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As Australia unveils significant reforms to its foreign investment review framework, we walk you through the key measures

Significant reforms to Australia’s foreign investment review framework are scheduled to commence on 1 January 2021. The reforms focus on tightening the rules in relation to ‘national security businesses’, including those involved in the defence and national security supply chains.

The Government has released exposure drafts of the major legislation required to enact the proposed reforms and begun a short consultation process, closing on 31 August 2020. For an overview of the proposed reforms, please see our previous update.

The exposure draft legislation covers the major aspects of the reforms, including all amendments to the relevant Acts (mostly the central Foreign Acquisitions and Takeovers Act 1975 (Cth)).

The only proposed change to the Regulations that has been released is the proposed new definition of ‘national security business’ in the Foreign Acquisitions and Takeovers Regulation 2015 (Cth).  Remaining draft regulations are due for release in September.

Existing regime

The existing regime for notifying acquisitions and seeking approval where required will continue. The Treasurer has imposed temporary changes to these arrangements during the period of the COVID-19 pandemic, principally that all monetary thresholds are reduced to zero. These changes are expected to be wound back with effect from 1 January 2021.

However, new “call in” powers, “last resort” powers, integrity measures and penalties (as described below) will apply from 1 January 2021. In addition:

  • Approval timeframe: the Treasurer will have an unfettered power to extend the deadline for considering FIRB applications for approval by up to 90 days;
  • Fees: the fee regime is to be revised to be fairer and simpler; and
  • Foreign government investors (FGI): certain passive investments made by “foreign government entities”, such as pension funds, may be able to be exempted from the FGI regime and investment entities owned by several unrelated government entities (exceeding 40%) will no longer be considered to be FGIs.

Details of the fee and FGI changes are expected to be released in September.

‘National security businesses’ and sensitive land

The headline change is to:

  • require Foreign Investment Review Board (FIRB) review of foreign persons’ acquisitions or new businesses where the action relates to a ‘national security business’ – with a zero monetary threshold; and
  • subject them to review under a new ‘national security test’ (or as part of the existing national interest test, where that test would otherwise already apply). 

What actions require FIRB approval?

‘Notifiable national security actions’ include any action by a foreign person that is:

  1. an acquisition of a direct interest (generally a 10% voting interest, unless the acquirer obtains additional control rights, in which case a lower threshold may apply) in a national security business;
  2. an acquisition of a direct interest in Australian land:
    1. that is ‘defence premises’ (see Defence Act 1903 (Cth));
    2. in which an intelligence agency has or will have an interest (if, when acquired, the foreign person could reasonably be expected to be aware of the interest or prospective interest); or
    3. is within land declared by the Treasurer by legislative instrument; or
  3. starting a national security business.

What is a ‘national security business’?

‘National security business’ is broadly defined and will include:

  • Critical infrastructure: ‘responsible entities’ and ‘direct interest holders’ under the Security of Critical Infrastructure Act 2018 (Cth). This includes ports and electricity and gas utilities.
  • Telecoms providers: ‘carriers’ and ‘carriage service providers’ under the Telecommunications Act 1997 (Cth). This includes owners of network facilities including transmission infrastructure, cabling and wireless services (which are often incidental to other activities, such that electricity and gas utilities, ports, rail operators and internet providers can be caught) or anyone selling services which use those facilities.
  • Industries serving defence or intelligence: any business which develops, manufactures or supplies ‘critical’ goods or technology for military use by, or provides or intends to provide ‘critical’ services to, defence or intelligence agencies or foreign defence forces, in relation to Australia’s national security, may be captured.
  • Access to classified information: any business which stores or has access to information with a security classification.
  • Access to personal information used by defence or intelligence: any business which stores, maintains, collects or has access to personal information for the Australian Defence Force, the Defence Department or an agency in the national intelligence community. This information must relate to defence or intelligence personnel and be something which, if accessed, could compromise Australia’s national security.

Foreign lenders

Security arrangements for foreign financiers who obtain an interest in a sensitive national security business will no longer be exempt from the need to obtain approval, even where there is no foreign ownership of the business.

Previously, lenders have not had to pay much attention to the foreign investment regime. This change will introduce friction into the lending markets and add cost as lenders will add another key item to their checklists for lending to Australian businesses and require due diligence.


A new register of foreign ownership of Australian assets and businesses will be created (expanding on registers in place for agricultural land water and residential property). Investors will be required to update this register (which will not be publicly accessible) whenever there are changes.


A failure to notify will result in maximum criminal penalties of up to 10 years’ imprisonment and $3.3 million, or civil penalties from $11 million up to $555 million (a ten-thousand-fold increase on the previous maximum civil penalty).

Challenges for foreign investors

Confronted with such penalties, it is fundamental that foreign investors can accurately and confidently identify when a notification is required. In the existing law, that is facilitated by relatively clear percentage and monetary thresholds. But for the categories described above, there is no monetary threshold.

Several key challenges emerge:

  • Could the business own or lease land used for defence purposes?
    The defence force operates in many locations across Australia. There is no register of them under the Defence Act which is searchable by investors.
  • Could the business own or lease land in which an intelligence agency might be expected to have an interest or wish to acquire one?
    This refers to a legal or equitable interest in land (or landholding entities). However, it will not always be apparent when an intelligence agency has such an interest or might reasonably be expected to have an interest in the future. There is scope for debate about whether these matters could be expected to come to light from due diligence.
  • Could the business be a telecoms carrier or carriage service provider?
    Carriers must be licensed and can be searched but service providers cannot be searched. Many activities in this space are incidental to a business of a wholly different nature. Interestingly, the Telecommunications Act excludes services used by defence or intelligence agencies or electricity networks from the meaning of ‘carriage service providers’, potentially excluding these services from review, although they may be picked up by the broader definition of service provision.
  • What goods, technology or services are ‘critical’ for defence or intelligence services?
    The Explanatory Memorandum (EM) refers to whether they have been publicly identified by Defence as a strategic priority, but there is no support for this interpretation in the drafting. ‘Critical’ might mean ‘essential’, although the EM suggests it is broader than that. Military and intelligence personnel would use all manner of commonly available goods or services such as mobile phones or medical equipment, but presumably it does not mean that. Radar, drones or radio equipment may be a grey area and ‘technology’ is undefined and could capture all sorts of hardware or software, know-how or patents. The business does not need to own or develop this – just supply it, directly or indirectly.
  • What goods or services are ‘intended’ for use by the military or intelligence community?
    The EM suggests that goods or services with a range of other uses will still be caught, but how is an investor to know what might be used by the military or intelligence operatives?  Whose intention is relevant – the supplier or the customer?
  • Could the business have access to ‘classified information’?
    The nature and level of classification is undefined, which the draft EM notes was deliberate, to capture foreign classified information. This means information deemed by Australia or other countries to be ‘classified’ would be caught. While some information might be fairly evidently classified, it is impossible for an investor to determine the full scope of this category.
  • Storage and use of data
    Many businesses are now engaged in the storage or use of data, including data centres and cloud providers. In most cases, they do not know what information is held or handled by their organisation. As there is potential for such parties to trigger several of the “national security business” tests, parties will likely assume that they are triggered, especially if they have any government contracts.

Foreign investors rarely have complete access to information about the businesses they are seeking to invest in. Often due diligence is available, but the nebulous nature of some of the above issues may make it difficult even then to uncover the relevant facts. It is also worth noting that in some circumstances, especially in the context of a hostile takeover or on market purchase of shares, fulsome due diligence may not be practical or available.

Doubt about access to the relevant information and uncertainty in the tests outlined above will likely result in pressuring investors (and their directors) into seeking FIRB approval (where it is not otherwise required) to reduce the risk that there is some unknown dimension to the business being acquired which could trigger the need for approval. However, even then, the resultant approval may not be a complete solution, as explained below, if the security implication is not highlighted in the application.

While national security concerns are growing in importance worldwide, we foreshadow that the new tests will complicate investments into Australia and many approvals may be sought as a precaution only, resulting in delays and increased costs of doing business in Australia. This is particularly the case for institutional foreign investors who customarily invest in infrastructure assets that are going to be captured by the broad definition of a ‘national security business.’

Treasurer’s call-in power


The proposed reforms will also enable the Treasurer to review certain actions that pose a national security concern. This is referred to as a ‘call-in’ power. The relevant actions are ‘reviewable national security actions’ and ‘significant actions’ where FIRB approval could have been sought (noting it is not compulsory) but was not.

‘Reviewable national security actions’ include actions to acquire a direct interest in an entity or an Australian business, or to start an Australian business. This is intended to capture actions that would otherwise not require FIRB approval because the relevant thresholds are not met.

How are call-in powers able to be exercised?

If an action by a foreign person is deemed to pose a national security risk, the Treasurer may seek further information from any person that may have relevant information. The requested information must be provided within a specified period which may be less than 14 days.

If the ‘call-in’ power is exercised, the Treasurer will provide a written notice to the relevant person proposing to take the action or who has taken the action. The Treasurer will have 30 days (able to be extended up to 90 days) to:

  • make a no objection notification (which may be conditional); or
  • require the disposal of or prohibit the investment.

Exceptions to the call-in powers

The EM states that where an acquisition does not amount to a direct interest (generally 10%), then that action is not reviewable.

The call-in power may not be used where a person has notified the Treasurer of the action or if the Treasurer has issued an no objection notification (i.e. FIRB approval) or an exemption certificate.

Thus, if investors are uncertain about whether FIRB approval is required under the revised tests, it may be best to seek approval.

Treasurer’s last resort power


A proposed ‘last resort’ power gives the Treasurer a final opportunity to review actions for which no objection notifications (FIRB approvals) have been given if exceptional circumstances arise.

If a national security risk arises subsequently, then the Treasurer may give orders directing persons to act to reduce the national security risk.

If the Treasurer considers that a national security risk exists in relation to a particular action, the relevant person must be provided a notice with reasons of the Treasurer’s considerations. The notice may be redacted, possibly in full, on grounds of national security.

The foreign person may seek merits review, by applying to the Administrative Appeals Tribunal.

Conditions relating to the exercise of the last resort power

The following conditions must be satisfied before  the Treasurer can exercise the ‘last resort’ power:

  • the Treasurer must have given a no objection notification, a notice imposing conditions under an earlier exercise of the ‘last resort’ power or an exemption certificate; and
  • national security considerations must arise from:
    1. a misleading statement or omission;
    2. the business, structure or organisation of an applicant or the applicant’s activities has changing materially; or
    3. the circumstances or the market relevant to the action changing materially.

In addition to meeting the conditions above, prior to exercising the last resort power, the Treasurer must:

  • consider relevant advice from the national intelligence community;
  • take reasonable steps to negotiate in good faith with the foreign person; and
  • be satisfied that the use of other options under the existing regulatory systems of the Commonwealth, States and Territories would not adequately reduce the national security risk.

The last resort power

The Treasurer may exercise the last resort power if satisfied that a national security risk exists in relation to the action, and the exercise of the last resort power is reasonably necessary to reduce or eliminate the national security risk. The last resort power may be exercised in a number of ways, including:

  • making an order prohibiting a proposed action;
  • making a disposal order;
  • giving a notice imposing conditions; or
  • varying a notice imposing conditions.

Considerations relevant to the last resort power

Whilst the exercise of the last resort powers may have significant consequences for foreign investors, it is envisaged that the power will only be used where a where a new national security concern has arisen in relation to a particular action. Notably, this power cannot be used to revisit national security concerns that could have been addressed when the initial notification or application was made (unless there was a misleading statement or omission at that time).

In addition to the above, given the various conditions that must be met prior to the Treasurer being able to exercise the last resort power, it is likely that the power will only be exercised in exceptional circumstances.

‘Integrity measures’

The exposure draft legislation details the ‘integrity measures’ that are designed to close gaps in the existing legislation.

Increases in proportionate holdings resulting from buy backs or “creep” acquisitions

Increased ownership resulting from a buy back or capital reduction does not currently count as an acquisition but will now. This means that if a buy back results in a shareholder’s interest moving above a relevant threshold, such as 10% or 20%, that shareholder requires FIRB approval.

Companies buying back shares will need to be careful to ensure they do not inadvertently cause shareholders to take notifiable actions without first obtaining FIRB approval, lest they face accessorial liability for procuring a breach of the Act or committing it by proxy.

In addition, foreign investors which have sought approval to buy a stake in a company and been approved but then acquire small interests over time which are below the threshold for approval may now be considered significant actions (as opposed to being neither notifiable or significant actions under the existing regime) .

Tracing rules for limited partnerships

Funds structured as limited partnerships will be treated as if the foreign investor holds the entire interest held by the fund. The relevant stake is 20% held by one investor, or 40% held by multiple investors, based on the highest of voting power, capital contributions or entitlement to distributions.

Information sharing

Applications made to FIRB are generally ‘protected information’ under the Act, with limited ability for FIRB to disclose the information to other persons.

The draft legislation would permit FIRB to disclose information to foreign governments (under strict agreements, and only in certain circumstances), departmental staff, ministerial staff and consultants.

The new rules will apply to any disclosure of information after the reforms commence, including all past information received by FIRB prior to commencement.

It should, however, be noted that further disclosure not permitted by the Act will remain an offence.

Penalties and enforcement

False or misleading information and omissions

Applicants who provide information or documents that are false or misleading in a material particular (including as a result of the omission of some other information), will be potentially subject to dual consequences:

  • revocation of approvals based on that information; and
  • civil penalties, with the maximum ranging from $11 million to $555 million based on the value of the acquisition.

The potential for this to happen will be of concern to investors because there is no requirement that the misleading statement or omission be deliberate – in other words, there might be information material to an application which is not known to the investor and therefore not disclosed, but this could still trigger the above consequences.

Notices required when completing transactions and on later divestment

Applicants will be required to notify FIRB within 30 days of completion of a significant action. Perhaps more significantly, notice will also be required each time a significant action is taken under an exemption certificate (which might provide for a series of small acquisitions, for example).

If a person who receives FIRB approval subsequently divests from an acquisition, or ceases to hold the relevant interest (i.e. falls below the relevant threshold, or ceases to hold any part or an interest in land) or carry on the relevant business, the person must notify FIRB within 30 days.

Although these notices may at first appear to be minor technicalities, the maximum civil penalties also range from $11 million to $555 million.

Enforcement powers

The draft legislation grants FIRB a number of the standard monitoring and investigation abilities of other regulators (set out in the Regulatory Powers (Standard Provisions) Act 2014), including in relation to search warrants and other significant powers.

The legislation also grants power to:

  • make mandatory directions in certain circumstances where the Treasurer reasonably believes that there has been a breach (including excluding certain individuals from senior roles within a business or company);
  • require enforceable undertakings;
  • issue infringement notices of different levels of penalty for a wider range of contraventions.

Substantial increases to penalties

The Government proposes to significantly increase the penalties for breaches of the foreign investment review legislation.

Individuals (including directors of corporations who authorise or permit contraventions) will now be subject to maximum penalties of 10 years’ imprisonment and $3.3 million, including (among other breaches) for failing to notify an acquisition when required or breaching a condition of a FIRB approval.

The maximum sentence represents a significant increase from the existing 3 years’ imprisonment.

The maximum civil penalty for failure to make a necessary FIRB application is being increased, ten-thousand-fold, to up to $555 million (for very large transactions). There is a tiering of breach categories with reduced penalties possible when the breaches have been self-reported.

The dramatic increases in penalties come despite a lack of prosecutions for breaches of the legislation, and limited evidence of widespread breaches.

Key contacts

Matthew FitzGerald photo

Matthew FitzGerald

Managing Partner, Brisbane Office, Brisbane

Matthew FitzGerald