Boris Johnson on Wednesday will announce the largest overhaul to UK takeover law in two decades to prevent foreign companies from buying up sensitive UK assets as concerns over China’s influence grow on Downing Street.
The tough measures require potential overseas buyers of UK businesses, equity or intellectual property in 17 sensitive industries to notify a new government entity of proposed transactions.
Foreign company directors who fail to do so could face personal fines of up to £ 10 million or their companies could face fines of up to 5 percent of annual sales.
British officials expect around 1,000 transactions to be reported under the new takeover system, although only a small percentage are likely to be blocked by the government or threatened with “remedial action”.
This would be a sharp increase in control of transactions as the government has only carried out 12 public interest interventions since 2002 for national security reasons.
“Hostile actors should have no doubt that there is no back door to Britain,” said Alok Sharma, business secretary. “We will continue to welcome investment to create jobs. . . while excluding those who might endanger the security of the British people. ”
The release of the Government’s National Security and Investment Act on Wednesday follows growing concerns from UK security officials about how to protect critical infrastructure from potentially risky Chinese investments.
The Prime Minister reversed earlier plans in July to allow Chinese telecom supplier Huawei to deliver kits for UK 5G cellular networks following lobbying by the Trump administration in the US.
The UK government intervened in April to prevent a Chinese state-affiliated investor from taking control of the board of UK chip designer Imagination Technologies.
Currently, under the Enterprise Act 2002, the UK authorities can intervene in business for competition reasons or when a transaction has an impact on national security, media diversity or financial stability.
However, this normally only applies if the target assets have annual sales in excess of £ 70 million or if the merged entity would have a market share of more than 25 percent.
Now the rules are being rewritten so that every transaction in 17 industries must be automatically reported to a new investment security unit within the business department.
This applies not only to corporate acquisitions, but also to the acquisition of large stakes and intellectual property in the sectors – including defense, transportation, energy, artificial intelligence, computer hardware, communications, civil nuclear and space technologies.
The proposals were first drafted three years ago under former Prime Minister Theresa May, but have been repeatedly postponed.
The UK’s decision to tighten the rules is in line with actions taken by other Western Five Eyes partner countries, including the US and Australia.
The powers will be active from the introduction of the law on Wednesday, rather than from the passage of the law by parliament, to prevent a rush of takeovers.
The government admitted that its existing powers “do not reflect the threats we face today” and said the new approach was “proportionate”.
The new government review process for overseas acquisitions of UK assets should be completed within 30 working days to allow most deals to be completed quickly.
A city executive in London said he was reassured that the focus was on national security rather than an intrusive, all-round 1970s-style regime.
However, Veronica Roberts, partner at law firm Herbert Smith Freehills, said the new regime could be “worrying” for foreign investors as the mandatory filings “could be enough to put some bidders at a disadvantage in fast-moving auction processes”.
Ministers quietly released new guidance on Friday for British tech companies working with China.
The council warned that the government had “serious concerns” about the Chinese state’s use of technology that could violate human rights and urged companies to be aware of the ethical implications of any new partnerships they form.
The guidelines highlighted China’s use of facial recognition and prediction algorithms as particularly problematic and suggested that they could be used for “mass surveillance, profiling and repression of ethnic minorities in Xinjiang and elsewhere.”
It also pointed to possible “reputational consequences” for UK digital companies engaged in technology that could be diverted to the Chinese military under the Beijing civil-military fusion program.
The Chinese embassy in London did not immediately respond to a request for comment.
Additional coverage from Matthew Vincent