A UK CFIUS Regime? White Paper Consultation on National Security & Infrastructure Investment Review

by Bryan Cave Leighton Paisner

The UK currently uses the Enterprise Act 2002 to review mergers on national security and other public interest grounds alongside the competition regime.

Following the Chinese investment in the Hinckley Nuclear power station project, the Government voiced concern that it did not have enough powers to scrutinize properly investments by foreign investors on national security grounds.

Therefore it announced “a root and branch” review of its existing national security vetting powers and made certain proposals to extend its powers to review transactions which result in foreign hostile actors acquiring ownership and control in UK companies, property, intellectual property and other assets in certain key sectors of the UK economy.

In October 2017, the Department for Business, Energy & Industrial Strategy published for consultation a Green Paper to seek views as to whether the Government’s current powers were sufficient to ensure that national security risks receive the appropriate level of scrutiny. The Green Paper set out some immediate short term reforms to the Enterprise Act 2002 but also canvassed stakeholders’ opinions on the shape of a new CFIUS style regime in the longer term. The Government’s view contained in the paper was that there should be a substantial extension of its powers, with the formation of a vetting system entirely separate to the existing merger control system similar to other countries’ foreign direct investment (FDI) regimes.

Short term reforms

On 11 June 2018, the Government introduced reforms allowing it to intervene in a broader range of transactions where the target is active in either the military or dual-use sector, the computer hardware sector or quantum technology. Details of those reforms were provided in our previous blog ‘Greater national security scrutiny at the heart of new UK merger control reforms’.

Soon after the new rules came into effect, the UK Government took advantage of the new lower thresholds for such interventions. On 17 June 2018, it intervened on national security grounds in the proposed acquisition by Chinese-owned Gardner Aerospace of British aircraft parts manufacturer, Northern Aerospace. However, despite invoking the new rules to vet this transaction, it was subsequently cleared unconditionally on 19 July 2018 on the basis that there were no national security grounds for referring the merger for a more detailed Phase 2 investigation.

New FDI Regime

As the Government had intimated in its Green Paper, it wanted to establish a specific regime similar to other countries’ regimes entirely separate from the competition based merger control regime. Its proposals for that system and its longer term reforms were set out in the White Paper published in July. The object of the consultation on the White Paper is to seek respondents’ views about those trigger events that parties consider they would notify to the Government, or which they would seek further advice about. The consultation will remain open until 16 October for responses from stakeholders.

Following the consultation responses to the Green Paper, the Government now wishes to press ahead with its plans. It wants to introduce a standalone FDI system which protects national security from hostile actors using ownership of, or influence over, businesses and assets to harm the country. These reforms will bring the UK closer in line with other countries’ regimes, and are taking place as many other governments are also updating their powers in light of the same technological, economic and national security-related changes. The new regime is only related to national security which will be assessed by the Government. The proposals also involve removing the existing national security considerations from the Enterprise Act 2002 . National security is distinct from public interest issues. Public interest issues (namely plurality of the media and ensuring financial stability) will remain within the Enterprise Act 2002 merger control regime. The Green Paper concluded that no changes were needed to the wider public interest regime.

The Proposed New Regime

The main proposals contained in the Government’s new national interest regime are as follows:

1. Notification

Notification of relevant transactions covered by the regime will be voluntary, with the Government having the option of calling in non-notified transactions for a national security assessment. There will be a prescribed period in which the Government can call in any relevant transaction. This is most likely to be up to six months from the “trigger event” having taken place. The Government states it will encourage notification of investments and other events that may raise national security concerns and it will publish a detailed statement of policy intent to set out more fully where and how it considers transactions will be covered by so called “trigger events”. This will assist parties to determine whether to discuss the transaction informally with government officials and/or whether to submit a formal notification to the Government.

It estimates that it is likely to receive about 200 notifications each year of which 100 will raise national security concerns and of which 50 will be subject to some kind of intervention. This is a considerable workload. To put this into context, this is likely to be at least three times the number of UK merger notifications currently made to the CMA. There will also be powers to request information in relation to specific trigger events that the Government is aware of in order to inform its decision as to whether to call in a trigger event for screening.

2. Screening

For those transactions that do raise significant concerns, the Government will carry out a full national security assessment. A clear and circumscribed legal test would need to be met in order for the Government to exercise this power and the screening process would be subject to a clear and transparent process subject to appropriate judicial oversight. The national security assessment will be conducted within set time periods. The Government plans to screen out any notified transactions which do not, in fact, raise any national security concerns quickly and confirm its views within a prescribed period. The White Paper suggests the Government has 15 working days to consider whether a notified deal will be subject to a full national security assessment. If it  so decides it then has a period of up to 30 working days, potentially extendable by a further 45 working days, to complete its assessment.

3. Trigger Events

The new regime will extend the range of circumstances where the Government has powers to address national security risks. The areas covered include activities in the energy, communications, transport and nuclear sectors but the White Paper makes clear that this is not an exhaustive list and that national security concerns could potentially arise in any sector of the economy. So the areas covered are likely to go even beyond those set out in the short term reforms.

Transactions by which a hostile actor can acquire the ability to undermine national security in the short or long term will be deemed “trigger events” susceptible for investigation by the Government. The Government proposes to publish more detailed policy guidance as to what transactions are likely to be covered by the new regime. This will include a description of the entities and assets where the acquisition of control can be used to undermine national security, and details about the sectors of the economy where the Government expects risks are more likely to arise as well as detailed guidance as to what constitutes trigger events. These cover those areas already subject to enhanced scrutiny under the Enterprise Act 2002 but are likely to be much broader.

In summary, however, trigger events will at least include:

  • any investment or activity that involves the acquisition of more than 25% of an entity’s shares or votes;
  • acquiring significant influence or control over an entity;
  • increasing the quality of existing control beyond the above thresholds;
  • ownership of more than 50% of an asset including ownership of intellectual property rights and real estate; and
  • significant influence or control over any of the above assets.

4. Remedies

Where the Government concludes that a transaction does pose a risk to national security, it will have the power to impose conditions on the transaction or prohibit it outright. If the transaction has been put into effect it will have the power to order for it to be unwound. There are also likely to be powers to impose interim enforcement orders where a transaction has been called in and has already been completed to mitigate the risk to national security pending the outcome of the investigation. The Government’s initial analysis indicates that around half of those trigger events called in for a full national security assessment are likely to require remedies.

Sanctions for non-compliance are likely to be significant to incentivise compliance. The following sanctions could be imposed upon the companies involved and /or individuals who authorised or were instrumental in the breach:-

  • Custodial Sentences:- prison sentences of up to five years will be available for most offences (including breach of conditions imposed or failure to unwind a transaction). Lesser prison sentences of up to two years are available for less serious offences (e.g. for failure to provide information or providing false information);
  • Civil Penalties:- substantial civil financial penalties for failure to provide information (up to £30,000 or maximum daily fine of up to £15,000) and for all other breaches (up to 10% of a business’s worldwide turnover or for an individual up to 10% of the higher of their total income or £500,000); and/or
  • Director Disqualification Orders:- director disqualifications for up to 15 years.

Government decisions under the new regime will be subject to challenge by way of judicial review in the High Court.

Lessons from the US

Indications are that the Government’s reforms will take the US CFIUS regime as their inspiration.

In the United States, in addition to competition/antitrust review, certain transactions that result in foreign control of a U.S. business may be subject to review by the Committee on Foreign Investment in the United States (“CFIUS”), an interagency group tasked with determining whether a particular transaction could impact U.S. national security. CFIUS review is not triggered by the size of a transaction, but rather by the nature of the U.S. business and the potential foreign acquirer.

Under federal law, if a covered transaction poses a national security concern that cannot be mitigated, or if the parties are unwilling to agree to the mitigation required, CFIUS may recommend that the President prohibit the transaction or, if the transaction has already been finalized, order steps to prevent the potential threat, including divestiture

Implications for Investors

So the Government is going to roll out a UK version of the CFIUS regime under which notification is voluntary but compliance is incentivized by substantial penalties.

The Government has stated that it expects 200 transactions to be caught by the regime in any given year with 50 or so of those deals subject to conditions or even outright prohibition. If implemented, this is clearly a system which means “business”. It will represent a substantial uptick in enforcement activity in UK merger policy. For inward investors it will provide additional complexity to the merger clearance process in the UK especially if they are in one of the high risk categories of the economy highlighted by the White Paper.

All investors will need to grapple with the new rules but, for those investors from countries with friendly relations with the UK, it is not likely to be a cause for concern.

Those foreign investors engaged in auction processes for sensitive assets or companies may find their bids marked down if there are potential foreign investment risks.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bryan Cave Leighton Paisner | Attorney Advertising

Written by:

Bryan Cave Leighton Paisner

Bryan Cave Leighton Paisner on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.