The Australian Government’s foreign investment policy, generally speaking, encourages foreign investment in Australia. The policy and the Foreign Acquisitions and Takeovers Act (FATA) (which provides the legislative support for the policy) are administered by the Foreign Investment Review Board (FIRB), a division of the Australian Treasury.
As Australia seeks to enhance trade with many countries, free trade and other bilateral agreements will be reached with the intention of promoting two-way investment and setting the parameters for trade between Australia and its trading partners. The thresholds for acquisitions of substantial interests in Australian businesses by US investors range from A$261 million to A$1,134 million at 1 January 2018. The thresholds applying to US investors are subject to annual indexation and should be checked accordingly. It is also worth noting that the definition of US investor is very narrow.
Restrictions under the Federal Government’s foreign investment policy were updated on 1 December 2015 with substantial amendments to the FATA coming into operation. This regime continues to encourage foreign investment in Australia but has varied impacts on foreign investors, depending on the type of investment or transaction they wish to undertake. Certain types of proposals by foreign investors to invest in Australia require prior clearance (depending on the value of the assets or business being acquired) and therefore need to be notified to the FIRB. FIRB provides advice to the Australian Treasurer who makes a decision on whether or not to allow a foreign investment proposal to proceed by considering whether or not it is 'contrary to Australia's national interest'. Proposals requiring prior notification to FIRB and approval decision from the Treasurer include:
There are also lower thresholds that apply to the acquisition of interests in agribusinesses and different thresholds that apply to the acquisition of commercial land and agricultural land. The above financial thresholds were set on 1 January 2018 and are indexed annually for inflation increases.
Briefly, a foreign person acquires a substantial interest in the ownership of a corporation or business if that person (and any associates) acquires an interest in 20% of the entity, or that person together with other foreign persons and each of their associates acquires an interest of 40% or more (in aggregate) of the entity.
In most industry sectors, foreign investment proposals that require notification to FIRB are granted FIRB clearance either unconditionally or on conditions unless determined to be contrary to the national interest. However, specific policies and rules apply in the case of proposals involving foreign investment involving acquisitions of Australian land (particularly residential land and agricultural land), or in the banking, aviation, airports, transport, media and telecommunications industry sectors. There are application fees associated with foreign investment applications. These range from $2,000 to $101,500 though can be much higher for residential land as there is no cap on the fee payable. The fee is based on the transaction value. Furthermore, the government has introduced a standard set of tax-related conditions that will apply to foreign investment clearances as part of the assessment of whether a transaction is ‘not contrary to Australia’s national interest’. These conditions require applicants to provide confirmation of their tax affairs, pay outstanding tax debts, and provide a range of information to FIRB and the ATO about the proposed transaction.
While there is a 30 day timeframe stated for FIRB clearance, the process can in practice take longer in particular if there are sensitivities associated with the proposed transaction. The Treasurer has the power to block an investment considered to be contrary to the national interest and to make adverse orders (including ordering divestment) if FATA is breached.
Most dealings in foreign currencies in Australia must be transacted with an institution holding an authority from the Reserve Bank of Australia or licensed to do so by the Australian Securities and Investments Commission.
Inward investment is not subject to exchange controls, although this does not preclude the need to obtain FIRB clearance in certain situations (see earlier). Outward exchange flows are not restricted. However, both outward bound and inward bound exchange flows are subject to cash transaction reporting guidelines imposed on ‘cash dealers’ and other persons who send or receive international fund transfer instructions.
Cash dealers, which include banks, financial institutions, insurance companies, currency and bullion dealers and others, must report to the Australian Transaction Reports and Analysis Centre details of certain transactions, including:
It is possible to do business in Australia without setting up formal structures, although having some form of legal identity or other formal arrangement is often advisable.
The Australian Government’s trade policy combines multilateral, regional and bilateral approaches. Australia pursues every opportunity to open up global markets for exporters and to encourage investment flows across all sectors. As part of this commitment, the Australian Government has negotiated special access for Australian suppliers of goods and services to key export markets through free trade agreements (FTAs).
Australia has ten FTAs currently in force with China, Japan, Republic of Korea, New Zealand, Singapore, Thailand, US, Chile, the Association of South East Asian Nations (ASEAN) (with New Zealand) and Malaysia. Australia is also currently engaged in nine FTA negotiations, including the Regional Comprehensive Economic Partnership Agreement and the Trade in Services Agreement. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11) has also been signed but not yet entered into force. The TPP-11 provides new market access opportunities for Australian exporters and investors, more seamless regional trade and addresses contemporary trade challenges such as state-owned enterprises, e-commerce and the development of small and medium sized enterprises.
The following issues should be considered:
Other legal issues that may arise include:
There are two types of sanctions enforced under Australian law:
UNSC-based sanctions generally mirror those imposed by other UN members in terms of the scope of measures imposed and the countries, individuals and entities to which they apply. However, to address situations of concern to Australia where there is no UNSC Resolution (or to further supplement UNSC-based sanctions that are in place), Australia may impose ‘autonomous’ sanctions.
Measures imposed under these regimes tend to be ‘targeted’ sanctions rather than outright trade embargoes on particular countries. Sanctions almost always focus on prohibiting trade in goods and services that relate to military or paramilitary activities, as well as nuclear, chemical or biological weapons programs. Australian sanctions also usually prohibit certain financial transactions by restricting dealings with the assets of designated individuals or entities.
Permits may be sought for trade that is affected by sanctions, but permits are frequently denied.
It is an offence for corporations to engage in conduct that contravenes a sanctions law. As this is a strict liability offence, the prosecution does not need to prove the company intends to engage in the prohibited conduct. However there is a defence where a corporation can prove it took reasonable precautions, and exercised due diligence, to avoid contravening a sanctions law. This makes it important for corporations to have in place an effective compliance program.
Although it is relatively straightforward to export most goods and services from Australia, for some defence and dual military-civilian use products and technologies, Australia maintains strict export controls.
Certain defence and dual-use goods may not be exported from Australia without a permit. Dual-use goods to which these rules apply include certain computing and telecommunications equipment.
This means the scope of Australian export controls goes well beyond the defence sector. Particularly strict controls apply to goods and services that may assist in the development of weapons of mass destruction and weapons delivery systems.
Under 2012 legislation, the scope of Australian export controls was expanded to control ‘intangible’ exports of controlled technology (for example, through emailing plans or discussing know-how with foreign persons). The legislation also controls ‘brokering’ of controlled technologies whereby an Australian national or an entity present in Australia arranges for controlled products to be traded between points outside of Australia.
Under this legislation, a special regime has been created for US-Australia defence trade. Certain entities engaged in this trade will be able to gain accreditation to an ‘approved community’. Such accreditation is intended to streamline access by community members to highly controlled US defence technologies.
The key offence provisions under the 2012 legislation came into effect in May 2015 (two years after the entry into force of the Australia-US Defence Trade Cooperation Treaty, which occurred in May 2013) . This allowed a ‘transition period’ during which affected corporations familiarised themselves with the new requirements, and developed appropriate compliance programs.
Australia is a signatory to the United Nations Convention Against Corruption and the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. These require steps to be taken to combat corruption in both the public and private sectors. Bribery of foreign public officials is prohibited under the Criminal Code Act and involves the following elements:
Bribery of Australian officials is also an offence. Australian laws also address other corrupt conduct, in some cases dealing with private bribery, for example through the giving of secret commissions.
Unlike some legislation overseas, such as the UK Bribery Act 2010, Australia’s foreign bribery laws allow for the payment of ‘facilitation payments’ to secure minor government actions (although the Australian Government has consulted on and continues to consider the abolition of the defence). It is also a defence if it can be proved that the conduct in question was permitted under a written law of the country where it takes place.
In order to address corruption risks, it is appropriate for businesses in Australia to promote a corporate culture that discourages bribery and other corrupt practices. As other Western countries also become ‘active enforcers’ of their own foreign bribery laws, multinationals operating in Australia are frequently integrating aspects of Australian law compliance into their global anti-bribery and corruption programs. This typically involves an actively enforced anti-bribery and corruption policy, and organisation-wide training and compliance programs.