The Treasurer today announced further changes to Australia's foreign investment rules from 1 January 2021. These include a national security test and tightening of the regime in some sensitive areas, and the proposed unwinding of the current temporary measures in place to address the coronavirus pandemic.
According to the Treasurer and the Prime Minister, these are to be the most significant reforms to Australia's foreign investment rules since the regime was implemented in 1975, and build on earlier significant reforms passed on 1 December 2015.
What has changed?
The rules will introduce a new national security test, add enforcement powers and integrity measures, and streamline certain non-sensitive elements. A number of process and technical fixes will also be included in the reform package.
These changes are unrelated to the coronavirus crisis and reflect the government's move towards a greater focus on national security screening of foreign investment. This is already evidenced by the 2017 amendments to the regime following the Darwin Port privatisation, the prohibition of the Ausgrid privatisation, the appointment of David Irvine (former head of ASIO) as Chair of the Foreign Investment Review Board and the creation of the Critical Infrastructure Centre. The reforms also respond to existing perceptions of the limitations on FIRB's powers, including on transactions already approved and on review and enforcement of conditions of approvals.
In summary, the proposed changes include:
- A new national security test for foreign investors who will be required to seek approval to start or acquire a direct interest in a ‘sensitive national security business’ – regardless of the value of the investment or type of investor.
- A time-bound ‘call in’ power enabling the Treasurer to review acquisitions that raise national security risks outside of proposed acquisitions relating to a ‘sensitive national security business’.
- A national security 'last resort' power that provides the ability to impose or vary conditions and in extraordinary circumstances order disposal on national security grounds.
- Stronger and more flexible enforcement options including the expansion of infringement notices and higher civil and criminal penalties.
- Measures to streamline approval for passive investors and investments into non-sensitive businesses, reform certain process aspects such as application fees, and other technical matters.
The government has released a booklet outlining the proposed reforms.
The booklet contains varying levels of detail in respect of the range of proposed reforms. Exposure draft legislation will be released to industry for consultation over the next few months. It is proposed that these changes will then be legislated and implemented on and from 1 January 2020.
What is the impact?
The proposed changes will represent a fundamental structural change to Australia's foreign investment regime.
Certain investors – those with sufficiently passive and widely held interests by foreign government investors – look set to receive the benefit of a reduced screening burden. However, a broader category of assets - sensitive national security assets - will now be caught than was previously the case. All of those assets will be subject to the increased scrutiny that we are already seeing on pending applications.
At the same time, the current temporary measures in place to address Australia's national interest during the coronavirus crisis are expected to come to an end from 1 January 2021. For deals signing in the next seven months, it appears the $0 thresholds will continue to apply, but things will generally be relaxed from there on.
With the so many potential reforms on the table, the key will be in the detail of the changes, including how the transition away from the current temporary rules is managed. We will provide further updates as more details become available.