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11th-hour reforms to the proposed foreign influence policy will be met with relief by businesses, NGOs and charities as Government makes significant changes

The UK's new National Security Bill was relatively advanced in its legislative process by the time of the emergence last year of a key new proposal: the establishment of a Foreign Influence Registration Scheme.

The stated aim of the scheme, which we and most others supported, was to crack down on malign covert foreign influence on the UK's political processes. However, as our earlier briefings explained, the scheme was likely to be ineffectual against any such covert activity, but would criminalise a huge range of individuals, charities, academics, businesses and other organisations, for overt behaviours usually encouraged as benign.

Our briefings (including the short version here and longer version here) set out these risks in detail with examples. A wide cross-section of business, educational and charitable groups highlighted the chilling impact on the quality and level of international engagement with the UK that the proposed scheme threatened, not to mention lost investment. On 16 January Lord Anderson, former Independent Reviewer of Terrorism Legislation, described the scheme as having been "comprehensively eviscerated" in the Lords at committee stage.

Given this, we welcome the Government's recent package of amendments which go a long way towards addressing these concerns. After the original Bill passed unscathed through the House of Commons, this is a fine example of the House of Lords in its revising function. Peers from all sides of the House have played a crucial role in voicing the serious concerns posed by the Bill. The changes also reflect well on the responsible minister, Tom Tugendhat, who has been prepared to act decisively on inherited legislation, and on civil servants who engaged with us and others to improve the package greatly.

Some concerns remain, and many businesses will still require compliance policies to be put in place for benefits which many will remain sceptical about, but the scope of these will be limited compared to the original proposal.

Fundamental change to the scheme's 'primary tier' – Focus narrowed to state-directed activity

The public registration requirements of the scheme will no longer fall on those being directed by an indiscriminate range of foreign entities (eg, foreign-registered businesses, charities, NGOs and so on) and on those foreign entities themselves. Instead, the scheme has been helpfully narrowed to apply only where any entity is directed by a "foreign power" to carry out political influence activities. This relates only to foreign states as described in more detail below. Importantly for practicality and clarity, unlike the equivalent Australian scheme (described further here), it is not broadened to include commercial entities with government control or ownership. To fall within the scheme, the relevant 'direction' to influence by communication with the long and broadly defined list of policymakers, the direction must be by:

  • The sovereign or other head of a foreign State in their public capacity
  • A foreign government, or part of a foreign government
  • An agency or authority of a foreign government, or of part of a foreign government
  • An authority responsible for administering the affairs of an area within a foreign country or territory, or persons exercising the functions of such an authority
  • A political party which is a governing party of a foreign government.

This fundamental revision alleviates our key concerns with the main part of the scheme, the 'primary tier'. It no longer risks the profound damage we feared to international engagement and investment given that the range of activities caught now only applies in limited circumstances.

The scheme continues to catch overt activity – as distinct from truly covert – but with the fundamental change this is more manageable

The Government continues to resist an exemption relieving those acting for foreign powers in an overt manner (ie, where the policymaker explicitly knows the identity of the foreign power the communicator is representing). This exemption already applied to public communications, where "it is reasonably clear that the communication is made at the direction of the foreign principal". An extension would have reduced the risk of criminalising innocent behaviour (including potentially of MPs and peers) and been consistent with the Government's stated aim to prevent malign covert activity.

Now that the scheme is limited just to directions by 'foreign powers' the implications of not broadening this exemption are less serious.

Organisation which are owned or controlled or act on behalf of a foreign power need to consider the nature of their engagements with policymakers in the UK and whether those engagements fall within the test of direction. For example, a sovereign wealth fund, not constituted as an arm of government which makes its investment decisions independent of government direction is unlikely to have to register its engagement with policymakers regarding decisions on investments in the UK. However, a state-owned company whose UK investment policy is actively directed by its foreign state owners is likely to consider registration.

The 'enhanced tier' – Concerns remain

The amendments have left the scheme's 'enhanced tier' broadly untouched. This element has attracted less interest than the primary tier. That is because it only ever applied to the extent that the Home Secretary specified a foreign power, or entity other than a foreign power which is controlled by a foreign power, as being a 'specified person' under regulations. The concern remains that, as any activity whatsoever could be caught (eg, supplying utilities, catering services or medical assistance – see our briefing here) there is a risk of the innocent being criminalised with fines and up to five years' imprisonment. This is because no attempt is made to define a national security focused scope of activities.

This means that protections for the innocent are subject to what is contained in any regulations that the Home Secretary may make in the future about which activities should be relevant (either to all specified persons or to only certain specified persons). This leaves very significant powers and control to secondary legislation.

What business should ensure

The final position under the legislation will be determined over the coming weeks. However, the expectation now is that, once enacted, those businesses, or other entities, who may from time to time carry out 'political influence activities', acting for or contracted to a foreign power and therefore potentially directed by the foreign power, should ensure they have a compliance policy to address the new scheme.

The scope of 'political influence activities' remains wide as described in our previous briefings. Since then, the list of those public officials with whom any relevant communication is registerable has been substantially expanded. However, the matters which are the subject of political influence for the purpose of the definition have been reduced in scope. For example, influencing politicians is now limited to influencing them in their capacity as such (exempting the influencing of MPs acting in a private capacity, such as making decisions on a company board, from potential registration).

The serious criminal liability remains for the primary tier, with fines and up to two years' imprisonment for breaches. Alerts and procedures for the enhanced regime, with its wholly open-ended scope and greater criminal liability, must also be considered.

In conclusion, the most problematic aspects of the legislation have been addressed following the wide feedback and criticism inside the Lords and from those potentially affected by the scheme, but compliance issues may arise from time to time. The most obvious areas of sensitivity are organisations, such as certain sovereign wealth funds, which may be constituted as arms of government and private sector organisations and others where they act under contractual obligations to a foreign government and the contract requires engagement with policymakers.

If you would like to discuss any of the issues raised with this regime, please speak to your usual Herbert Smith Freehills contact.

Click here for more background and analysis of the Foreign Influence Registration Scheme

Key contacts

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Paul Butcher

Director of Public Policy, London

Paul Butcher
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Ali MacGregor

Senior Associate, London

Ali MacGregor
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James Palmer

Partner, London

James Palmer

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London Geopolitics and Business M&A Business Protection and Risk Public Policy and International Trade Paul Butcher Ali MacGregor James Palmer