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THE UK’S PROPOSED NEW FOREIGN INFLUENCE REGISTRATION SCHEME: SIGNIFICANT UNINTENDED CHALLENGES FOR ENERGY AND INFRA

14 December 2022 | London

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This short note flags some potential implications for energy and infra operators and investors and then links to a longer note for those who wish to find out more. Both include examples of some of the unexpected impacts – in terms of the entities, individuals and activities that are caught in its crosshairs. The proposed regime is wider and more onerous than the regimes in Australia and the US cited as precedents.

OVERVIEW

The National Security Bill was introduced in Parliament in May 2022.  It passed through the House of Commons and is now before the House of Lords. Part 3 of the Bill, establishing a new Foreign Activities and Foreign Influence Registration Scheme, passed through the Commons with little scrutiny having been tabled late in the Bill's progress. Broadly, the scheme requires all foreign organisations, including companies, LLPs and unincorporated associations, whether businesses, charities or otherwise, to register publicly each of their interactions with UK policy and decision makers. The main scheme (the 'primary tier') can be described, in brief, as follows:

  • public registration requirements fall on almost all foreign entities (even if fully UK based and operated), with no focus on national security related characteristics:
  • in addition to all foreign organisations, a foreign subsidiary of a UK business would fulfil the criteria to be caught by requirements of the scheme. Similarly a UK subsidiary of a foreign organisation where directed (or worried about the perception of direction) by its parent would be caught;
  • the scheme relates to a swathe of activities with no focus on national security related characteristics:
  • any routine UK/ devolved government/ regulatory decisions for business from whatever branches of Government are included. Eg BEIS, including its new Investment Security Unit (ISU), the CMA, Ofgem, HMRC and so on would have to be assumed to be in scope in practice in circumstances where the content might involve civil servants of deputy director (or equivalent) in correspondence or meetings.
    • Note that, due to the way it is constituted the Crown Estate would not be in scope.
  • any engagement with such officials in relation to public policy debates which are live in any UK parliament are also in scope as is engagement with any MP, MSP, MS or peer to influence on anything (the latter not limited to government decisions or policy).
  • the information required has limited confidentiality exemptions and is unusually intrusive
  • the scheme criminalises an almost uncircumscribed range of individuals, charities, academics, businesses and other organisations and individuals, for behaviours and activities usually categorised and encouraged as benign:
  • multiple offences apply with the maximum penalty for each being two years' imprisonment, a fine or both, for example:
    • where a foreign registered entity engages in political influence activities" itself and fails to register in advance (with personal liability also falling on office holders or employees for their own activities or failure to register);
    • consequential offences outside the scheme may also arise, for example in relation to "proceeds of crime".

ENERGY AND INFRA RELATED EXAMPLES:

  1. A Jersey registered infrastructure fund (JerseyInfraFund) based in the UK with UK staff and UK owners must pre-register before engaging in industry discussions to improve UK investability or put itself and its employees in criminal breach

It would be a criminal offence, with personal liability, for any UK office holder or employee of JerseyInfraFund to:

  1. speak at a roundtable discussion about a new infrastructure bill with a Deputy Director level civil servant from the Department of Transport or the Office of Rail and Road in attendance;
  2. appear on a webinar panel for investors on the same topic, the audience for which (or the panel itself) included an MP or peer,

if JerseyInfraFund had not registered in advance under the scheme. It would be a criminal offence for the fund itself too.

Note that any discussion with peers or MPs (but in this case not their staff) in which views are shared on anything with the aim to persuade, even if not related to policy views or Government decisions would require registration – at least by JerseyInfraFund.

  1. A Netherlands registered renewables company (NetherRenewablesCo) uses a UK registered subsidiary, UK Ops Ltd, to manage its UK wind farm business – meetings and communications on operational matters might quickly put both companies and employees in criminal breach

NetherRenewablesCo entered into arrangements under which its UK registered subsidiary, UK Ops Ltd, carried out its UK operational matters then it would be a criminal offence for the subsidiary to:

  1. attend any discussion with a Deputy Director level or higher civil servant or regulator in attendance - for example with the energy regulator Ofgem in relation to an offshore transmission competitive tender process;
  2. conduct any email correspondence on the same example topic which at some point is copied to a Deputy Director or higher level civil servant;

if UK Ops Ltd had not either:

  1. registered the initial agreement with the NetherRenewablesCo under the scheme within 10 days; and
  2. each of a) and b) within 14 days of them occurring.

To the extent that any such offences by UK Ops Ltd  were due to the negligence of an officer of UK Ops Ltd  that officer would also be criminally liable. Also, if any of the office holders or employees of UK Ops Ltd engaging in either of a) or b) above was also an office holder or employee of NetherRenewablesCo then they may also be personally criminally liable if NetherRenewablesCo had not registered the arrangements either prior to them occurring.

OUR DETAILED BRIEFING WITH MANY MORE EXAMPLES

Our more detailed and general briefing is available here.

We have been leading constructive criticism of the Government's proposed approach since the initial May 2021 consultation. More recently, more industry bodies have understood the implications and there is also now a growing group of concerned peers. So, hopefully, there will be improvements to the position outlined above.

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