The UK's National Security and Investment Act 2021 is a piece of legislation of its time, created when there was pressure from the USA to take action against e.g. Chinese telecoms companies such as Huawei and ZTE. This report by the USA's Congressional Research Service (https://crsreports.congress.gov/product/pdf/R/R47012/2) shows that the USA had been making a noise since 2017.

For more than two decades, U.S. government officials have raised national and economic security concerns about Huawei, citing its ties to the Chinese government and military, sanctions violations and unfair trade practices, preferential Chinese policies and financing that enabled its expansion globally, and the potential for espionage or sabotage of U.S. and global networks. With the emergence of fifth-generation (5G) telecommunications technologies that enable greater connectivity among billions of personal, business, and industrial devices and networks, U.S. concerns have become more pronounced.

A ban on some tech was introduced there in 2021, a ban which China's Global Times came close to ridiculing earlier this year saying "US runs into 'self-imposed obstacles' as Pentagon seeks Huawei exemption." It says "According to a Bloomberg report released on Wednesday local time, the Pentagon is provoking "a fresh showdown" with Congress, as it feels it cannot avoid doing business with Huawei, the world's largest telecommunications provider. "

The relevant legislation in the USA is Section 889 of the 2019 National Defense Authorization Act (sic), which came into effect on August 2020 and prohibits US government agencies from buying or contracting with entities that use Huawei components. The USA pressed e.g. Australia and the UK to enact similar legislation.

There was, also, active litigation about the transfer of intellectual property to Chinese companies in the ordinary course of business: Motorola and others were caught up in that.

And so, when the UK's Secretary of State for Business, Energy and Industrial Strategy made a "Final Order" relating to the ownership of UPP CORPORATION LTD by LETTERONE CORE INVESTMENTS S.À R.L through its UK company L1T FM HOLDINGS UK LIMITED the context made some kind of sense.

But on detailed analysis, it's not about the tech: it's about the people.

Upp Corporation Limited was incorporated on 4th February, 2020 and the only person of significant control was Mr Eryl William Stafford whose address is given as 160 City Road London, an address well known to students of company registered offices. On 21 January 2021 he was replaced by L1t Fm Holdings Uk Limited (this is the form that the company appears in the register at Companies House in Wales) with an address in Jersey. That company is registered in Jersey. Less than one month later, on 19th Debruary 2021, that company was recorded as "ceased" in relation to its holdings. It was more than a year and a half later, on 5 September 2023 that Vmed O2 Uk Holdings Limited was registered as a person of significant control . As of today, it is a joint venture of Nexfibre and Virgin Media O2. (https://find-and-update.company-information.service.gov.uk/company/1244…).

The removal of L1t Fm Holdings Uk Limited was as a result of the Final Order that it divest itself of its shareholding.

The judgment demonstrates that the Act is laden with terms such as "call-in" which doesn't mean what it has long meant, "hostile actors" and "trigger event". As described in court documents, "The Act aims to prevent hostile actors from acquiring control of critical parts of the United Kingdom’s economy and infrastructure by empowering the Secretary of State to “call in” and assess a qualifying acquisition on grounds of national security."

One occurrence that might cause an intervention (i.e. "trigger" a "call-in") is where an overseas shareholder increases its shareholding to above 75% in a company that interests the Secretary of State. In this case, that interest was raised by the Secretary of State personally and the power exercised by him and not by the staff of his department.

L1t Fm Holdings Uk Limited's parent company issued proceedings. According to the judgment "In resisting the claim, the Secretary of State relies on sensitive material that cannot be placed in the public domain for reasons of national security. Following the court’s orders permitting a closed material procedure pursuant to sections 6 and 8 of the Justice and Security Act 2013, the Secretary of State relies on both “open” material (disclosed to theClaimants and their lawyers) and “closed” material (not disclosed to the Claimants or their lawyers). The claim was listed for a “rolled-up” hearing. I received written and oral submissions in open and closed session. Mr Tom Hickman KC and Mr Paul Luckhurst appeared on behalf of the Claimants. Mr Rory Phillips KC, Ms Georgina Wolfe, Mr Emmanuel Sheppard and Mr Karl Laird appeared for the Secretary of State. Mr Tim Buley KC and Mr Alex Jamieson appeared as Special Advocates, representing with skill the Claimants’ interests in the closed session from which the Claimants and their lawyers were excluded. Upp filed an acknowledgement of service as an Interested Party, stating that it
did not intend to contest the claim. It has taken no further part in the proceedings."

So, in summary, the Secretary of State made a determination and no-one other than its own lawyers and the judge is allowed to know on what basis it was made. But " It was not in dispute that, when the First Claimant purchased a 100% shareholding in Upp,
a “trigger event” took place. Nor was it in dispute that a risk to national security arose from that trigger event. "

Readers can study the judgment themselves: the salient point is that, by trial, the only live issue was whether the Order should have provided for divestment or for other, less intrusive measures.

But while the exact reasons are kept secret, the judgment gives plenty of clues. First, Upp was an off-the-shelf company with a different name which explains the control statement relating to the company formation office. It was purchased on 21 January 2021 and its mission was said to be “ bring next-generation full fibre broadband with industry leading security and reliability to under-
served rural communities in the UK.” Its first customer was connected in East Anglia in September 2021 and by January 2022 it had customers in eight towns in East Anglia. This, it is safe to assume, means that Upp was not building its own infrastructure but rather installing a relatively simple command and control centre with the actual fibre being laid by larger more established companies, in exactly the same way as many mobile phone companies bulk-buy airtime and resell it and the same way as discount telephone operators worked in the mid 1990s and beyond.

It turns out that the problem was not the technology but the people. The various UPP owners were under the control (albeit through a series of intervening entities abroad) of Mr Petr Aven, Mr Mikhail Fridman, Mr German Khan, Mr Andrei Kosogov and Mr Alexey Kuzmichev. They were not disclosed as the ultimate beneficial owners of UPP and, arguably, they did not need to be under the law as it was at the time.

Then it all turned to dust: "The founders are Russian nationals. On 24 February 2022, Russian troops entered Ukraine. On the same day, dividends were paid to Group companies owned by Mr Aven, Mr Khan and Mr Kuzmichev. On 28 February 2022, Mr Fridman and Mr Aven resigned from their Board roles in the Group. On 4 March 2022, Mr Kosogov likewise resigned."

The judgment goes on " In February 2022, the European Union had imposed sanctions on Mr Aven, Mr Fridman, Mr Khan and Mr Kuzmichev. In March 2022, the United Kingdom imposed sanctions on them pursuant to the Sanctions and Anti-Money Laundering Act 2018 and the Russia (Sanctions) (EU Exit) Regulations 2019. In their respective designations as sanctioned persons under the UK provisions, they were described as “pro-Kremlin” or “supporting the Government of Russia.” Mr Aven and Mr Khan were described as associates of President Vladimir Putin. The Secretary of State was also aware that Mr Aven attended the televised
meeting of Russian oligarchs organised by President Putin on the day that Russian troops entered Ukraine."

But it's not that simple: in fact, before the purchase of Upp, representatives of the Group met the relevant department of the UK government to get clearance for the purchase and development of the business. As part of that discussion, the group said that it was already established in the UK without any problems through its ownership of health food chain Holland and Barrett. The structure of Holland and Barrett is unclear: it appears to be owned by a company, L1R HB (or similar) registered in Jersey but UK companies House says of that company "There are no persons with significant control or statements available for this company. " HOLLAND & BARRETT INTERNATIONAL LIMITED has only one registered director: THE HEALTH FOOD MANUFACTURER'S ASSOCIATION. The misplaced apostrophe is as per the register. This, to this author at least, shows that opaque ownership and control applies to businesses other than Upp in its pre-intervention form. And this was the result as set out in the judgment: “[The Deputy Director] reiterated her comments during an earlier telephone conversation…i.e. that she had no particular concerns about the proposed acquisition, that she could not imagine the Secretary of State intervening under the existing legislation [i.e. the Enterprise Act 2002] or calling this investment in under the incoming legislation once in force." Also " On 16 December 2020, Mr Muir wrote to the Secretary of State to promote the Group’s proposed purchase of FibreMe. The Minister for Investment responded by letter of 14 January 2021, confirming that he regarded the Group as having notified the Secretary of State of its plans. The Minister referred Mr Muir to the passage in Parliament of the National Security and Investment Bill. [Counsel]emphasised that the Minister’s letter said that the Government “warmly welcomes LetterOne’s continued confidence in the UK.”

The end result was that the Court rejected claims for judicial review and dismissed the case. But the issues it raises as to secrecy in decision making (much of which turns out not to be very secret at all) and as to the extent to which ultimate ownership of assets is investigated remain very life and also an object lesson in relation to corporate know your customer investigations.