Security

Britain needs to wake up to the cost of foreign interference

BY Luke Coffey   /  19 November 2019

As the General Election gets into full swing, and as political parties start drafting their manifestos, they should consider a commitment to completely overhaul how the government intervenes in and scrutinizes foreign takeovers and investments in the United Kingdom – especially if there’s a suspected impact on national security.

In all the commotion and noise related to Brexit, a very important piece of national security legislation was proposed in the recent Queen’s Speech and it has gone mostly unnoticed.

Buried on page 71 in a detailed background paper on the different government legislation initiatives deriving from the Queen’s Speech is a proposal referred to as “national security and investment legislation”.

It is clear that certain countries, such as China and Russia, are willing to use strategic investments to advance geo-strategic goals and influence the domestic economies or even politics of the welcoming country. Being a global financial hub, the UK is a prime target.

The United States already has a well-established body called the Committee on Foreign Investment in the U.S. (CFIUS) to review foreign investments for national security concerns. There are also equivalent organizations in Germany, Canada and Australia.

An example of a case that probably would have been treated differently had there been more robust oversight is that of “Putin’s favourite oligarch”. Oleg Deripaska’s  En+ Group was listed on the London Stock Exchange in November 2017 (Deripaska remains on the U.S. sanctions list). During this listing, more than £1 billion was raised. Most of the money was used to pay debt owed to VTB Bank – a bank under U.S. economic sanctions.

Making the situation even worse, En+ Group is the parent company of Rusal – Russia’s largest producer of aluminium which provides the raw material to the Russian war machine that has wreaked havoc in Syria and Ukraine.

A recent House of Commons Foreign Affairs Committee reported entitled “Moscow’s Gold: Russian Corruption in the UK” described EN+ Group’s flotation on the LSE as “an example of the contradictions inherent in UK Government policy towards Russia.” It is also a good example of how a robust ability to securitize investments like this is important.

The same reasoning applies to Chinese conglomerate Huawei and the British telecommunications sector. China is an adversarial power that should not be allowed to use its government-controlled companies to gain a foothold in the UK’s burgeoning fifth-generation (5G) wireless networks.

Such a presence would be a clear national security threat that could decisively compromise telecommunications and data infrastructure – including the communications integrity of the military and intelligence community.

Here, the UK can learn from America’s CFIUS experience.

First, whatever body is created to undertake the task of examining foreign investments for national security issues must be fully resourced. It cannot be just a talking shop – it needs to robustly and properly scrutinize foreign investment.

Secondly, UK would not want to design a system that unnecessarily slows down or inhibits legitimate foreign direct investment. To counter this problem the US is establishing a “white list” of countries that are preapproved for investments in the US. The UK should consider a similar approach.

Finally, the UK should not let any new government body become too big and bureaucratic. Currently there are nine departments in the US Government that have veto power over foreign investment proposals. This is probably too many.

It only takes a quick glance at some of China’s economic practices along the so called Belt and Road Initiative, or at accusations of Russian dirty money floating around the City, to see how new national security and investment legislation is needed. Once the seemingly endless Brexit drama comes to an end and politicians get back to focusing on day to day issues, making sure that foreign investments do not undermine the security of the United Kingdom should be a top priority.


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