‘Toothless’ law fails to block foreign raiders: Security act halts only five of 100s of deals as Chinese buy high-tech British firm

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  • The National Security and Investment Act is designed to protect
  • The law also gives ministers the power to impose legally binding conditions on buyers.
  • Controversy erupted over the sale of Flusso to a Chinese investment company.

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Problem: Business Secretary Grant Shapps

The new government’s powers to block foreign takeovers have been called “toothless” after ministers halted only a handful of deals in the first year.

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The National Security and Investment Act 2021 is expected to provide protection against predators targeting UK firms in 17 “sensitive” sectors, including nuclear power, artificial intelligence, defense and energy. But The Mail on Sunday can report that only five of the hundreds of transactions it has verified have been blocked.

The act also gives ministers the power to impose legally binding conditions on buyers to protect jobs and research in the UK. However, this happened only in nine cases.

The revelations come amid a raging dispute over the sale of Cambridge-based semiconductor company Flusso to Sierchi, a Shanghai-based investment firm. Shortly after the August acquisition, Flusso appointed two Shanghai directors to the board.

The deal has received a green light from the government despite Flusso being engaged in exactly the kind of high-tech activities that ministers want to encourage and amid fears that Beijing will dominate the sector.

Conservative MP Alicia Kearns, chair of the powerful Foreign Affairs Select Committee, claims that Flusso was sold by “secrecy”.

Unusually, when the deal was announced last summer, Flusso did not disclose the identity of the buyer. The South China Morning Post reports that Sierchi is partially owned by the Chinese government.

But Flusso chief executive Andrea De Luca told UK Tech News Serchi had no ties to the Chinese government, adding that the buyer had notified Whitehall officials.

Last week, Kearns sent a scathing letter to business secretary Grant Shapps. She wrote, “With this deal, we are giving the Chinese Communist Party direct access to one of our leading technology startups in a vital strategic area.

“I must emphasize that the takeover by a Chinese company of a British company that develops and sells flow sensors – key to consumer and industrial products manufactured by leading global companies – poses a serious problem for the economy and national security.”

One senior source in the British semiconductor industry called the Flusso deal “incomprehensible.”

The National Security and Investment Act was passed in January 2022 after US predator attacks on British defense and aerospace companies, including Cobham and Ultra Electronics, raised concerns about national security threats.

The law means that, for the first time, applications for companies of any size in critical industries are automatically screened for national security threats.

In the past, the government has only intervened in large acquisitions. Derailed deals include the sale of microchip maker Newport Wafer Fab. It was sold to the Chinese in 2021 for around £63 million without any verification.

However, the takeover by Nexperia, a Dutch company backed by Beijing, was subsequently cancelled. The Flusso deal is believed to have been “thoroughly reviewed and approved” under the NSI Act in June. A government source told The Mail on Sunday it was unlikely to be considered again. “There are no grounds for a recall at this time.”

Independent aerospace analyst Francis Tusa called the law ineffective. “If the starting point for the UK is still to agree to virtually all takeovers, then the law is absolutely toothless,” he said.

Tobias Ellwood, a Conservative MP who chairs the parliamentary defense committee, said the government should be clear about which industries it needs to protect “rather than looking at it on a case-by-case basis.”

He said: “I really don’t believe the penny has fallen because of how vulnerable Britain has become.”

While the government has disclosed the number of deals blocked in the past year, it has yet to say how many have been investigated. Annual figures will be published in the spring.

So far, it has been announced that over 220 potential takeovers have been screened in the first three months of 2022, with only 17 of them being fully investigated. No blocks or conditions were attached to anyone.

The business department said the government only intervenes in a “small minority” of transactions.

Credit: www.thisismoney.co.uk /

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