Express law No. 292

14 December 2020

Foreign investment reforms: passing of Act introduces new national security test

The Foreign Investment Reform (Protecting Australia’s National Security) Act 2020 (Cth) (the Amending Act) was passed by Parliament on 9 December 2020 and received Royal Assent on 10 December 2020. The Amending Act amends the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the FATA), and includes measures to address national security risks, strengthen compliance and enforcement powers, and expand information sharing. These major reforms take effect from 1 January 2021.

Main features of the Amending Act

New category of ‘notifiable national security actions’

A new category of actions, ‘notifiable national security actions’, must be notified to the Treasurer for review regardless of the value of the investment or whether they are otherwise ‘significant actions’ or ‘notifiable actions’ that are generally subject to regulation under the FATA.

Notifiable national security actions involve a foreign person acquiring an interest in national security land, or a direct interest in a national security business, or a direct interest in an entity that carries on a national security business, or starting a national security business. These concepts are defined in amendments to the Foreign Acquisitions and Takeovers Regulation 2015 (Cth). Generally, national security businesses are, are involved in, or are connected with critical infrastructure, defence, the national intelligence community, or their supply chains. Similarly, national security land is defined with reference to whether the land is Defence premises, or a national intelligence agency has an interest in the land.

New call-in and last resort powers for Treasurer

In some circumstances, the Treasurer will be able to ‘call in’ for review certain actions not otherwise captured by the FATA, and significant actions that are not notified, if the Treasurer considers the action (whether still proposed or already taken) may pose a national security concern. The Treasurer will also have ‘last resort’ powers to review, on national security grounds, actions that have already been assessed under the FATA. Subject to certain threshold requirements, the Treasurer will be able to make orders in relation to such actions to address an identified national security risk. This could potentially include orders requiring the disposal of an interest.

New Register of Foreign Ownership of Australian Assets

A new register will record most foreign interests acquired in Australian land, water entitlements and contractual water rights, and business acquisitions that require foreign investment approval, including acquisitions reviewed under the new national security test.

New Commonwealth compliance and enforcement powers

Strengthened powers include increased penalties, directions powers and new monitoring and investigative powers. There is also an expansion of interagency information sharing arrangements to assist with compliance activities.

Implications for Commonwealth agencies

Awareness of notifiable national security actions and last resort reviews

Once the amendments take effect, certain transactions between Commonwealth agencies (particularly agencies involved in critical infrastructure, defence, or national intelligence) and foreign persons could give rise to a notifiable national security action, if the transaction involves one of the relevant types of action by a foreign person. In those circumstances, agencies should be aware that the other party to the transaction will be subject to applicable notification requirements under the FATA. As a result of the amendments, agencies may be consulted about a slightly broader range of actions as part of existing Foreign Investment Review Board consultation processes.

Agencies in the national intelligence community should also be aware that the Treasurer may seek their advice in the context of a ‘last resort’ review of an action, for the purpose of deciding whether a national security risk exists. However, it is anticipated that ‘last resort’ reviews will be rare.

Expanded information sharing within the Commonwealth

The FATA’s protected information regime has been amended to expand the purposes for which protected information can be disclosed. For example, disclosure will be permitted for the purposes of administering:

  • the Competition and Consumer Act 2010
  • the Australia’s Foreign Relations (Effect of State and Territory Arrangements) Act 2020
  • the Northern Australia Infrastructure Facility Act 2016.

Disclosure will also be permitted for the purposes of a minister discharging their responsibility for infrastructure, telecommunications, or water.

Text of the Amending Act is available at: https://www.legislation.gov.au/Details/C2020A00114

AGS worked with Treasury and the Office of Parliamentary Counsel in the preparation of this Act.

For further information please contact:

Steffen Etherton
Senior General Counsel
T 02 6253 7175
steffen.etherton@ags.gov.au

Jillian Storey
Counsel
T 02 6253 7386
jillian.storey@ags.gov.au

Kate Donaldson
Counsel
T 02 6253 7290 
kate.donaldson@ags.gov.au