US clears UK to keep exemption from foreign investment reviews

The US will allow the UK to keep its exemption from foreign investment screenings for certain real estate and non-controlling deals, after concluding that Britain had set up a strong enough regime of its own.

The decision on Friday represents a vote of confidence from Washington in Britain’s new and tougher law on foreign investment, which was implemented last year and has already resulted in the blocking of several high-profile planned Chinese investments.

The move to clear the UK was made by the Committee on Foreign Investment in the US (Cfius), an inter-agency body chaired by Treasury secretary Janet Yellen.

The US tightened its own foreign investment screening regime through a 2018 law enacted by former president Donald Trump amid growing concern in Washington that some Chinese investments posed a threat to national security. The US rules expanded Cfius reviews to include certain non-controlling and real estate transactions, as well as mandatory, rather than voluntary, filing requirements for ordinary takeovers where there is a change of control.

At the time, the Treasury decided to carve out an exemption from those tougher measures for some countries in the Five Eyes intelligence alliance, as long as they could prove that their domestic regimes were tough enough to prevent them serving as backdoor routes to the US for risky foreign investments.

Last year the US said Canada and Australia would continue to qualify as “excepted foreign states” under the new rules. But it had to make a decision on the fate of the UK and New Zealand by February 13. New Zealand was also cleared on Friday, meaning all of America’s Five Eyes allies will remain on the US’s foreign investment whitelist.

“The United States thoroughly reviews foreign investment for national security risks, and it is critical that our allies also identify and address risks from malign foreign investment,” said Paul Rosen, the US Treasury’s assistant secretary for investment security.

“Today’s actions reflect that our Five Eye allies have all stood up and implemented their own robust foreign investment screening programmes. We look forward to continuing to co-ordinate with all of them on matters relating to investment security,” he added.

Britain’s National Security and Investment Act, which came into effect in January 2022, gives the UK government much greater powers to block overseas takeovers that raise potential security concerns.

The NSIA is among the most far-reaching takeover regimes in the world, covering 17 sensitive sectors, and it can be applied retrospectively to deals going back as far as November 2020.

Its introduction came against the backdrop of cooling Beijing-London relations and growing British caution about Chinese investment in UK industry. In 2020, the UK government banned the use of Chinese company Huawei’s equipment in its new 5G telecoms network.

The NSIA regime was used to block the sale of Newport Wafer Fab, a Welsh company, to Chinese-owned Nexperia in November.

That intervention came after nine members of the US House of Representatives urged President Joe Biden to reconsider Britain’s status on the white list unless it blocked the deal.

In July, the UK government announced a ban on the sale of computer-vision technology from Manchester university to a Chinese semiconductor company. Officials said the rejected buyer, Beijing Infinite Vision Technology, was a Chinese commercial fabless semiconductor group with state links.

In December, the government used the NSIA to order LetterOne, an investment company backed by oligarchs, to sell regional broadband provider Upp.