On 5 June 2020 the Federal Treasurer announced proposed reforms to Australia’s foreign investment regime to come into effect from 1 January 2021.
The reforms are targeted at ensuring greater compliance with foreign investment approval conditions while also expanding the Treasurer’s powers with respect to “sensitive national security businesses”.
The proposed reforms follow the temporary changes to notification thresholds (reducing thresholds to $0) which will now stay in place until 1 January 2021.
What are the key proposals?
The Treasury has released a booklet outlining the proposed reforms.
The proposals include:
- Introducing a new national security test – this will provide the Treasurer with greater powers to scrutinise, block or impose conditions on investments based on national security grounds (irrespective of the dollar value of the investment).
- Broadening notification requirements in relation to sensitive national security businesses.
- A right to “call in” existing investments for review on national security grounds.
- Providing the Treasurer with a right to cause divestiture of investments on national security grounds, even if the investments was previously approved.
In addition, amendments to the foreign investment regime have been proposed to:
- Streamline less sensitive investments – by exempting from review certain investments that would otherwise require review as being investments by a ‘Foreign Government Investor’. These changes recognise that many foreign investments into Australia are managed through funds that are in part sourced from pension funds and other governmental related sources, but which investments are ultimately managed by independent fund managers who are not under the direction or control of foreign governments.
- Expanding the Treasurer’s compliance monitoring and enforcement powers.
What is a national security business?
Treasury will consult with stakeholders on what will constitute a ‘sensitive national security business’. It is likely that the Treasurer will pick up on existing regulatory concepts relating to ‘sensitive’ assets and other assets important to national security. The Treasurer has foreshadowed this may include:
- assets regulated under the Security of Critical Infrastructure Act 2018 (including certain ports) or the Telecommunications Act 1997;
- businesses involved in the manufacture or supply of defence or national security-related goods and services;
- businesses or land situated in or proximate to Defence or national security installations; and
- businesses that own, store, collect or maintains sensitive data relating to Australia’s national security and/or defence.
What are the next steps?
Treasury is expected to release exposure draft legislation in July 2020 for consultation, targeting commencement of the reforms from 1 January 2020. Once the legislation is released, we will provide a further update on the specific changes being implemented.
Please contact Michael Garry if you would like to discuss the proposals.