In Part 1 of this series, we discussed the first area of major proposed amendments to Australia’s foreign investment legislation which are set to commence on 1 January 2021, the introduction of the ‘national security review’ regime.
In this Part, we take a look at the remaining four significant areas addressed by the proposed changes:
- Integrity amendments: clarifying the application of certain provisions in the foreign investment legislation and remedying perceived shortcomings.
- Compliance and enforcement amendments: significantly expanding 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: establishing 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: simplifying the existing fee framework for foreign investment applications.
These changes materially increase the powers available to the Treasurer to enforce compliance with Australia’s foreign investment framework, monitor and investigate foreign investment, and generally act as the gatekeeper for Australia’s national interest and national security.
Broadly speaking, the integrity amendments are designed to close perceived loopholes in the foreign investment framework, give the Treasurer greater flexibility in terms of the time granted to the Treasurer to assess foreign investment applications, and enable greater information sharing between government agencies and foreign government counterparts.
These amendments include:
- clarifying that buy-backs of securities and capital reductions may trigger foreign investment approval requirements if the buy-back or reduction increases the total voting power or proportion of interests held by a person in the entity – even where the relevant foreign person hasn’t itself taken any action at all;
- changes to address the circumvention of the foreign investment regime by an Australian resident buying property for a foreign family member (by providing that, in certain cases, the foreign person will be taken to have acquired an equitable interest in the land for the purpose of the FIRB regime);
- expanding the ‘tracing of interests’ provisions so that they apply to unincorporated limited partnerships;
- allowing protected information to be shared with foreign government and separate government entities where national security risks may exist, as well as for administering the Competition and Consumer Act 2010 and Northern Australia Infrastructure Facility Act; and
- allowing the Treasurer to extend the decision period for assessing a foreign investment application by up to 90 days.
Compliance and enforcement amendments
The proposed amendments also significantly strengthen the compliance and enforcement regime for Australia’s foreign investment framework.
For example, under the proposed changes:
- infringement notices will be able to be issued for breaching any civil penalty provisions in the legislation, rather than only in relation to residential land (as is currently the case under the existing regime);
- foreign persons who have been issued a no objection notification or exemption certificate will be required to notify the Treasurer that an action under the notification or certificate has occurred, as well as other events (e.g. changes in control), within 30 days;
- the Treasurer will be able to revoke no objection notifications or exemption certificates if the Treasurer reasonably believes that the person gave false or misleading information or omitted important relevant information in an application; and
- the Treasurer will be empowered to give directions to investors to prevent or address suspected breaches, and also to accept enforceable undertakings.
The proposed changes markedly increase the potential civil and criminal penalties for breaches of Australia’s foreign investment framework. For example:
- the standard criminal penalty under the legislation of 3 years imprisonment / 750 penalty units (currently $166,500 for individuals and $832,500 for corporations) will be increased to 10 years imprisonment / 15,000 penalty units (currently $3.33m for individuals and $16.65m for corporations); and
- the civil penalty prescribed for failure to comply with an order made by the Treasurer will increase from 250 penalty units (currently $55,500 for individuals and $277,500 for corporations) to a value ranging from 5,000 penalty units to 2.5m penalty units depending on the value of the interest or asset in question.
The changes also introduce new civil penalties, including:
- providing false or misleading information to the Treasurer in connection with the granting of a no objection notification; and
- failing to notify the Treasurer within 30 days of taking a significant action under a no objection notification or exemption certificate, changes in control of the entity or business which is the subject of the significant action, or certain other changes in the foreign person’s interest in the relevant entity or business.
Register of Foreign Ownership
The proposed amendments introduce a new Register of Foreign Ownership of Australian Assets. The purpose of the Register is to record information about certain actions taken by foreign persons in relation to interests in Australian land, water, businesses and other assets. The new Register expands upon the existing Register of Foreign Ownership of Water or Agricultural Land Act.
Under the new regime, a foreign person will generally need to notify the Registrar if they (among other actions):
- start or cease to hold a registrable land or water interest, being a legal interest in Australian land (including mining or production tenements and exploration tenements) and registrable water entitlement;
- hold an interest in Australian land of one kind (e.g. residential land) and the land becomes another kind of land (e.g. commercial land);
- take a notifiable action involving acquiring an interest in an Australian entity or business;
- have previously notified the Registrar of their interest in an Australian entity and that interest changes by 5% or more; or
- take a significant action under a no objection notification or exemption certificate.
Fee framework amendments
Finally, the proposed fee framework amendments also intend to introduce a ‘fairer and simpler’ framework than the existing fee framework, which is often overly complex and difficult to interpret.
Fees will generally still be payable for the same sorts of applications and actions (for example, applying for a no objection notification or an exemption certificate), but the amendments also contemplate new fees for notifiable national security actions and reviewable national security actions.
At this stage, the impact of the fee framework amendments on the actual fees payable for foreign investment applications is not clear, as the fee regulations have not yet been released.
The consultation continues
The Treasury’s feedback period on the proposed amendments ends on 31 August 2021.
Treasury has indicated that it intends to finalise and introduce the amendment legislation into parliament in the Spring sitting, with further consultation with stakeholders to occur in September when the remainder of the draft regulations are released.
In the meantime, if you have any questions about how the proposed changes may apply to you, please contact us for further information.
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