UK Government Reportedly Considering Enhanced Registration Obligations for Relationships with Chinese Government or State-Controlled Entities

UK Government Reportedly Considering Enhanced Registration Obligations for Relationships with Chinese Government or State-Controlled Entities

May 13, 2024, Covington Alert

For the past several months, the UK Government has been working to implement a new Foreign Influence Registration Scheme (the “Scheme”). The Scheme is intended to provide greater transparency regarding foreign influence in UK politics and other activities involving foreign powers or entities that may present a risk to the safety or interests of the United Kingdom. Recent reports suggest that the UK Government may be considering designating China as a foreign power that presents such a risk, which could give rise to reporting obligations for organizations engaging with the Chinese Government or government-controlled entities in connection with UK activities.[1] This alert briefly summarizes the scope of the Scheme, its current status, and the potential reporting implications for relationships with the Chinese Government or government-controlled entities if the country were to be designated under the Scheme.

The Scope of the Scheme

Based on long-running concerns regarding perceived gaps in the legal framework applicable to foreign influence activities in the UK, the UK Government signalled its openness to new measures in 2019. Initially, the Government was expected to adopt a modified version of the U.S. Foreign Agents Registration Act or the Australian Foreign Influence Transparency Scheme Act, both of which are focused exclusively on political influence activities. The final version of the Scheme is similar to the U.S. and Australian regimes in some respects, as it includes a registration requirement for political influence activities directed by foreign powers. However, the Scheme goes beyond the U.S. and Australian measures, as it also introduces a registration requirement for certain other non-political activities conducted in the UK at the direction of specified foreign powers or entities. We summarize the political influence registration requirement and the enhanced registration requirement below.

Political Influence Registration Requirement

When the Scheme enters into force, any person who is party to an agreement or arrangement with a foreign power to carry out or arrange political influencing activities in the UK at the direction of that foreign power will be required to register within 28 days of the date of the agreement or arrangement. For these purposes:

• The term "foreign power" will include: the sovereign or head of state of a foreign state in their public capacity; a foreign government or part of a foreign government; an agency or authority of a foreign government or of part of a foreign government; an authority responsible for administering the affairs of an area within a foreign country or territory, or persons exercising the functions of such an authority; or a political party which is a governing political party of a foreign government. (The Republic of Ireland is specifically excluded from this definition.)
• The term "political influence activity" will include the following activities, when those activities are conducted for the purpose of influencing a UK election or referendum, a decision of a UK or devolved government department or minister, the proceedings of a UK registered political party, or a UK legislator acting in their official capacity:
  • communicating with a wide range of specified public officials, including ministers in the UK Government and devolved administrations in Wales, Scotland and Northern Ireland; members of the UK parliament or devolved legislatures; employees of members of the UK parliament or devolved legislatures; the Mayor of London and certain other UK local government officials; officers, trustees or agents of UK registered political parties; members of UK registered political parties who are exercising executive functions on behalf of such parties; certain UK election candidates; senior UK civil servants and special advisers; certain senior UK military officers; certain senior UK police officers and police commissioners; and any other persons exercising UK public functions who are identified by the Home Secretary in regulations;
  • making a public communication — including publishing or disseminating information, a document or other article, or producing information, a document or other article for publication or dissemination — except where it is reasonably clear from the communication that it is made by or at the direction of the foreign power; and
  • distributing money, goods or services to UK persons.

There  will be some very limited exceptions to the political influence registration requirement, including with respect to the carrying out of legal activities by a lawyer qualified to practice in the UK, and with respect to some activities relating to news publishers.

Enhanced Registration Requirement

In addition, the Scheme will authorize the Home Secretary to designate as a "specified person" any foreign power or entity that he reasonably believes to be controlled by a foreign power, if he considers it reasonably necessary to do so to protect the safety or interests of the UK. An entity will be deemed to be controlled by a foreign power if one or more of the following conditions are met:

• the foreign power has the right to direct or control, or actually directs or controls, the entity's activities, in whole or in part;
• the foreign power holds, directly or indirectly, more than 25 percent of the shares or voting rights in the entity;
• the foreign power holds the right, directly or indirectly, to appoint or remove an officer of the entity; or
• with respect to a trust, partnership, unincorporated association or other entity that is not a legal person, the trustees or members meet one or more of the foregoing conditions and the foreign power has the right to direct or control, or actually directs or controls, the activities of that trust, partnership, unincorporated association or other entity, in whole or in part.

The Home Secretary will also have the authority to amend these thresholds by regulation, including to amend or supplement the thresholds to include circumstances that give a foreign power a level of control over an entity broadly similar to a level of control that meets the existing thresholds.

The enhanced registration requirement will include two elements:

• First, specified persons that are not foreign powers, as well as their employees, will be prohibited from carrying out any "relevant activities" in the UK unless the specified person registers those activities with the Home Secretary. The "relevant activities" concept potentially includes all activities in the UK conducted by a specified person, although it will also be possible for the Home Secretary to take a less expansive approach and require only certain activities of a specified person to be registered. The intention is that this will allow the Government to tailor the registration requirement to the risk posed by the specified person.
• Second, if a person enters into an agreement or arrangement with a specified person pursuant to which the specified person directs that other person to carry out relevant activities in the UK, or to arrange for relevant activities to be carried out in the UK, the agreement or arrangement must be registered within 10 days of the date of the agreement or arrangement. This obligation would rest with the person entering into the agreement or arrangement with the specified person, rather than with the specified person itself. The definition of "relevant activities" summarized above would also apply in this context.

As with the political influence registration requirement discussed above, there are some very limited exceptions to the enhanced registration requirements, including with respect to the carrying out of legal activities by a lawyer qualified to practice in the UK.

The Current Status of the Scheme

Although it is nearly a year since the legislation introducing the Scheme was enacted, the provisions regarding the Scheme are not yet in force. However, the UK Government has indicated that it expects to bring the provisions into force this year, and has been working on various measures necessary for the implementation of the Scheme. From September to December 2023, the Government published draft guidance on the operation of the Scheme and sought public feedback regarding that guidance. The response to the consultation is currently pending. In addition, the Government is continuing to develop and test the digital platform for registrations under the Scheme. Companies that wish to test and provide feedback on the platform can sign up to join a research panel.

There has not yet been detailed guidance on which foreign powers and entities might be designated as specified persons for purposes of the enhanced registration requirement. However, the Government issued a policy statement while the legislation was passing through Parliament in which it confirmed the Government's intention that use of the power to designate an entity as a specified person "will be considered on a case-by-case basis, having taken on board relevant advice and assessments". Any regulations relating to a designation will also be subject to the affirmative approval of both Houses of Parliament.

Multiple parliamentarians have called for China to be designated as a specified power. Since reports emerged in March regarding Chinese state involvement in cyber-attacks targeting the UK Electoral Commission and the UK Parliament, and more recent allegations of suspected Chinese involvement in a UK Ministry of Defence data breach, the requests for designation have continued. For instance, in a parliamentary debate on the Electoral Commission and Parliamentary cyber-attacks, the former Home Secretary who was responsible for the introduction of the Scheme asked whether there is a compelling case for China to be designated. The Deputy Prime Minister was non-committal, but noted the “overall escalation of [the UK Government] stance.”

Potential Implications for Relationships with the Chinese Government or State-Controlled Entities

If China were to be designated as a specified power, it could trigger reporting obligations for organizations that have relationships with the Chinese Government or Chinese government-controlled entities in connection with many UK activities. The exact impact will depend on the nature of any designation and how the Government chooses to define relevant activities for purposes of that designation.

The draft guidance issued by the UK Government states that the concept could include, among other things, commercial activities in the UK, research activities in the UK, and the provision of goods or services in the UK. The draft guidance also makes clear that the concept of a “direction” from a specified foreign power or entity is intended to be wide-ranging, including any order or instruction to act, where there is a degree of control or expectation by the specified foreign power or entity. For example, it could include:

• a contract signed with a specified foreign power or entity to carry out activities in the UK;
• sponsorship or a scholarship issued by a specified foreign power where it is to be used to carry out a particular activity in the UK (such as scientific, technical or academic research); or
• an order placed by a specified foreign power or entity related to the provision of goods or services in the UK.

We will continue to monitor developments regarding the implementation of the Scheme, and will issue a further alert if the UK Government chooses to make any designations for the enhanced tier of the Scheme. Organizations that wish to engage with the UK Government regarding the parameters of the Scheme and potential future designations should consider doing so now.

[1] Alex Wickham, Katherine Griffiths and Harry Wilson, ‘HSBC, StanChart Press Sunak to Ease Clampdown on China Business’, Bloomberg (9 May 2024).