The National Security and Investment Act 2021 came into full force on 4th January 2022 and its purpose is to strengthen the government’s power to scrutinise and intervene in business transactions that could harm the UK’s national security.
While protecting national security, the Act seeks to gives businesses and investors certainty and transparency that they need to conduct business in the UK.
Key features of the new regime
The new regime under the Act falls into two parts: (1) mandatory notification and (2) voluntary notification. Mandatory notification will require qualifying transactions to be notified for approval before they take place. Voluntary notification will allow parties to submit transactions for approval.
Mandatory notification
The trigger events for mandatory notification are:
The 17 qualifying sectors are set out in the National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021. These include sectors such as Artificial Intelligence, Communications, Energy and Defence.
Voluntary notification
Voluntary notifications are from parties to transactions not caught by the mandatory notification regime, who consider that their transactions may raise a national security concern. The trigger events set out above also apply to entities that are not active in a qualifying sector.
Whether or not the transaction involves an entity in a qualifying sector, there are trigger events that apply to the voluntary regime. These include:
Connection to the UK
The acquired entity must be from, in or have a sufficient connection with the UK. It must carry on activities in the UK or supply goods or services in the UK. A qualifying asset must be used in connection with activities carried out in the UK or supplies goods or services within the UK.
An entity formed outside the UK is a qualifying entity if it conducts the above activities within the UK.
Sanctions
For non-compliance with the mandatory notification requirement, the transaction will be void, alongside criminal sanctions including up to 5 years imprisonment and fines of up to 5% worldwide turnover or £10 million – whichever is greater.
Guidance
The government have provided this flowchart for guidance on whether you need to notify them about an acquisition.
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