The UK's Foreign Influence Registration Scheme

What is the Foreign Influence Registration Scheme?

The National Security Act 2023 received Royal Assent in July 2023 and introduced the Foreign Influence Registration Scheme ("FIRS") - the United Kingdom's response to the perceived increasing risk of covert foreign influence over aspects of UK politics and business.  

FIRS is expected to come into force in 2024. The broad-reaching two-tier registration scheme will require both individuals and entities in the United Kingdom to register certain arrangements carried out at the direction of a 'foreign power'.

Key Requirements

• FIRS' registration will be completed via an online portal.

• Registration through FIRS will not prevent any activity from being conducted.

• The Home Office will establish a scheme management unit, responsible for both administrative and investigative functions to enforce FIRS.

• Non-compliance could result in criminal liability, including for: (i) failure to register in accordance with requirements; and (ii) carrying out activities pursuant to unregistered arrangements.

• Some information registered under FIRS will be available for online public inspection. Information will be withheld from publication where it contains individuals' personal details and insofar as (i) there is a risk that publication would prejudice UK national security; (ii) there is a significant risk that publication would jeopardise an individual's safety; (iii) where publication would involve the disclosure of commercially sensitive information. Individuals and entities can apply to request that their information is withheld from publication, as part of the registration process.

The Two-Tiers

Political Influence Tier:

• Unless exempted, registration is required within 23 days of a "foreign influence arrangement".

• A "foreign influence arrangement" is a formal or informal arrangement made with a "foreign power"(broadly defined to mean non-UK heads of states, governments or local governments, government agencies or authorities, or political parties) where an individual / entity is "directed" by the foreign power to arrange for, or carry out, political influence activities in the UK.

• "Political influence activities" must involve (i) an activity - either a communication with the public or senior public officials, or the provision of money, goods or services to UK persons, and (ii) the purpose must be to influence UK public life.

• Penalties for non-compliance: up to two years' imprisonment and/or unlimited fine.

Enhanced Tier:

• Unless exempted, registration is required within 10 days of formal or informal arrangements made with a "specified foreign power or entity" (this list is yet to be determined), where an individual / entity is "directed" by the specified foreign power or entity to arrange for, or carry out, "relevant activities" (currently defined as all activities, but subject to the Government narrowing the scope) in the UK.

• Penalties for non-compliance: up to five years' imprisonment and/or unlimited fine.

Implications

With the introduction of FIRS, the UK has mirrored action taken by the United States (through its Foreign Agents Registration Act) and Australia (through its Foreign Influence Transparency Scheme Act) - jurisdictions which have introduced legislation to try to mitigate the impact of foreign influence on political and business life. FIRS is intended to herald an era of improved transparency and scrutiny over political and commercial activity, detecting instances where a foreign power might otherwise exert influence over UK affairs.

However, there are ongoing concerns about the potential unintended consequences arising from FIRS' extensive scope, which may (for example) make ordinary banking arrangements with sovereign wealth funds of specified states registrable and add a large compliance burden to joint ventures with some state-owned entities. Particular concerns include:

• The broad scope of "directed", which is undefined in the National Security Act 2023 and will therefore have its ordinary meaning. Notably, there are several circumstances under which a "request" from a specified foreign power or entity could also be considered a direction.

• In the Government's draft Guidance published in February 2024, a foreign power includes an agency or authority of a foreign government, but "ownership, or part-ownership by a foreign power, does not necessarily mean that activities of such enterprises are directed by a foreign power". This leaves a lack of clarity over whether an entity wholly or majority-owned by a foreign state constitutes a foreign power, such as sovereign wealth funds or oil companies.

• The lack of an exemption for "legitimate commercial activities" - this is a notable difference from both the American and Australian regimes.

• The list of "specified foreign power or entities" is yet to be finalised. While overlap with foreign regimes subject to sanctions can be expected, it is expected that government bodies of nations with which Britain conducts a great deal of trade could be included, in particular China. This could introduce a significant compliance burden for UK entities which, in the long-term, could result in a reduction in business given associated costs.

• The implications of the publicly-accessible FIRS Register on commercial activity and the ability to maintain business relationships, where counterparties may be concerned about confidential commercial information being subject to public scrutiny. While there are limited circumstances under which exception to publication can be claimed, this process will have cost implications and, at least until the system is well-established, uncertainty as to what will be exempted.

• The resource and financial burden to ensure effective compliance - notably, associated with the requirement to register existing "political arrangements" (and potentially "enhanced tier arrangements" -subject to further guidance) within a three month period, as well as to monitor ongoing business activity to ensure new arrangements are registered within the requisite 10 or 23 days period (as set out above) and that material changes are registered within the requisite 14 day period.

What's next?

Given that so many details of FIRS are yet to be finalised, there is still an opportunity for businesses to advocate for their commercial and operational interests. Key industry bodies such as UK Finance are expected to publish their official position in due course. Following the publication of draft Government Guidance in February 2024, the final, complete Government Guidance is expected later this year. However, given that an election is due this year, it is possible that the implementation of FIRS may be delayed.

As we wait for more detail about the implementation of FIRS, we set out five key actions that would be useful for UK entities to consider presently:

• Contribute to the development of, or provide feedback regarding, the forthcoming sector-specific guidance. 

• Provide feedback to and/or lobby the Government regarding ways FIRS can be refined and implemented in a proportionate manner, including: (i) introducing a narrower / more precise definition of "direction"; (ii) introducing an exemption for 'legitimate commercial activities'.

• Map potential areas of exposure across operations and supply chains, including existing activities/arrangements that could come within the scope of FIRS. Start considering what internal policies and processes may be necessary to ensure potential registrable arrangements are processed efficiently through appropriate procedures and approvals.

• Ascertain areas of potential increased operational and financial costs. These could include the costs associated with conducting diligence / ongoing monitoring; registering various arrangements and completing additional steps in the registration process to request information is withheld from the public FIRS Register.

• Develop an approach to reduce the compliance burden from a resource perspective and consider whether the cost of compliance can be transferred to customers or clients whose activities may require registration. It may be necessary to develop a screening system to classify and assess arrangements which could be subject to registration requirements and standardise processes to register, provide material updates and apply for information to be withheld from publication. It may be appropriate to include provisions in contracts that pass along some or all of the internal costs associated with conducting diligence and the registration process (though there is no registration fee) and to allow the UK entity to terminate a contract without notice or penalty if a material change brings the business activity within the scope of FIRS.

Please contact us at Simmons & Simmons LLP should you have any questions or if it would be useful to discuss the potential implications of this regime, more broadly.