U.K. Plans New Law to Undo Foreign Deals on Security Grounds

(Bloomberg) — Boris Johnson’s government is drawing up plans for a radical new law that would give ministers power to unravel foreign investments in U.K. companies — potentially casting major doubt on deals that have already been concluded — to stop hostile states gaining control over key assets.

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Pedestrians walk as the Tower Bridge stands beyond in London.

The National Security and Investment Bill is in the final stages of drafting and could be published later this month, according to people familiar with the matter who spoke on condition of anonymity because the subject is sensitive.

It aims to cover deals in sectors such as defense and critical infrastructure, and will make provisions to protect sensitive intellectual property.

Among the most potentially controversial parts of the draft law is a proposal to allow the government to intervene retrospectively in circumstances where national security is an issue. That would mean allowing government officials to look back at past takeovers and mergers where concerns have been raised.

While the draft legislation as it stands does not explicitly target any particular country, it comes against a backdrop of heightened political concerns in the U.K. over China’s involvement in critically important infrastructure programs.

Members of Parliament in Johnson’s ruling Conservative Party pressed him to ban Huawei Technologies Co. from the U.K.’s next-generation wireless networks, reversing an earlier decision to allow the company a role.

China Concerns

Longstanding concerns have also been raised over China’s involvement in Britain’s nuclear power program. In 2016, then Prime Minister Theresa May paused the Hinkley Point C nuclear project, which is backed by Chinese investment, before eventually allowing it to proceed.

“The bill will be brought forward when parliamentary time allows and remains a priority for the government’s agenda,” a spokesman for the Department for Business, Energy and Industrial Strategy said.

The draft law is likely to be presented to Parliament later this month, the people said, though the timetable could slip. The bill is a blueprint to allow Johnson’s government to strengthen its powers of scrutiny and to intervene in takeovers and mergers to protect national security.

Outlining its proposals last December, the government said its aim was to safeguard key assets while providing a transparent system for business.

Unusual Step

At the time, the government said its plan would include powers to mitigate the risks to national security by “adding conditions to a transaction or blocking the transaction as a last resort.” A regime of sanctions for companies that fail to comply with the new regime was also proposed.

But introducing a law that could apply retroactively would be highly unusual in the U.K. and risks undermining investor confidence at a time when the government wants to boost trade and attract foreign partners after Brexit.

The proposed law is close to being finalized, but some parts are still subject to internal debate, the people said.

Under the plans, the bill would include certain elements that are retroactive, enabling ministers to look back at past investments. One person familiar with the draft suggested this was with a particular deal in mind, though another denied that was the case.

The law is also likely to cover protections for intellectual property and academic partnerships, as well as mergers, acquisitions and investments.

A new notification system requiring businesses to flag transactions with potential security concerns to the government is also being discussed.

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