Foreign Investment Reform (Protecting Australia's National Security) Bill 2020


The Foreign Investment Reform (Protecting Australia's National Security) Bill 2020 (the Bill) amends the Foreign Acquisitions and Takeovers Act 1975 (the FATA) to improve and update the operation of Australia’s foreign investment framework in relation to national security, compliance monitoring and enforcement and integrity, while remaining welcoming and open to foreign investment.

The proposed changes follow the government’s policy announcement on 5 June 2020, and Treasury’s subsequent consultation on the draft reforms in August and September.

Current foreign investment framework

Australia’s foreign investment review framework is governed by:

How Australia’s current foreign investment review framework operates

The foreign investment regime is administered on behalf of the Treasurer by the Foreign Investment Review Board (FIRB). The Australian Taxation Office supports the FIRB by administering foreign investment applications with respect to residential real estate. The Treasurer exercises his powers on advice from the FIRB.

The FATA allows the Treasurer to review foreign investments proposed by a foreign person (which includes foreign corporations and governments) if the investment meets certain thresholds based on the:

The relevant monetary screening threshold that triggers screening varies depending on whether the investor is from a country that has a Free Trade Agreement (FTA) with Australia. In general, the monetary thresholds for non-land proposals are:

  • zero dollars for all foreign government investors
  • $275 million for non-FTA private investors and
  • $1,192 million for FTA private investors.

Separate legislation imposes other requirements and/or limits on foreign investment in prescribed sensitive areas.

How investments are assessed

Under the FATA the Treasurer has various powers, including to:

  • prohibit a foreign investment if satisfied the proposed investment ‘would be contrary to the national interest’
  • set conditions on investments where satisfied the conditions are ‘necessary’ to ensure it is not, or will not be, ‘contrary to the national interest’ and
  • if the investment was made without being notified and approved, and the Treasurer determines it is contrary to the national interest, make a disposal order.

As such, investments captured by the FATA are assessed against the ‘national interest’ (the ‘national interest review stream’).  As a negative test it is not necessary to prove the investment is in the national interest; only that it is not against it.

Determining the national interest

The ‘national interest’ (and hence what would be contrary to it) are not defined in the FATA—and never has been. It is determined by the Government of the day. The FATA therefore allows the Treasurer to decide whether an investment would be contrary to the national interest at any moment in time.

As part of its national interest assessment the Treasurer considers various factors set out in the Policy. These currently include national security, competition, impact on the community and the economy, the character of the investor and other government policies such as taxation.

Notwithstanding the wide discretion conferred on the Treasurer ‘the general presumption is that foreign investment is beneficial, given the important role it plays in Australia’s economy’ (p. 9).

Changes proposed by the Bill

The Bill proposes to:

  • introduce a national security review stream with a zero-dollar threshold whereby certain investments are assessed solely against Australia’s national security interests rather than the broader national interest (which also takes in the national security dimension)
  • provide the Treasurer a new ‘call in power’ to review certain actions not currently captured by the FATA and significant actions that are not notified if the Treasurer considers the action, whether proposed or already taken, poses a national security concern
  • give the Treasurer, in extraordinary circumstances, a ‘last resort power’ to issue a divestment order where there is no other remedy for a national security risk
  • establish a new Register of foreign owned assets to record all foreign interests acquired in Australian land, water entitlements and contractual water rights and business acquisitions that required foreign investment approval.

National security review stream

Unlike the national interest review stream, the new national security review stream will apply a zero-dollar threshold to investments that raise national security concerns. These are notifiable national security actions where an investor:

  • starts or acquires a direct interest in a national security business or an entity that carries on a national security business or
  • acquires an interest in national security land

Such investments must be reviewed by the Treasurer, regardless value. National security business and national security land are not defined in the Bill and will be prescribed in regulations. The exposure draft regulations suggest types of investments that will be captured include businesses that:

The Explanatory Memorandum notes that national security land will encompass land that is defence premises and land where a national intelligence agency has an interest, and that interest is publicly known or confirmable.

Basis of assessment in the national security review stream

Investments captured by the national security review stream will be assessed against whether it would be contrary to national security, thus using ‘national security’ as a standalone factor/consideration for the purposes of this limb of the review stream. However, if a notifiable national security action is also a ‘significant action’, the action will be reviewed on national interest grounds (which includes national security).

What can the Treasurer do after the review?

The Bill allows the Treasurer to prohibit a notifiable national security action, order it be undone or approve it:

  • without any objections or
  • subject to conditions.

Call-in power

The Bill enables the Treasurer to review certain actions not otherwise captured by the FATA (reviewable national security actions) and significant actions that are not notified if the Treasurer considers the action, whether still proposed or already taken, poses a national security concern.

This power can be used within the time prescribed by the regulations (the draft regulations specify ten years after the investment). Importantly the Treasurer will not be able to use the call-in power for:

This means an investor can extinguish the availability of the call-in power by voluntarily notifying an action. Following the review, the Treasurer can make orders to prohibit the action or order it be undone, and can make interim orders before deciding whether to prohibit the action.

The Bill imposes notification requirements and time limits for making orders and decisions.

Last resort power

Where a national security risk exists in connection with an action already approved, the Bill enables the Treasurer to review it if exceptional circumstances arise. This the last resort power.

The Bill imposes notice and procedural requirements before the last resort power can be exercised. This includes that the Treasurer must conduct a review, receive and consider advice in relation to the action from an agency in the national intelligence community, take reasonable steps to negotiate in good faith with the investor, and be satisfied that the use of other options under existing regulatory systems would not adequately reduce the national security risk.

If the requirements are satisfied, the Treasurer may impose conditions, vary or revoke any conditions imposed, or make orders prohibiting an action or requiring it be undone (including, as a last resort, divestment).

The Bill provides for the investor to apply to the Administrative Appeals Tribunal (AAT) to review a decision that a national security risk relating to the action exists.

Register of foreign owned assets

Schedule 3 of the Bill creates a Register of Foreign Ownership of Australian Assets (The Register). The Register will incorporate and discontinue existing separate registers related to foreign ownership of water entitlements and agricultural land by repealing the Register of Foreign Ownership of Water or Agricultural Land Act 2015.

The Register will not contain all foreign owned assets; rather those that have been notified or been subject to some of the Treasurer’s powers. Information on the Register will not be publicly available, but proposed section 130ZY requires the Registrar to prepare a report for each financial year that includes ‘statistics derived by the Registrar’ for tabling in Parliament.

Committee consideration

Senate Economics Legislation Committee

In its report the Committee recommended that the Bill be passed but that the Treasury ‘publishes comprehensive guidance … to offer foreign investors in Australia greater clarity as to their responsibilities and rights’ (p. 81).
In their additional comments the Labor Senators recommended:

  • the definitions of ‘national security business’ and ‘national security land’, and the delegated regulatory powers be clearly explained and communicated, before the Bills’ passage
  • greater transparency in the publication of decisions and enforceable undertakings made under the FATA and
  • the operation of the Bill be reviewed within six to twelve months of its commencement.

In their additional comments the Australian Greens recommended:

  • publication of decisions to approve or exempt investments (along with reasons) with an exemption from this publication requirement being available on national security grounds
  • the annual statistical report contain information on the area, value, tenure and use of land, including agricultural land, in which there is a foreign interest and
  • the threshold for critical electricity assets be set at a level that does not have a disproportionate impact on renewable energy.

Senate Scrutiny of Bills Committee

The Scrutiny Committee examined the Bill in Scrutiny Digest 16 and noted a number of concerns about the Bill including:

  • the definitions of national security business and national security land will be prescribed in regulations
  • regulations may provide that an action of a specified kind is not a notifiable national security action for the purposes of an exemption certificate in force under regulations
  • regulations will be able to provide when a person may disclose protected information
  • the breadth of the Treasurer’s directions power where they have ‘reason to believe’ a person has engaged or is engaging, or will engage, in conduct which contravenes the FATA
  • the Bill allows protected information to be provided to foreign governments
  • the limits placed on AAT proceedings and their impact on the right to a fair hearing and
  • the quantum of the proposed civil and criminal penalties.

Parliamentary Joint Committee on Human Rights

The PJCHR examined the Bill in Report 14 of 2020 and noted concerns about:

  • expanded information sharing with foreign governments and the right to privacy
  • the Treasurers power to give directions the rights to work, equality and non-discrimination, and privacy and
  • the civil penalty provisions and the right to a fair hearing.

Stakeholder views

Submissions to the Senate Committee inquiry into the Bill suggest widespread in-principle support for screening foreign investments as a mechanism to protect Australia’s national security interests. However, stakeholders expressed various concerns about the Bill including:

  • the 10-year period in which the call-in power will be available
  • purported compliance costs issues raised by the Bill
  • the interaction of Bill with proposed reforms to the SCI Act
  • the drafting of key definitions (such as national security business) and some definitions being prescribed in regulations
  • the operation of the last-resort power
  • the severity of proposed penalties and
  • timeframes for screening and approval of investments.

Other issues

The Law Council of Australia noted that the breadth of the definition of a national security business meant it was questionable whether the Bill ‘is consistent with Australia’s obligations under its free trade agreements’. The Government of Mexico also argued the Bill breaches some of Australia’s FTA obligations.

Finally, while the FATA as amended by the Bill would require the Treasurer to publish certain directions, undertakings, exemptions, prohibition and disposal orders, there will be no requirement to publish decisions to approve investments and no general requirement to publish reasons for decisions. This may raise concerns about the certainty, predictability and transparency of Australia’s foreign investment framework.

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