Draft National Security and Investment Act 2021 (Monetary Penalties) (Turnover of a Business) Regulations 2021 Draft National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021

Richard Fuller Excerpts

Wednesday 20th October 2021 General Committees

[Paul Scully]

The commencement date for both statutory instruments is 4 January, which is the same date as the full commencement of the National Security and Investment Act 2021. If Members will indulge me for a couple of minutes, I will first remind the Committee of the purpose of the 2021 Act and why it is vital for the UK’s national security. The UK economy thrives as a result of foreign direct investment. Over the last 10 years, more than 665,000 new jobs have been created as a result of over 18,000 foreign direct investment projects. I am sure the Committee agrees—indeed, the House has demonstrated its assent by passing the legislation—that an open approach to investment must include appropriate safeguards to protect our national security and the safety of our citizens.

The 2021 Act provides the Government with updated powers to scrutinise and intervene in acquisitions to protect national security, as well as to provide businesses and investors with the certainty and transparency they need to do business with the UK. The Act establishes a call-in power for the Secretary of State to scrutinise qualifying acquisitions and a voluntary notification option for firms that wish to gain clarity on whether the Secretary of State will call in their acquisition, and, subject to these regulations, creates mandatory notification requirements in 17 sensitive sectors where it is considered that national security risks are more likely to arise.

The draft National Security and Investment Act 2021 (Monetary Penalties) (Turnover of a Business) Regulations set out how the Secretary of State will calculate a business’s turnover when calculating monetary penalties resulting from non-compliance. We generally expect compliance with the 2021 Act to be high and the need for the Secretary of State to issue monetary penalties to be rare. It is important that the Act comes with sufficient deterrents to non-compliance. This SI is laid under the delegated power in section 41 of the Act. Sections 32 and 33 create offences of completing a notifiable acquisition without approval and failing to comply with an interim or final order. Both these offences can result in the imposition of a monetary penalty.

The maximum fixed penalty that can be imposed on a business for an offence under section 32 or 33 is the higher of 5% of the total value of the turnover of the business and £10 million. The maximum amount per day for a daily rate penalty that can be imposed on a business for an offence under section 33 is the higher of 0.1% of the total turnover of the business and £200,000. With these regulations, we have ensured that global turnover is taken into account when calculating the total turnover. No efforts to get around the penalties will be successful, for example through changing accounts approaches. These are important and well-balanced regulations, necessary for the effective functioning of the 2021 Act.

I now turn to the draft National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021—in likelihood, the SI of much greater interest to the House and noted by the Secondary Legislation Scrutiny Committee as an instrument of interest.

[Richard Fuller (North East Bedfordshire) (Con)]

On a point of clarification about the definition of “turnover”, certain foreign investments will be acquiring businesses with debt in possession or that have very little revenue but a significant amount of intellectual property value. When it comes to appropriate penalties, what is the consideration given to those two particular circumstances?

[Paul Scully]

We have spoken to businesses to get the balance right. There are clearly complexities in these issues, and those will be determined in terms of the enforcement powers. We have decided that the figure and the impact we have calculated around that is the right balance to strike.

The notifiable acquisition regulations specify descriptions and activities of qualifying entities, the acquisition of which must be notified to the Secretary of State as a notifiable acquisition. Acquisitions in the scope of mandatory notifications that are completed without the Secretary of State’s approval will be void and therefore have no effect in law.