The National Security and Investment Act 2021: some clarity on the “call-in” power

The new rules introduce mandatory suspensory notification for certain acquisitions of qualifying entities in 17 designated sensitive areas of the economy, and encourage voluntary notification of other transactions that could raise national security concerns.

Now, the government has laid before Parliament a “Section 3 Statement” explaining how it expects to use its power to “call in” acquisitions in the wider economy that may raise national security concerns.

This power will apply to certain acquisitions of both qualifying entities and qualifying assets (such as intellectual property and land). It will catch acquisitions completed on or after 12 November 2020 and those in progress or contemplation. And it will apply retrospectively for up to five years, although the period is reduced to six months if the government becomes aware of the acquisition.

Given the breadth of the government’s discretion to use its call-in power, the Section 3 Statement provides vital guidance to business on the likelihood of government intervention. And, following consultation, welcome clarifications to a previous draft of the statement have been included.

The headline points from the revised statement are:

• The call-in power will only be used to deal with risks to national security. The Secretary of State is likely to take action where there may be a potential for immediate or future harm to UK national security. This includes risks to governmental and defence assets and the security of the UK’s critical infrastructure. The statement reins back from a previous version which implied that the government may use the call-in power to protect broader UK interests including the integrity of the UK’s democracy and the UK’s prosperity.
• Qualifying acquisitions of entities that are in any of the 17 designated sensitive areas of the economy, or of entities which carry out activities “closely linked to” those areas, are more likely to be called in. As are acquisitions of control through material influence over target entities in the 17 sensitive areas. For qualifying acquisitions of assets, the call-in power is more likely to be used for assets that are/could be used in connection with activities in the 17 sensitive areas (or closely linked activities).
• Acquisitions occurring outside those 17 areas of the economy are unlikely to be called in on the basis that national security risks are expected to occur less frequently in these areas.
• The call in of asset acquisitions is expected to be rare compared to acquisitions of entities.
• Loans, conditional acquisitions, futures and options are unlikely to be called in. This point has been reintroduced to the statement after calls for more certainty around these types of transactions.
• Decisions will be made on a case-by-case basis. The government will consider risks associated with the use of the target, the characteristics of the acquirer and the amount of control the acquirer will gain over the target’s activities or strategy. On acquirer risk, the statement notes that state-owned entities, sovereign wealth funds or other entities affiliated with foreign states are not inherently more likely to pose a national security risk.

The Section 3 Statement adds to guidance already published to assist interpretation of the new rules. More is set to follow, in particular guidance on notification under the mandatory and voluntary provisions of the regime.

As the regime moves towards commencement, our FDI experts will continue to engage with the UK government, as they have done throughout the legislative process. Please get in touch with your usual Allen & Overy contact if you would like to discuss the implications of the new regime for your business and how to prepare.