National security law extends UK government power to block acquisitions

The National Security and Investment (NSI) Act requires businesses and investors to notify the government of certain acquisitions across 17 sensitive areas of the economy, including defence, transport, civil nuclear and artificial intelligence. Acquisitions outside these sectors can also be ‘called-in’ for review by the government if national security concerns arise.

The NSI Act, which is administered by the Investment Security Unit (ISU) at the Department for Business, Energy and Industrial Strategy (BEIS), came into force on 4 January 2022 and applies to deals made on or after 12 November 2020 - the day after the legislation was first introduced to the UK parliament.

It allows the business secretary to impose conditions on an acquisition or block one altogether if is deemed a threat to national security. When clearance under the NSI Act is required, a transaction completed without clearance will be void, and failure to notify or non-compliance with conditions imposed on a transaction can result in fines of up to 5% of global revenues or £10m (whichever is greater) and can also be a criminal offence.

In a statement in November last year, business secretary Kwasi Kwarteng said he would consider three primary factors before exercising new powers - including whether the entity or asset targeted in the acquisition could be used in a way that threatens national security.

Kwarteng said he would also consider whether an acquirer’s characteristics - or the level of control it would have over an asset – might pose a threat to national security.

Kwarteng said: “The UK is world-renowned as an attractive place to invest but we have always been clear that we will not hesitate to step in where necessary to protect our national security. The new investment screening process in place from today is simple and quick, giving investors and firms the certainty they need to do business, and giving everyone in the UK the peace of mind that their security remains our number one priority.

Updating its guidance on mergers (140 pages/1.04MB PDF), the Competition and Markets Authority (CMA) said its merger control regime (under the Enterprise Act 2002) is separate from the ISU’s national security regime - though a merger may qualify for review under both regimes and be investigated “in parallel”.

The CMA also said it may share confidential information with about cases with the ISU and the business secretary where appropriate.

Under the terms of the NSI Act, the government has 30 working days to review an acquisition from the date that it accepts receipt of a notification.

The government said it will not re-examine any acquisitions that have already been examined under the Enterprise Act 2002, and current investigations under the Enterprise Act 2002 will not be impacted by the new law. It said that it expected interventions to be rare and that the vast majority of deals “will be able to proceed without delay”.