The Commonwealth government has released exposure drafts of major proposed amendments to Australia’s foreign investment legislation which are set to commence on 1 January 2021.1
The amendments fall into five main areas:
- National security review amendments: These introduce new categories of ‘national security actions’ which either need to be notified to the Treasurer (in practice, the Foreign Investment Review Board (FIRB)) for pre-approval, or which the Treasurer can review at any time on the basis of national security concerns.
- Integrity amendments: These clarify the application of certain provisions in the foreign investment legislation and remedy perceived shortcomings in the existing regime.
- Compliance and enforcement amendments: These significantly expand the Treasurer’s powers of enforcement, monitoring and investigation, including by increasing existing civil and criminal penalties very significantly and introducing new penalties.
- Register of Foreign Owned Australian Assets: The proposed changes establish a Register of Foreign Owned Australian Assets to record foreign interests in Australian land, water entitlements and acquisitions of certain interests in Australian entities and business.
- Fee framework amendments: These are intended to simplify the existing fee framework for foreign investment applications.
Taken together, the proposed changes are substantial and extensive. They have the potential to significantly change Australia’s foreign investment regulatory landscape.
Foreign investors and Australian businesses with substantial foreign ownership should carefully consider the impact that the proposed regime may have on them in the New Year.
In this Part 1 of our two-part series, we take a look at the proposed national security review amendments and how they might impact you.
National security review amendments
National security actions
The proposed amendments introduce additional categories of actions relevant to Australia’s national security which, depending on the action, may require Treasury approval or may be subject to Treasury review:
- notifiable national security actions will be required to be notified to (and pre-approved by) the Treasurer, regardless of their value;
- reviewable national security actions will not be required to be notified to (or pre-approved) by the Treasurer, but they can be reviewed by the Treasurer before or after they are taken; and
- additionally, ‘significant actions’ under the existing regime may be reviewed by the Treasurer if the Treasurer considers that they may pose a national security concern.
What is a notifiable national security action?
A notifiable national security action involves an action by a foreign person to acquire:
- a direct interest in a national security business;
- an interest in Australian land used as defence premises or in which a national intelligence agency has an interest; or
- an interest in Australian land which is the subject of a declaration by the Treasurer.
Broadly speaking, national security business is defined as a business in Australia which:
- has an interest in a critical infrastructure asset covered by the Security of Critical Infrastructure Act 2018 (generally, this relates to electricity, water, gas and port infrastructure);
- is a telecommunications carrier or carriage service provider under the Telecommunications Act 1997;
- develops, manufactures or supplies critical goods, technology or services for military use;
- stores or has access to information that has a security classification; or
- stores or maintains certain sensitive personal information collected by the Australian Defence Force, the Defence Department or an agency in the national intelligence community.
Notifiable national security actions, as with the existing category of ‘notifiable actions’, will need to be notified to the Treasurer and approval granted (in the form of a no objection notification or exemption certificate) before they can be taken. The Treasurer may also decide to prohibit or make orders in relation to such actions if the Treasurer is of the view that they may pose a national security concern.
What is a reviewable national security action?
A reviewable national security action is an action which is not a notifiable nation security action, nor in any of the other categories (significant action, notifiable action, etc.), but which the Treasurer nevertheless considers may pose a national security concern.
As with the existing ‘significant action’ regime (which will remain in place), the Treasurer can review a reviewable national security action before or after the action is taken.If the Treasurer is satisfied that the action would be or is contrary to national security, the Treasurer can prohibit it, or can make orders directing specific persons to do or refrain from doing certain things (e.g. an order to divest an interest or asset).
“Last resort” powers
The proposed amendments also include ‘last resort powers’ which allow the Treasurer to conduct a national security review even after a person is given a no objection notification or exemption certificate in relation to an action.
When conducting this review, the Treasurer must decide whether a national security risk exists in relation to the action, having regard to any advice provided by national intelligence agencies.
The Treasurer will have the power to give directions to a person while the review is being conducted (e.g. to prevent further steps from being taken in a transaction), and at the end of the review the Treasurer may give a no objection notification in relation to the action or make orders prohibiting or unwinding the action.
While the Treasurer will be required to give written notice to the person which sets out the reasons for deciding that a national security risk exists, the Treasurer will be allowed to redact any reasons that would disclose the national security risk or result in prejudice to Australian’s national security interests, or any information relied on in carrying out the review.
What is ‘national security’?
Importantly, the proposed amendments do not seek to give a general definition of ‘national security’ or ‘national security concern’, meaning that the scope of these terms is potentially very broad.
It remains to be seen how the Treasurer and FIRB will interpret them, and whether any guidance will be issued in relation to how exactly national security concerns are assessed.
In Part 2 of this series, we will discuss the other main areas addressed by the proposed major foreign investment legislation reforms.
As with the national security review amendments, these other proposed changes are significant and equally important to bear in mind when assessing whether (and how) the 2021 foreign investment framework may affect you or your business.
Please contact us in the meantime if you have any queries about the proposed national security review regime and how it may apply to you.
Pursuant to the Foreign Investment Reform (Protecting Australia’s National Security) Bill 2020 and Foreign Investment Reform (Protecting Australia’s National Security) (National Security Business) Regulations 2020. The exposure drafts are available on the Treasury website at https://treasury.gov.au/consultation/c2020-99761.
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