On November 11, 2020, the United Kingdom introduced the National Security and Investment Bill (NSI Bill) directed at improving its national security screening regime for investments. With the introduction of the NSI Bill, the UK joins a long list of nations, including Canada, Australia and the United States, that have altered their national security investment screening processes and/or policies since the COVID-19 crisis started.

The NSI Bill contemplates:

  • mandatory pre-closing notification requirements for transactions involving specific listed industry sectors;
  • a voluntary notification process for transactions not involving a listed sector but which still may raise national security concerns; and
  • a “call in” power to screen transactions either not requiring notification or, where notification has been made, a decision is made within 30 business days of filing that a more detailed assessment is required.

While still under consultation until January 6, 2021, the proposed listed industry sectors are:

  • Advanced Materials
  • Advanced Robotics
  • Artificial Intelligence
  • Civil Nuclear
  • Communications
  • Computing Hardware
  • Critical Suppliers to Government
  • Critical Suppliers to the Emergency Services
  • Cryptographic Authentication
  • Data Infrastructure
  • Defence
  • Energy
  • Engineering Biology
  • Military and Dual Use
  • Quantum Technologies
  • Satellite and Space Technologies
  • Transport

The UK government expects to receive between 1,000 and 1,830 notifications per year, of which 70 to 95 will be subjected to detailed national security assessments.

Whether or not voluntary notification has been made, the UK government has the power to “call in” a covered transaction which has taken place up to 6 months after it became aware of the transaction so long as it is done within 5 years of the acquisition. Where the acquisition was subject to mandatory notification, the 5-year time limit does not apply. As a transitionary measure, if the government becomes aware of the transaction on or after November 12, 2020 and before the NSI Bill becomes law, it retains the right to “call in” the transaction up to 6 months after the law comes into force.

The NSI Bill includes strict penalties for non-compliance. A company may face financial sanctions equaling the higher of 5% of global turnover and £10 million for contravening the new regime. An officer of a company could face fines of up to £10 million and criminal sanctions of up to 5 years’ imprisonment if an offence committed by a company was consented to by the officer, involved the officer, or resulted from the officer’s neglect.

Currently national security concerns are addressed under the Enterprise Act 2002.

The introduction of the NSI Bill provides further evidence of the ongoing expansion, not just in the UK but in other developed economies, of the list of investments that could potentially attract national security reviews. Initially, security reviews appeared to be focussed on security risks associated principally with the defence industries but were subsequently broadened to include critical infrastructure and now include advanced technology and personal data.

Canada’s national security legislation and policies have seen a similar enlarging of what Canada considers sensitive industry sectors, only in part due to the COVID-19 pandemic.

The NSI Bill also appears to reach further than Canada’s legislation in some respects. The 5-year time limit to “call in” a transaction creates a period of transactional uncertainty that is significantly longer than that which exists in Canada. Including temporary extensions implemented during the pandemic, the Canadian government must indicate whether it will take further action regarding a national security review within:

  • 60 days (a temporary increase of 15 days from the normal 45-day period) of the filing of an application for review or notification of transaction, if such a filing is required under the Investment Canada Act; or
  • 180 days (a temporary increase of 135 days from the normal 45-day period) of a transaction being implemented where a filing is not required.[1]

Given the shared security interests of the “Five Eyes” intelligence alliance of which Canada, the UK, Australia and the United States are all members, investors and their advisers will need to keep in mind, in planning investments touching on Canada, not only the national security legislation and policies of Canada but also the interests of its allies.

There is nothing new in this. In 2009, following the introduction of Canada’s national security investment review process, Canada intervened at the last stage of a proposed plan of arrangement in which Canadian incorporated Forsys Metals Corp. was to be acquired by non-Canadian controlled George Forrest International Afrique S.P.R.L. Subsequent to this action, documentation published by WikiLeaks evidenced that the US government had expressed security concerns about this transaction to Canada.

One would reasonably expect that Canada has continued to cooperate and consult with its allies in carrying out its national security reviews. The fact that each of Canada, Australia and the UK have been granted “excepted foreign states” status in the United States under the regulations implementing the Foreign Investment Risk Review Modernization Act of 2018 is suggestive of the community of interests that these nations share when it comes to national security reviews and the regulation of foreign investment.