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Select committee: Foreign Affairs Committee

The FCDO’s role in blocking foreign asset stripping in the UK

Closed Opened 7 Apr 2020 Closed 28 Apr 2022 14 recommendations 4 conclusions

Foreign Affairs Committee Inquiry on parliament.uk ↗

Inquiry scope (the committee's words)
This inquiry will examine how the FCDO assesses whether a potentially hostile party is seeking to secure significant influence or control over a UK company and in what circumstances the FCDO should intervene. The Committee will also focus on what safeguards are required in the forthcoming National Security and Investment Bill to ensure that the FCDO has a full role in the decision-making process in relation to interventions. Read the call for evidence for more details about the inquiry

Where it stands

The inquiry is closed, opened 7 April 2020.

The committee has published 3 reports, most recently Sixth report - Sovereignty for sale: follow-up to the acquisition of Newport Wafer Fab on 5 April 2022.

The government's response to each report

Sixth report - Sovereignty for sale: follow-up to the acquisition of Newport Wafer Fab

Published 28 April 2022. The deadline was 5 June 2022.

Summary written by Accountability Index from the government's response. It is not the government's own words.

The Government "takes careful note" of the Committee's report and conclusions, responds to each, and says no decisions have been made on the acquisition of Newport Wafer Fab by Nexperia.

  • On the National Security Adviser's role, the Government says the Investment Security Unit advises the Secretary of State and that "Where appropriate, this can include advice from the National Security Adviser".
  • It says the Prime Minister asked the National Security Adviser to review the case because he is the Prime Minister's "lead official on matters of national security".
  • On Newport Wafer Fab, it says it "continues to consider" the Nexperia acquisition and that "no decisions have been made". It does not comment on details of individual transactions or national security assessments.
  • It states that, where the statutory tests are met, the Secretary of State may call in a qualifying acquisition he is aware of up to six months after commencement of the Act on 4 January 2022.

Read the government's response ↗ Report an error

Third Report - Sovereignty for sale: the FCDO’s role in protecting strategic British assets

Published 25 October 2021. The deadline was 14 September 2021.

Summary written by Accountability Index from the government's response. It is not the government's own words.

The Government "notes" the Committee's recommendations and agrees that the FCDO has a key role in supporting the Investment Security Unit, while not setting out a position on Newport Wafer Fab pending a National Security Adviser review.

  • On the call-in of the Newport Wafer Fab acquisition, the Government says the National Security Adviser is "presently conducting a review" and that it "would be inappropriate to comment further" before it concludes.
  • It agrees that the FCDO holds the key role in supporting the ISU, and says a dedicated FCDO team has been established and it is "identifying and securing the short and long-term capabilities required".
  • On seconding 10 per cent of ISU staff from the FCDO, it does "not consider it necessary to mandate" a specific percentage, and says it will keep staffing and structures "under close review".
  • On parliamentary scrutiny, it believes it is "right" that the BEIS Select Committee oversees the ISU, and says a Memorandum of Understanding on information access "will be published in due course".

Read the government's response ↗ Report an error

Sixth Report: Striking the balance: Protecting national security through foreign investment legislation

Published 26 February 2021. The deadline was 19 March 2021.

Summary written by Accountability Index from the government's response. It is not the government's own words.

The Government explains why it was "unable to accept" the Committee's amendment and does not define 'national security' in the Bill, while saying it shares the aim of the regime achieving the right balance.

  • On Recommendation 1, the Bill "does not seek to define 'national security'", which the Minister calls "deliberate" so that the government of the day can respond rapidly to changes; risks will be determined "on a case-by-case basis".
  • The Minister states he "fully agree[s]" that sufficient clarity must be provided to businesses and investors about how the regime will operate, and says the reforms are "solely about national security".
  • On Recommendation 2, the Government "does not believe that it would be appropriate to define 'national security'"; it points to the Bill's explicit references to 'national security' in its legal tests and to the right to apply for judicial review.
  • The Government "will formally consult on a further version" of the Statement on the call-in power, which will take into account the Committee's comments and feedback from other Parliamentarians. No date is given.

Read the government's response ↗ Report an error

Recommendations and conclusions

  • Conclusion 1Conclusion · Sixth Report: Striking the balance: Protecting national security through foreign investment legislation
  • Conclusion 2Conclusion · Sixth Report: Striking the balance: Protecting national security through foreign investment legislation
  • Recommendation 3Recommendation · Sixth Report: Striking the balance: Protecting national security through foreign investment legislation
All 18 recommendations and conclusions

Reports

All reports

Evidence

  • 8 oral evidence sessionsLatest 23 March 2021
  • 32 witnesses
All evidence

Recent activity

Recommendations and conclusions 18 shown

Conclusion 1

Conclusion · Sixth Report: Striking the balance: Protecting national security through foreign investment legislation · Addressed to Foreign, Commonwealth & Development Office

Concluded (the committee's words)
If the Government is not more coordinated and able to think long-term in its approach to foreign investment, we risk losing our most innovative companies overseas, with harmful consequences for our national security.

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Conclusion 2

Conclusion · Sixth Report: Striking the balance: Protecting national security through foreign investment legislation · Addressed to Foreign, Commonwealth & Development Office

Concluded (the committee's words)
The Bill in its current form does not provide sufficiently clear guidance on how national security should be understood. This is likely to hinder targeted application of the new law, with adverse repercussions for the UK’s national security and economy.

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Recommendation 3

Recommendation · Sixth Report: Striking the balance: Protecting national security through foreign investment legislation · Addressed to Foreign, Commonwealth & Development Office

Recommended (the committee's words)
We recommend that the new legislation should be as clear as possible about what may or may not constitute a national security risk in the context of foreign investment. Failure to provide greater clarity would be likely to have significant consequences for the credibility of the national security regime and for UK inward investment.

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Recommendation 4

Recommendation · Sixth Report: Striking the balance: Protecting national security through foreign investment legislation · Addressed to Foreign, Commonwealth & Development Office

Recommended (the committee's words)
Businesses, investors and the Secretary of State and the Investment Security Unit need clarity and guidance on the factors that should be considered as part of national security assessments. We recommend that the new legislation and accompanying guidance should clearly distinguish between ‘national security’ and the broader ‘public interest’ or ‘solely economic’ concerns that are not within scope, to prevent undue uncertainty for businesses and avoid any misuse of the term ‘national security’.

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Recommendation 1

Recommendation · Third Report - Sovereignty for sale: the FCDO’s role in protecting strategic British assets · Addressed to Foreign, Commonwealth & Development Office

Recommended (the committee's words)
The takeover of Newport Wafer Fab by Nexperia represents the sale of one of the UK’s prized assets to a strategic competitor, at a time when global chip shortages means that the products manufactured by NWF are of vital national importance. Failure to conduct a detailed assessment of this transaction under the NSI Act would indicate that the Government continues to hold an unrealistically optimistic understanding of the Chinese government’s intentions and is prioritising short-term commercial interests over the long-term security of our country. The case of NWF may yet serve to demonstrate that, despite the stated intentions of the NSI Bill, the Government has not yet learned the lessons of previous years.

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Recommendation 2

Recommendation · Third Report - Sovereignty for sale: the FCDO’s role in protecting strategic British assets · Addressed to Foreign, Commonwealth & Development Office

Recommended (the committee's words)
We recommend that the Government calls in the acquisition of Newport Wafer Fab by Nexperia for review and imposes appropriate mitigating measures, as a matter of urgency.

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Recommendation 3

Recommendation · Third Report - Sovereignty for sale: the FCDO’s role in protecting strategic British assets · Addressed to Foreign, Commonwealth & Development Office

Recommended (the committee's words)
It is vital that there is continuous monitoring of the investment and technology landscapes to catch non-notified transactions, as well as monitoring for changes to board compositions or ownership models, which may not serve the UK’s security interests, after the initial transaction has taken place with Government intervention if necessary. This should be additional to the notification regime established by the NSI Act and will require regular feed-in from multiple departments, including the FCDO, building on the tech ambassador we recommended in our report on the Integrated Review, Brave new Britain

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Recommendation 4

Recommendation · Third Report - Sovereignty for sale: the FCDO’s role in protecting strategic British assets · Addressed to Foreign, Commonwealth & Development Office

Recommended (the committee's words)
Ongoing monitoring of the global technology landscape by the FCDO should inform any future changes, as needed, to (a) the sectors subject to mandatory notification under the National Security and Investment Bill, and (b) the factors to be taken into consideration by the BEIS Secretary of State when assessing transactions, as set out in the Statement of Policy Intent. We recommend that the annual report outlines how this information has been taken into account in the Secretary of State’s decisions.

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Recommendation 5

Recommendation · Third Report - Sovereignty for sale: the FCDO’s role in protecting strategic British assets · Addressed to Foreign, Commonwealth & Development Office

Recommended (the committee's words)
For the FCDO to add value to the NSI regime, it will be important that the Department has the necessary skills, expertise and structures to effectively support the ISU. If the Government continues to behave in the same ways and rely on the same skills base as it has previously, it will continue to see the same results—or worse, given our changing security environment.

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Recommendation 6

Recommendation · Third Report - Sovereignty for sale: the FCDO’s role in protecting strategic British assets · Addressed to Foreign, Commonwealth & Development Office

Recommended (the committee's words)
The FCDO should demonstrate leadership on the foreign relations aspects of foreign investment decisions. Supporting the ISU’s work in this area is a key responsibility of the FCDO. It will be vital that the Department has the right expertise both at overseas Posts and in London to fulfil this responsibility, including through ongoing monitoring of the global investment landscape. We recommend that the Government outlines how it intends to achieve this in its response to this report.

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Recommendation 7

Recommendation · Third Report - Sovereignty for sale: the FCDO’s role in protecting strategic British assets · Addressed to Foreign, Commonwealth & Development Office

Recommended (the committee's words)
We support the Government’s decision to keep the NSI Act agnostic of geography or type of actor, so that investments are judged on a case-by case rather than country- 30 Sovereignty for sale: the FCDO’s role in protecting strategic British assets specific basis. The FCDO has a vital role to play in communicating to other parts of government its assessment of the broader strategic intent of foreign governments in their investment decisions, and this information should be a primary consideration when considering specific transactions. The FCDO should be responsible for advising BEIS on these matters and we intend to hold the Department to account for any failure to do so.

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Recommendation 8

Recommendation · Third Report - Sovereignty for sale: the FCDO’s role in protecting strategic British assets · Addressed to Foreign, Commonwealth & Development Office

Recommended (the committee's words)
We recommend that 10 percent of Investment Security Unit staff should be secondees from FCDO, to ensure that FCDO expertise can be drawn upon on a day-to-day basis.

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Recommendation 9

Recommendation · Third Report - Sovereignty for sale: the FCDO’s role in protecting strategic British assets · Addressed to Foreign, Commonwealth & Development Office

Recommended (the committee's words)
Given the complex and transnational nature of the global investment landscape, the UK cannot operate alone on this matter. The Government should cooperate on FDI screening with other countries with whom we share values and strategic objectives. We recommend that the FCDO seeks to play a leading role in bringing together countries and partners from overseas and in building alliances to make sure investment vehicles in one country aren’t used as a Trojan horse in others.

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Recommendation 10

Recommendation · Third Report - Sovereignty for sale: the FCDO’s role in protecting strategic British assets · Addressed to Foreign, Commonwealth & Development Office

Recommended (the committee's words)
With cross-Government working comes a need for cross-committee scrutiny. If the Government is to succeed in achieving an “integrated” approach to UK security and foreign policy as set out in the Integrated Review, Government departments must be held to account by all committees with the relevant remit and expertise. In the case of the Investment Security Unit, this would ensure that scrutiny of Government decisions is not only conducted by select committees with a primarily pro-business lens, but would provide a more balanced and nuanced assessment of its decisions.

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Recommendation 11

Recommendation · Third Report - Sovereignty for sale: the FCDO’s role in protecting strategic British assets · Addressed to Foreign, Commonwealth & Development Office

Recommended (the committee's words)
We acknowledge the Secretary of State’s concern about the workload entailed by involvement of multiple committees in scrutinising the ISU but would argue that this should not be a barrier to effective scrutiny. FAC’s important contribution to UK national security and foreign investment was recognised in the Government response to our report in February 2021. Following our scrutiny of the National Security and Investment Bill, it is our intention to monitor its effectiveness. This requires the Government to furnish us with the necessary information.

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Recommendation 12

Recommendation · Third Report - Sovereignty for sale: the FCDO’s role in protecting strategic British assets · Addressed to Foreign, Commonwealth & Development Office

Recommended (the committee's words)
We recommend that the Chairs of the Foreign Affairs Committee, Intelligence and Security Committee and Science and Technology Committees are also provided with private briefings on the activities of the ISU on Privy Council terms, to ensure that Government decisions are scrutinised from all angles relevant to the UK’s interests. These briefings should be held bi-annually as a minimum.

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Conclusion 1

Conclusion · Sixth report - Sovereignty for sale: follow-up to the acquisition of Newport Wafer Fab · Addressed to Foreign, Commonwealth & Development Office

Concluded (the committee's words)
In the absence of any evidence to the contrary, we have no choice but to assume that the NSA review that the Prime Minister said he had initiated has not, in fact, been started. In its response to this report, we ask that the Government set out the circumstances in which the National Security Adviser is engaged in reviews under the National Security and Investment or Enterprise Acts; the reasons why the Prime Minister asked the NSA to undertake a review of Newport Wafer Fab; why the NSA did not undertake such a review; and for an update on the nature of the continued monitoring by the Investment Security Unit

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Conclusion 2

Conclusion · Sixth report - Sovereignty for sale: follow-up to the acquisition of Newport Wafer Fab · Addressed to Foreign, Commonwealth & Development Office

Concluded (the committee's words)
The Government has explicitly recognised the criticality of semiconductors to the UK’s national security and wider global interests; likewise, the Chinese Government’s ambitions to achieve self-sufficiency in semiconductors and the means by which it aims to achieve this are well documented. These factors, compounded by the current global semiconductor shortage, mean that the Government’s apparent failure to take this matter seriously is likely to damage the UK’s national interest.

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Reports

3 reports

Oral evidence sessions

8 sessions

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Date Session and witnesses Source
23 Mar 2021
Foreign Affairs Committee
Chris Rampling · Foreign, Commonwealth and Development Office, Jacqui Ward · Department for Business, Energy and Industrial Strategy, Paul Scully, Rt Hon James Cleverly, Sarah Mackintosh · Department of Business, Energy and Industrial Strategy 		View ↗
23 Feb 2021
Foreign Affairs Committee
Dr Ashley Lenihan · Georgetown University, Michael Formosa · Renaissance Strategic Advisors, Paddy McGuinness · Brunswick 		View ↗
1 Dec 2020
Foreign Affairs Committee
Christopher Mackmurdo · Legatus, Hazel Moore · FirstCapital, Russ Shaw · Global Tech Advocates & Tech London Advocates, Sophia Gaston · British Foreign Policy Group 		View ↗
24 Nov 2020
Foreign Affairs Committee
Andy Sellars · Compound Semiconductor Catapult, Roger Barker · Institute of Directors, Roger Barron · Paul Hastings, Veronica Roberts · Herbert Smith Freehills 		View ↗
3 Nov 2020
Foreign Affairs Committee
Azeem Azhar, Grace Cassy · CyLon Ventures, Professor Nick Jennings, Professor Shaowei He 		View ↗
13 Oct 2020
Foreign Affairs Committee
Ciaran Martin · Blavatnik School of Government, University of Oxford, Matthew Rous · China-Britain Business Council, Professor Deeph Chana · Institute for Security Science and Technology, Imperial College London, Ting Zhang · Crayfish.io 		View ↗
8 Sep 2020
Foreign Affairs Committee
Chris Cummings · The Investment Association, Elisabeth Braw · Atlantic Council, John Fingleton · Fingleton, Professor Jeffrey Henderson · University of Bristol 		View ↗
5 May 2020
The FCO’s role in blocking foreign asset stripping in the UK
Dr Ron Black · Imagination Technologies, John Rayfield · Imagination Technologies, Ray Bingham · Imagination Technologies, Sir Hossein Yassaie · Imagination Technologies 		View ↗

Who gave evidence

32 witnesses

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WitnessOrganisationSessions
Andy Sellars · Strategic Development Director Compound Semiconductor Catapult 1
Azeem Azhar Not recorded 1
Chris Cummings · Chief Executive Officer The Investment Association 1
Chris Rampling · Director of National Security Foreign, Commonwealth and Development Office 1
Christopher Mackmurdo · Founder Legatus 1
Ciaran Martin · Professor of Practice in the Management of Public Organisations Blavatnik School of Government, University of Oxford 1
Dr Ashley Lenihan · Professor in the Practice of International Affairs Georgetown University 1
Dr Ron Black · Former CEO Imagination Technologies 1
Elisabeth Braw · Senior Fellow at the Scowcroft Center Atlantic Council 1
Grace Cassy CyLon Ventures 1
Hazel Moore · Chair and Co-Founder FirstCapital 1
Jacqui Ward · Director for National Security and International Department for Business, Energy and Industrial Strategy 1
John Fingleton · Founder & Chief Executive Fingleton 1
John Rayfield · Chief Technical Officer Imagination Technologies 1
Matthew Rous · Chief Executive China-Britain Business Council 1
Michael Formosa · Managing Partner Renaissance Strategic Advisors 1
Paddy McGuinness · Senior Advisor Brunswick 1
Paul Scully Not recorded 1
Professor Deeph Chana · Co-Director Institute for Security Science and Technology, Imperial College London 1
Professor Jeffrey Henderson · Professor Emeritus of International Development University of Bristol 1
Professor Nick Jennings Not recorded 1
Professor Shaowei He Not recorded 1
Ray Bingham · Acting CEO, Co-Founder and Partner, Canyon Bridge Imagination Technologies 1
Roger Barker · Director of Policy and Corporate Governance Institute of Directors 1
Roger Barron · Partner Paul Hastings 1
Rt Hon James Cleverly Not recorded 1
Russ Shaw · Founder Global Tech Advocates & Tech London Advocates 1
Sarah Mackintosh · Deputy Director for National Security and Investment Department of Business, Energy and Industrial Strategy 1
Sir Hossein Yassaie · Former CEO Imagination Technologies 1
Sophia Gaston · Director British Foreign Policy Group 1
Ting Zhang · Founder and Chief Executive Officer Crayfish.io 1
Veronica Roberts · Partner Herbert Smith Freehills 1

Correspondence

17 letters

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PublishedDirectionLetter
12 Jan 2022 Not recorded Correspondence with the National Security Adviser relating to the acquisition of Newport Wafer Fab by Nexperia, dated 17/12/2021 and 08/12/2021
28 Jul 2021 Not recorded Correspondence with the Secretary of State for Business, Energy and Industrial Strategy relating to Newport Wafer Fab, dated 22/07/2021 and 13/07/2021
15 Jul 2021 From committee Letter to the Prime Minister relating to the takeover of Newport Wafer Fab, dated 13/07/2021
7 Jul 2021 Not recorded Correspondence with the Secretary of State for Business, Energy and Industrial Strategy relating to the takeover of Newport Wafer Fab, dated 30/06/2021 and 18/06/2021
9 Jun 2021 Not recorded Correspondence with the Secretary of State for BEIS on Newport Wafer Fab and the National Security and Investment Act, dated 28/05/2021 and 20/05/2021
27 Jan 2021 Not recorded Correspondence with the Danish Ministry of Foreign Affairs regarding national security implications of technology, dated 15/12/2020 and 21/01/2021
18 Nov 2020 To committee Letter from the Economic Secretary to the Treasury relating to Action 19 of the Economic Crime Plan, dated 11/11/2020
18 Nov 2020 To committee Letter from the Secretary of State for Business, Energy and Industrial Strategy relating to the Government’s proposed reforms on national security and investment, dated 11/11/2020
18 Nov 2020 Not recorded Correspondence with the Foreign Secretary and the Secretary of State for Business, Energy and Industrial Strategy relating to regulations under the Enterprise Act 2002 (also published as BFA0022), dated 9/11/2020 and 15/10/2020
1 May 2020 Not recorded Correspondence from Imagination Technologies evidence to inquiry on asset stripping, dated 30/04/2020
1 May 2020 Not recorded Correspondence from Foreign Secretary regarding Imagination Technologies Group, dated 30/04/2020
14 Apr 2020 Not recorded Correspondence from Canyon Bridge on Imagination Technologies, dated 13/04/2020
11 Apr 2020 Not recorded Correspondence to the Secretary of State DCMS on Imagination Technologies, dated 09/04/2020
11 Apr 2020 Not recorded Correspondence to the CEO of Imagination Technologies, dated 8/4/2020
11 Apr 2020 Not recorded Correspondence to Canyon Bridge on Imagination Technologies, dated 8/04/2020
11 Apr 2020 Not recorded Correspondence to the Prime Minister on Imagination Technologies, dated 3/04/2020
7 Apr 2020 Not recorded Correspondence to Imagination Technologies on board membership, dated 7/04/2020