The National Security and Investment Act 2021: Annual Report 2023 and Update

Review of the 2023 Annual Report on the UK’s National Security and Investment Act 2021

This article is the third in a series of articles on this topic, published on 30 September 2022[1] and 19 August 2021[2], respectively. We use the same defined terms in this article. As expected, the ISU published on 11 July its second report[3] on its operations and its application of the National Security and Investment Act 2021[4]. The report consists mostly of statistical information on the number of transactions notified and those called-in, the activity sectors concerned, the origin of the investors and the final determinations made[5].

The detailed statistics of the report are available on the gov.uk website[6] but some of the key points to note are that less than a thousand new notifications were received during the report period and less than 1 in 10 of those were subject to a call-in notice[7] by the Secretary of State for BEIS which resulted in a final order to block, unwind or impose conditions on less than 2 in 100 acquisitions (see below)[8].

Also noteworthy is that over 3 in 4 notified transactions were subject to mandatory notification[9] but as much as 1 in 7 of those called-in concerned unnotified transactions where the Secretary of State used their call-in power under the Act[10]. Called-in transactions and those subject to final orders concerned principally the Military, Dual Use, Defence and Advanced Materials sectors, and acquirers from China, the UK and the USA.

Beyond the statistics of the report, it is important to look at the final order notices published by the Secretary of State to get a better understanding of how national security restrictions have been imposed under the Act to date. The Secretary of State must publish a notice for every final order made to prevent, remedy or mitigate a risk to national security where they conclude that, on the basis of the ISU’s assessment and the balance of probabilities, the relevant transaction will give rise to such risk.

The information that the notices must contain is limited to their effective date, the names of the persons affected, a summary description of the transactions and of the orders (i.e. actions that the acquirer is required to take), their effect and the reasons for such orders. Information that is commercially sensitive or sensitive for reasons of national security is optional.

To date[11], 17 final orders have been made under the NSI. As expected, the orders made range from prevention (the outright prohibition of the proposed acquisition), remediation (the unwinding of a completed acquisition) to mitigation, such as requiring the parties to conduct enhanced customer due diligence, to restrict the sharing of sensitive information, to vet counterparties, or to commit to continuing provision of services in the UK or to the UK Government, etc.

None of the orders contain any commercial or financial information, in particular nothing that would allow an evaluation of the importance of the acquisitions involved and their macro-economic impact over the UK economy. The NSI guidance notes do provide that the Government ‘may choose to publish information regarding call-in notices or final notifications […] following the review period’ where the information becomes otherwise public... Bearing in mind the confidentiality of the acquisitions, it would nevertheless be useful if the Secretary of State could provide statistics on the aggregate size of the acquisitions reviewed and those subject to orders (by sector for instance), and of the turnovers involved; that would permit an appraisal of the relevance of the acquisitions subject to the Act, and the relevance of the Act itself.

[1] Available at https://www.dhirubhai.net/pulse/national-security-investment-act-2021-practice-azmi-associates/?published=t

[2] Available at https://www.dhirubhai.net/posts/azmi-%26-associates_new-uk-national-security-and-investment-regime-activity-6833961446615982080--P0W

[3] This is the ISU’s first annual period, covering the period 1 April 2022 to 31 March 2023; the first report published in June 2022 covered only its first 3 months of the regime, from 4 January to 31 March 2022.

[4] This includes information on transactions notified in the previous period but reviewed during the report period and is limited in respect of (17) notified transactions pending at the end of the period.

[5] As well as the time taken by the ISU to accept, reject and call-in notifications and make final determinations, i.e. its bureaucratic performance in dealing with notifications.

[6] https://www.gov.uk/government/publications/national-security-and-investment-act-2021-annual-report-2023

[7] The remainder were notified that there would be no further action.

[8] The remainder were notified

[9] The remainder were voluntary (180) or retrospective validations (15).

[10] The remainder were notified to the ISU (mandatory, voluntary or retrospective validations).

[11] From implementation of the Act on 4 January 2022.

Written by:

Corporate Communications, Azmi & Associates - 8 August 2023

?

This article does not constitute legal advice. Comprehensive advice must be obtained before taking any action or withholding any action purported to be described in this article.