National Security & Investment Act 2021 Update

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On 16 June 2022, the Secretary of State for Business, Energy and Industrial Strategy (the “SoS”) published the first annual report regarding the operation of the National Security & Investment Act 2021 (the “Act”), since its introduction, and covering the period from 4 January 2022 and 31 March 2022.

The background to this piece of legislation is that on 4 January 2022, the National Security & Investment Act 2021 (the “Act”) came into force, establishing a regime permitting the Government to assess, scrutinise and, in some cases, apply conditions to or block acquisitions and investments in seventeen sectors which they deem could affect national security.

The National Security & Investment Act 2021 in practice

 The report shows that:

  • 222 notifications were submitted (196 mandatory notifications, 25 voluntary notifications and one validation application)
  • The average time to accept notifications was as follows: mandatory notification – three working days, and voluntary notifications – four working days
  • Notifications were received in all 17 ‘in-scope’ sectors (mandatory notifications tended to most commonly be in defence, military and dual-use, critical suppliers to government, Artificial Intelligence (“AI”) and data infrastructure sectors. Voluntary notifications tended to most commonly be in professional scientific, technical activities, data infrastructure, energy and computing hardware
  • 17 notified transactions were ‘called-in’ for further review (13 mandatory and four voluntary). Three of these were cleared within the reporting period, the remainder were still being assessed at the end of the reporting period
  • All clearance decisions were taken within the 30 working day statutory period
  • No final orders were issued, nor were any penalties imposed or criminal prosecutions pursued.

What is it and what is the process?

The Act introduced a ‘dual-pronged’ notification scheme with both a mandatory and voluntary notification scheme, which can be done by a designated online portal.  The mandatory scheme requires the SoS to be notified of the proposed transaction, and before the transaction can go ahead, it must be approved by the same.  This scheme is triggered where the transaction involves acquisition of:

  • votes or shares in a ‘qualifying entity’ (i.e. any company or body corporate that is not an individual) or asset exceeding a threshold of 25% or 50%, or reaching or exceeding a threshold of 75%, in one of the sectors listed below
  • voting rights which either enable or prevent the passage of any class of resolution governing the entity’s affairs
  • material influence over a qualifying entity’s policy
  • (in relation to a qualifying asset) a right or interest which allows the acquirer to:
    • use the asset or do so to a greater extent than before
    • direct or control how the asset is used, or to do so to a greater extent than before.

The voluntary notification scheme encourages parties who think their transaction might raise national security concerns to notify the SoS for BEIS.

The 17 ‘high-risk’ sectors to which these notification schemes apply are: Advanced Materials, Advanced Robotics, AI, Civil Nuclear, Communications, Computing Hardware, Critical Suppliers to Government, Cryptographic Authentication, Data Infrastructure, Defence, Energy, Military and Dual-Use Technologies, Quantum Technologies, Satellite and Space Technologies, Critical Suppliers to the Emergency Services, Synthetic Biology and Transport.

Once the SoS receives a notification it must either accept or reject the notification ‘as soon as is reasonably practicable’.  Once a notification has been accepted, the SoS then has 30 working days to either clear the notified transaction, at which point it can proceed, or exercise its ‘call-in’ power to initiate a full national security assessment of the transaction.

What if I don’t comply?

 The Act creates a number of offences and sanctions for not following this process, such as completing a notifiable acquisition without clearance or failing to comply with an order.  The most draconian penalty for non-compliance (among other penalties) is the power of the SoS to impose conditions on, or prohibiting or ‘unwinding’ the transaction.  The ‘unwinding’ of a transaction will naturally, have major legal and financial implications for both parties.

The Act also allows for financial penalties of a fine of up to 5% of worldwide turnover or £10m (whichever is greater) and custodial penalties of up to five years’ imprisonment for individuals who knowingly or negligently fail to comply.

Contact our corporate and commercial solicitors today

If you have any questions on any of the issues raised in this article or any queries in relation to the services our Corporate and Commercial team can offer you, please contact us using our online enquiry form or by calling 0330 191 4835.


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