Neil McGregor Vice-Chair for Corporate Governance & relations with the British Chambers of Commerce, immediate Past Chair, BRCC

Bucharest – 3 April 2022. Globalisation and freedom of international trade and investment are surely something good? Whilst this might have been unquestioned some years ago, the events of the last month and a half have accelerated the degree of caution which has been developing over some time that the freedom of such trading and investment arrangements is open to abuse. A new example which is important for business links between Romania and the UK is the UK’s National Security & Investment Act 2021 (the “2021 Act”), which came into force on 4 January this year.

In simple terms, the 2021 Act allows the UK Government to vet – and possibly to reject – certain investments which have a UK dimension. The 2021 Act applies to seventeen sensitive areas of the economy:

Advanced Materials

Advanced Robotics

Artificial Intelligence

Civil Nuclear

Communications

Computing Hardware

Critical Suppliers to Government

Cryptographic Authentication

Data Infrastructure

Defence

Energy

Military and Dual-Use

Quantum Technologies

Satellite and Space Technologies

Suppliers to the Emergency Services

Synthetic Biology

Transport

Acquisitions – or proposed acquisitions – which involve an asset or an entity in any of these sectors and which have a relevant connection to the UK must be notified to the UK Government and may be subject to approval from the UK Government.

The 2021 Act applies to assets and also to entities. Assets include land, tangible movable property and – importantly – intellectual property. Relevant entities include companies, partnerships and trusts.

The concept of acquisitions used in the 2021 Act also requires careful consideration – it is not just a single step which is caught but a number of stages of the acquisition of control. For shares or voting rights, passing any of the thresholds of 25%, 50% and 75% will be relevant, as will the acquisition of blocking rights or the right to influence the strategic direction of an entity. For assets, the acquisition of – or increase in – a right of use or of control over how an asset is used will be the trigger.

There are quantative qualifications for the 2021 Act to apply to some of the sensitive economic activities listed above: for example, ports must have handled more than 1 million tonnes of cargo in the previous year to fall within the scope of the 2021 Act, and relevant communications systems must have a turnover of at least £50 million. If the thresholds are met, notification to the UK Government is mandatory: in other cases, notification can be made on a voluntary basis.

The 2021 Act has a wider geographical reach than might at first sight be supposed. Although there must be a connection with the UK, the entities and assets subject to the 2021 Act may not be British or be located in the UK. Foreign companies and other entities will be subject to the 2021 Act if they carry on business in the UK or supply goods or services to people in the UK. Assets not located in the UK will be subject to the 2021 Act if they are used in connection with activities in the UK or with the supply of goods or services to people in the UK.

Once notified, the UK Government may clear the transaction; ask for further information; impose conditions, whether for the negotiation of the transaction or to the transaction itself; or block the transaction (or require it to be reversed if it has already taken place).

Failure to notify carries potential civil and criminal penalties, as does failure to comply with directions given by the UK Government in connection with a transaction. This imposes an element of commercial uncertainty in any proposed transaction and so businesses may wish to notify even where it is not mandatory to do so, in order to have certainty that the transaction faces no objections from the UK Government.

So, what are the likely practical implications for Romania? Romania is particularly known for its IT and intellectual property strengths, as well as for offshoring solutions. The key point is that the quantative thresholds based on volume or turnover mentioned above do not apply to economic sectors relating to IT and intellectual property such as advanced robotics, artificial intelligence, cryptographic authentication, data infrastructure, quantum technologies and synthetic biology. In these sectors, the nature of the precise activity will determine whether or not a notification is mandatory. For example, cybersecurity is one such area.

So, could a Romanian start-up in the tech sector fall within the scope of the 2021 Act? It is certainly possible, depending on the type of activities being carried out and whether there is the necessary connection with the UK. I think that we can all understand why such controls are necessary, but I hope that this brief introduction to the 2021 Act will illustrate how UK legislation may have practical implications for some Romanian companies and businesses, even though this may not be obvious at first sight.

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