The UK Parliamentary Foreign Affairs Committee has opened an inquiry into the Foreign and Commonwealth Office (FCO)’s role in blocking foreign asset stripping of UK companies. The inquiry comes as there are growing calls in the UK for further scrutiny of foreign investment, amid concerns that the UK is losing control of key technology firms to foreign investors.
The inquiry will focus on the safeguards required in the forthcoming National Security and Investment Bill (which we reported on here) to ensure that the FCO has a full decision-making role in scrutinising foreign investment, especially where there may be national security risks. Under the current regime, it is open to any Secretary of State to issue a public interest intervention notice. In practice, this has often been the Department for Business, Energy and Industrial Strategy (BEIS) and Department for Digital, Culture, Media and Sport (DCMS), and they have considered representations from other departments, including the Ministry of Defence.
Parties are invited to submit written evidence to the Committee by midnight on Friday 29 May 2020 on the following questions:
What role should the FCO play in guiding UK Government decisions on intervening in foreign takeovers of UK companies, where there may be national security risks?
How does the FCO assess whether a potentially hostile party is seeking to secure significant influence or control over a UK company?
In what circumstances should the FCO seek to intervene in decisions on takeovers on the grounds of the impact on bilateral relations or the UK’s geopolitical interests?
What safeguards are required in the forthcoming National Security and Investment Bill to ensure that the FCO has a full role in the decision-making process in relation to interventions?
The Secretary of State for DCMS has recently stated that, despite the Coronavirus outbreak, DCMS is continuing to work on plans for the National Security and Investment Bill and intends to bring forward the Bill as quickly as possible in this session.
In the meantime and as a response to the COVID-19 crisis, the European Commission has issued guidance to Member States on the application of foreign investment controls. The guidance follows an earlier communication from the Commission, on a coordinated response to the crisis, calling on Member States to be vigilant and use all tools available to protect critical assets and technology. The European Commission is clearly concerned at the consequences of COVID-19 and the vulnerability of European businesses to foreign purchasers with the Commissioner for Trade stating “We are facing an unprecedented public health crisis with deep consequences for the European economy. In the EU, we are and wish to remain open to foreign investment. In the current circumstances, we need to temper this openness with appropriate controls. We need to know who invests and for what purpose. The EU and its Member States have the right legal tools for that. Today's guidelines call upon Member States to use these tools to the fullest extent and will bring additional clarity on how to use our investment screening framework to prevent a sell-off of strategic EU assets in the current crisis.”
Whilst the guidance comes before the full implementation of the FDI Screening Regulation in October 2020, it calls on Member States to use fully their existing foreign investment controls. For those Member States that do not currently have a screening mechanism, or where its scope does not cover all transactions, the European Commission expressly recommends that those Member States set up screening mechanisms and use all other available options to address cases where acquisitions would create a risk “to security or public order in the EU, including a risk to critical health infrastructures and supply of critical inputs”. Such options could include buying ‘Golden Shares’ in businesses to block foreign takeovers, as suggested by Commission Vice President Margrethe Vestager. The EU Trade Commissioner has also stated Member States should start cooperating under the mechanism provided for in the EU FDI Screening Regulation, on a voluntary basis ahead of its implementation in October 2020.
Prior to the COVID-19 crisis, Governments around the globe had been taking a more protectionist approach. Post crisis, with economies weakened and businesses vulnerable to opportunistic investors, and with a greater appreciation of the need to protect critical technologies, infrastructure and healthcare, there will undoubtedly be a renewed focus by national governments on reviewing transactions. Foreign investors will therefore need to consider very carefully the impact of foreign investment controls and approvals on the structure and timing of their acquisitions, particularly those which are in sensitive sectors.