The Australian Federal Government has now enacted the Foreign Investment Reform (Protecting Australia's National Security) Act 2020 (Act), Foreign Investment Reform (Protecting Australia's National Security) Regulations 2020 and the Foreign Acquisitions and Takeovers Fees Imposition Regulations 2020 (together, the Regulations) which came into effect on 1 January 2021.
The Act introduces a new register of foreign ownership of Australian land, water, businesses and other assets to be administered by a Commonwealth body to be appointed by the Treasurer. The new register will record all foreign interests acquired in Australian land, water entitlements and contractual water rights and business acquisitions that require foreign investment approval.
The key elements of the reforms include:
1. A new National Security Test for foreign investors (with an interest of at least 10%) which imposes mandatory notification for certain investments in:
- “National Security Land” (including exploration tenements over such land); and
- a proposed direct investment in a “National Security Business” (including acquiring a direct interest in an entity that conducts a national security business) or starting a new “national security business”,
(each a ‘Notifiable National Security Action’).
A ‘National Security Business’ is a business that is publicly known, or could be known upon the making of reasonable inquiries, that is one of the following types of businesses:
- critical infrastructure businesses that hold critical infrastructure assets under the Security of Critical Infrastructure Act 2018 (Cth) (Critical Infrastructure Act);
- telecommunications businesses subject to the Telecommunications Act 1997 (Cth)(Telecommunications Act) as a carrier or carriage service provider;
- critical goods or technology for military or intelligence end-use businesses that develop, manufacture, or supply critical goods or technology for (or intended for) a military or intelligence use by defence and intelligence personnel or the defence force or intelligence agency of another country;
- critical defence or intelligence services businesses that provide or intend to provide critical services to defence and intelligence personnel or the defence force or intelligence agency of another country; and
- sensitive information businesses that store, collect or have access to security classified information, or personal information of defence and intelligence personnel which if accessed or disclosed could compromise Australia's national security.
‘National Security Land’ means any defence premises or any land in which the Commonwealth has an interest that is publicly known, or could be known by making reasonable enquiries.
The 'Notifiable National Security Action' is where a foreign person proposes to:
- to start a National Security Business;
- to acquire a direct interest in a National Security Business;
- to acquire a direct interest in an entity that carries on a National Security Business;
- to acquire an interest in Australian land that, at the time of acquisition, is National Security Land; or
- to acquire a legal or equitable interest in an exploration tenement in respect of Australian land that, at the time of acquisition, is National Security Land.
‘Notifiable National Security Actions’ are not subject to any monetary threshold, meaning that any proposal to undertake a Notifiable National Security Action must be notified to Foreign Investment Review Board (FIRB), irrespective of the value of the proposed investment or the nature of the investor.
The Treasurer must be notified regardless of the investment's value before any proposed Notifiable National Security Action is taken.
2. A "call in" power to enable the Treasurer to review the foreign investment and make orders (such as a prohibition or disposal order) where it considers that the foreign investment may give rise to national security concerns (a Reviewable National Security Action).
The call in power has significant reach, as it can be exercised up to 10 years after the action has been taken. Given the extremely long ‘look back’ period of 10 years and the broad discretion of the Treasurer to seek review, investors may be more inclined to voluntarily notify FIRB of proposed transactions so as to eliminate the possibility of such transactions being called in for review.
Importantly, the Treasurer cannot use the new ‘call-in’ powers if the investor has already received a no objection notification or has an exemption certificate for its investment.
3. A national security "last resort" power for the Treasurer to impose or vary conditions or, as a last resort, force the divestment of any previously approved transaction, where new national security concerns subsequently arise.
For clarity, this power will only be available where new circumstances emerge which give rise to national security concerns and the Treasurer is satisfied that the use of other options under the existing regulatory framework would not adequately reduce the national security risk.
4. Enhanced compliance measures and enforcement powers available to the Government, including increased penalties.
The reforms include:
- standard monitoring and investigative powers in line with other business regulators, including access to premises with consent or by warrant to gather information;
- increased civil and criminal penalties under the FATA to ensure that penalties act as an effective deterrent;
- powers to remedy situations where foreign persons are given a no objection notification or an exemption certificate based on an application which makes an incorrect statement or omits an important piece of information;
- powers with respect to investments that were made in breach of the FATA and where the interest has subsequently been transferred to another foreign person by will or devolution by operation of law; and
- powers to accept enforceable undertakings from foreign persons.
5. New foreign ownership registration obligations -a new Register of Foreign Ownership of Australian Assets in which foreign persons will be required to, within 30 days of the registrable event occurring:
- register their interests arising in relation to certain events, including:
- acquiring or ceasing to hold an interest in land or water or certain interests in an Australian business, agribusiness or entity; and
- any event that relates to a no objection notification or exemption certificate; and
- register certain changes in relation to those interests.
The new regime is complex and there are many circumstances where pre-approval for an investment will be required from the Treasurer. If you are foreign investor and intending to navigate through the process of investing in Australia, or have successfully invested previously and seek advice on the impact that the reforms may have on your circumstances, we strongly recommend that you contact us for professional advice in this space.