National Security and Investment Bill (Twelfth sitting)

Sam Tarry Excerpts

Committee stage
Thursday 10th December 2020 Public Bill Committees

Brought up, and read the First time.

[Sam Tarry (Ilford South) (Lab)]

I beg to move, That the clause be read a Second time.

The Opposition’s new clause 5 deals with high- and low-risk acquirers. It would require the Secretary of State to maintain a list of hostile actors, including potential hostile states and allied actors, to allow different internal security to be applied based on the characteristics of the actors linked to the acquirer. I will attempt to explain the exact thinking behind the proposal.

There has been widespread agreement inside and outside the Committee that we face a geopolitical context in which many—if not all—threats emanate from a set of hostile actors or states. In fact, the Government’s statement of policy intent for the Bill recognises that

“national security risks are most likely to arise when acquirers… owe allegiance to hostile states”.

Throughout this process, the Committee has heard from various experts, including experts on China, as well as from lawyers, intelligence chiefs and think-thank experts. They have told us that origin and state of origin should be important drivers of national security screening processes. Indeed, a number of our allies—most notably, the US—exempt some countries, including Canada, Australia and the UK, from some of the most stringent mandatory notification requirements, and include country of origin among the factors to be considered in assessing security.

In that context, it is perhaps quite concerning that the Minister and the Government have not caught up or been thinking about that. In previous expositions, they have simply maintained that national security is not dependent on a particular country. When we debated a similar provision earlier in this process, I think the Minister said the Government were “agnostic” about the country of origin. That could be a mistake, because national security is not exclusively dependent on a single country. It is short-sighted and, frankly, dangerous, not to see threats that are materially country-specific.

As my hon. Friend the Member for Newcastle upon Tyne Central said, the former head of MI6 told the Committee that, essentially, we need to wake up to the strategic challenge posed by China in particular. I will explore that a little more with some specific examples from around the world of China beginning to tap into start-ups long before they are mature enough to be acquired. In Sweden, for example, between 2014 and 2019, China’s buyers acquired 51 Swedish firms and bought minority stakes in 14 additional firms. In fact, the acquisitions included some 100 subsidiaries.

More worryingly, in 2018, Chinese outfits, two of them linked to the Chinese military, bought three cutting-edge Swedish semiconductor start-ups. There is the 2017 example of Imagination Technologies—a top British chipmaker—which was acquired by a firm owned by a state-controlled Chinese investment group. Before that, a Chinese firm also bought KUKA, a leading German industrial robot-maker.

[Andrew Griffith]

Although this is interesting, I fear we are drifting a tiny bit off the new clause, which does not refer to geography. Given the Opposition’s desire to continue to shade in any ambiguity with greater clarity and the definition in new clause 5, will the hon. Gentleman give his definition of what “regular” would constitute?

[Sam Tarry]

I thank the hon. Member for that intervention. The word “regular” would clearly need to be defined in a way that did not overburden the new part of the Department that would oversee the regime, but that would provide the information on a basis that enabled the Minister to make decisions, and to be scrutinised on those decisions regularly enough that the regime was effective and did not lead to oversights.

[Chi Onwurah]

I thank my hon. Friend for his points on the new clause. The hon. Member for Arundel and South Downs may say that there is no reference to geography, but is it not the case that requiring a list of hostile actors might reflect geography as appropriate, and as the geography of hostile actors changes? Does the number of times that we have mentioned one country in particular—China—not indicate that geographical location can be an indicator of the likelihood of hostile actors?

[Sam Tarry]

Absolutely. This is not about being particularly anti-China, but it is the strongest example of where we have heard evidence of things that are under way. I will continue with a few more examples. I think this is important, because we are trying to draw back the curtain on exactly what is going on.

[Simon Baynes]

I perceive a similar issue in new clauses 5 and 1: being prescriptive in this way causes problems, because what happens if a new, potentially dangerous, acquirer appears on the scene who is not incorporated within the terms of the measure?

[Sam Tarry]

I thank the hon. Member for that intervention, which goes back to what the hon. Member for Arundel and South Downs said. That is why this needs to be looked at regularly enough to be on top of the process. Obviously, threats change. Countries rise and fall and their agendas and Governments change, but we know that in some instances countries are actively making moves to invest in technology companies in such a way that might not be caught by some of the provisions in the Bill. We feel that being more stringent here would allow the Secretary of State more powers to keep, in some ways, a better eye on exactly what is going on.

Perhaps I should explain a little what I mean by that. One of the things that we are trying to uncover and drive at with the new clause is the importance of some of the ways in which venture capital firms are being used, particularly by the Chinese and by some companies. For example, in Cambridge and Oxford—two important tech hubs for our country—start-ups are regularly invited to pitch ideas to the Chinese state investment company. Nothing particularly untoward is happening there, but it is quite interesting that Chinese investors are particularly interested in talking to emerging biotech, internet of things, artificial intelligence and agri-tech companies.

Why is China particularly interested in those areas? The publicly available “Made in China 2025” strategy to become an economic superpower says that the first three things that the Chinese are interested in are biotechnology, the internet of things, and artificial intelligence. It is quite clear that there is a specific move by the Chinese—this could be replicated by other countries, whether it be Russia or others—but it is not as obvious as, “This is a state company that is going to come in and invest.” They will be taking part in buy-ins of some of the companies. This is something that has already happened.

[Peter Grant]

Although I understand the intention behind the new clause, some of the wording concerns me. I supported new clause 1 because it was quite clearly permissive and expansive. This new clause is quite clearly prescriptive. Does the hon. Gentleman not accept that the Secretary of State will be guided day to day, which is much more regularly than multi-agency reviews can happen? The Secretary of State will be guided day to day by advice from the security services and others, not as to the theoretical characteristics of an acquirer that might make them a threat, but as to the actual identity and track record of the acquirer and concern.

In particular, is the hon. Gentleman not concerned about requiring the production of a list of high-risk and low-risk characteristics, or that subsection (3) of the new clause in particular would create the possibility that, at some point, somebody who ticked all the boxes for low risk, but was still a high-risk acquirer, could prevent the Secretary of State from undertaking the scrutiny that was required? Can he even explain, for example, what he means by “greater” and “lesser” scrutiny? How would I interpret whether the Secretary of State’s scrutiny had been greater or lesser?

[Sam Tarry]

I thank the hon. Gentleman for his intervention. Those are valid points, and part of what we are driving at here is to be more prescriptive. The feeling is that we essentially need to allow the loops in the net to be closed enough such that we catch some of these companies. We do not want a situation where a number of companies have portions of them being owned by, for example, China or another country, and do not fall foul of any of the provisions currently in the Bill. In time, that could mean that countries and entities that were hostile to Britain’s strategic goals ended up having quick and strategic access to things around nanotechnology, agriculture and a range of other areas where they had essentially got their hands into something that I think should be protected far more closely by the UK.

To give an example, in the US—this is already under way—a Palo Alto-based venture capital firm backed by the Chinese Government had dozens of US start-ups in its portfolio. On 15 November 2020, the Office of the US Trade Representative said that 151 venture capital investments in US start-ups had featured at least one Chinese investor—up from 20 in 2010. We are not saying we do not want Chinese investment, but what we do not want is a situation where we are unable to have a grip when we find that loads of our technology companies —our most cutting-edge firms—are essentially all part-owned by the Chinese Communist party or one of its subsidiaries. That is why we have been more prescriptive in many parts of the new clause.

[Matt Western (Warwick and Leamington) (Lab)]

My hon. Friend is making some important points. One of the striking things about, for example, Canyon Capital Advisors is how the US authorities intervened when it was looking to take over a particular US tech company. However, when it came to Imagination Technologies, of course, the UK Government did not.

[Sam Tarry]

That is exactly the kind of example on which we are trying to use the new clause to provide more clarity and give more force to the Bill so it can deal with these sorts of thing. If, for example, public investment by Chinese venture capital groups in western countries—whether it be this country or others—is visible but is actually just the tip of the iceberg, that is going to be a real problem. One lesson that Richard Dearlove described clearly to the Committee was that we need to take a longer medium-term view that goes beyond just being the most free-market and economically attractive investment prospect, particularly given the rise of those geopolitical challenges. The Chinese are being explicit about what their goals are. They do not want to build Britain up; they want to take us for as much as they can get. This is about protecting ourselves and ensuring that those smaller things, which may just be going on under the net and may not hit some of the parts on mandatory notices, not the big headline-grabbing things, could be looked at.

I agree with an earlier comment made by the hon. Member for Glenrothes that one problem is that, while we need regular advice from intelligence services and of course it needs to come through to the Secretary of State, having a regularised timeframe in which we know that those things will get full scrutiny is incredibly important. Parliamentarians and the public will want to see if there are any patterns developing in types of investments and the way those investment vehicles are used to buy into some of the most advanced British technology companies.

This new clause does not require the Secretary of State to publish a list of countries; it simply requires that the Secretary of State, working with the agencies, maintains a list of state-driven risks, which feed into national security risks. Our drive, as the Opposition, is our concern that the Minister does not recognise the state-based nature of those major security threats.

If this new clause is accepted, it would provide those guarantees and the extra ability to bring together the agencies that would be able to compile that list of state-driven risks, which can then inform decisions. In that context, it is vital that the country is assured of the Government’s ability to act on intelligence and expertise in protecting British security against hostile actors.

[Nadhim Zahawi]

New clause 5 seeks to require the Secretary of State to maintain a written list of high-risk and low-risk acquirers, as we have heard, to allow differential internal scrutiny to be applied, by reference to the characteristics of the actors linked to the acquirer, and based on regular multi-agency reviews. I assume that the intention of the hon. Member for Ilford South is that this list would be an internal document, but I would be happy to discuss my concerns about publishing such judgments, if that would be of interest to him.

In order to exercise the call-in powers, the Bill already requires the Secretary of State to publish a statement, which we will discuss later, about how he expects to exercise the call-in power. This statement may include the factors that the Secretary of State expects to take into account when deciding whether to call in a trigger event. Guided by the statement, the Secretary of State will need to consider every acquisition on its own individual facts, as befits the complex nature of national security assessments. In my view, such a list as the one proposed would not, therefore, be the right way forward.

--- Later in debate ---

[Nadhim Zahawi]

I assure the hon. Lady that Her Majesty’s Government do exactly that, but the Bill is deliberately country-agnostic. Indeed, to give parties predictability on small business and to provide for rapid decisions where possible, the regime has clear and strict timelines, as we have heard throughout the debate. Additionally, clause 6 enables the Secretary of State to make regulations to exempt acquirers from the mandatory notification regime on the basis of their characteristics. Arguably, this places the strongest requirement on acquirers, such as where acquisitions by certain types of party are routinely notified but very rarely remedied or even called in. Taken together, these provisions are already a highly adaptable and comprehensive set of tools, so the list and its proposed use would be unnecessary and potentially harmful.

I shall touch briefly on national interests, which the new clause once again references. I have said before that the regime is intentionally and carefully focused on national security. That is specifically the security of the nation, rather than necessarily its broadest interests. This is therefore not the right place to introduce the concept of national interest, which would substantially and, we strongly believe, unhelpfully expand the scope of the regime.

In conclusion, with the strength provided by clauses 1, 3 and 6 already in the Bill, I am of the very strong opinion that the Bill already achieves its objectives. I therefore cannot accept the new clause and ask that the hon. Member for Ilford South withdraw it.

[Sam Tarry]

As I listened to the Minister, it struck me that one of the witnesses, Charles Parton from RUSI, said:

“Let us not forget that most foreign investment by the Chinese is state owned, so it is not just a fair bet but a fair certainty that any state-owned enterprise investing is fully politically controlled.”––[Official Report, National Security and Investment Public Bill Committee, 24 November 2020; c. 17, Q19.]

That is in part our thinking. One slight contradiction with the Bill is that it does not feel as though it always quite reflects the statement of political intent published alongside it. We support that statement of political intent, so the new clause’s objective was to strengthen the Bill’s commitment to ensuring that the Investment Security Unit is provided with an assessment that recognises the relationship between hostile actors and the countries to which they owe allegiance, which is stated in the statement of political intent.

I hope that the Minister takes time to take stock of what the new clause is trying to do, but on this occasion I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 6

Access to information relevant to national security

“(1) The Secretary of State may by regulations make provision for the call-in power under section 1 to be exercisable by the Secretary of State in respect of circumstances where a person acquires access to, or the right of access to, sensitive information but does not acquire control of an entity within the meaning of section 8 or control of an asset within the meaning of section 9.

(2) For the purposes of this section, sensitive information means information of any form or description the disclosure of which may give rise to a risk to national security.”—(Dr Whitehead.)

This new clause would allow the Secretary of State to regulate to include new trigger events, where a person has access to information relevant to national security, even if the party does not acquire control or material influence over a qualifying asset or entity as a result of an investment.

Brought up, and read the First time.