national security? I am particularly thinking of social media and the level of data that is pertinent within that. Do you think that is adequately covered by the Bill as it stands?

Creon Butler: I think this comes again to the point about how we will tightly define national security in relation to these broad powers. I think you are thinking of a hostile power investing in a social media platform that can then be used to attack the UK—I guess that is what you have in mind. It is, again, something that I have not thought through. Probably, I would not see the nature of the threat as being so great that we would necessarily make it a mandatory notification, but by using other sources to collect information about threats, we might use the other powers in the Bill—the calling in and those kind of powers, and the voluntary notification —to make sure that we had covered the threat. I do not think I would put it in the mandatory category, but I would want to use other information and powers to collect information, and to call in a particular investment if I felt it was a threat.