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FIRB – Reforms to Australia’s foreign investment framework

By Chong Ming Goh, Ron Smooker

• 15 June 2020 • 7 min read
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The Treasurer of Australia, The Hon Josh Frydenberg MP, has announced major reforms to Australia’s foreign investment framework.

The emphasis of the reforms is on national security risks, streamlining the approval process and administrative enhancements. While Australia continues to welcome foreign investment, the reforms are intended to ensure that the foreign investment framework keeps pace with emerging risks and global developments.

These reforms have followed swiftly after the temporary changes to the foreign investment rules announced on 29 March 2020, in response to the COVID 19 pandemic. A link to our earlier article on those temporary changes can be found here.

The proposed reforms are not yet in place. The Commonwealth Government is expected to release draft legislation for consultation in July 2020. If the legislation is passed by the Commonwealth Parliament, the reforms are intended to commence on 1 January 2021.

This e-Alert provides a high level summary of the proposed reforms announced on 5 June 2020.

Protecting Australia’s national security

A new national security test will be introduced to enable the Commonwealth Treasurer to impose conditions or block investments on national security grounds regardless of the value of investment where a foreign investor invests in a ‘sensitive national security business’.

Although no precise definition has been set at this time, 'sensitive national security business' is likely to include any business that owns, stores, collects or maintains sensitive data relating to Australia’s national security or defence and any business or land situated in or proximate to defence or national security installations. Consultation will take place on the extent of this new definition.

Acquisitions of a direct interest (generally 10% or more) in a sensitive national security business, or where a foreign person starts to carry on a sensitive national security business, will require prior Foreign Investment Review Board (FIRB) approval.

Depending on the ultimate definition of ‘sensitive national security business’, this change could capture a broad range of acquisitions that previously did not require FIRB approval.

‘Call in’ power

A new ‘call in’ power will be introduced so that, even if an investment does not need to be notified to FIRB under the general national security test, the Commonwealth Treasurer may call in and review any such transaction before, during or after the investment.

As a result, the Commonwealth Government will be able to compel investors to submit an application for screening where any national security concerns arise. It is proposed that the ‘call in’ power will be time-limited and public guidance will be issued on the types of investments where such power may be used.

Given the risk of a call in, investors involved in transactions with any relationship to a sensitive national security business would be well advised to consider a voluntary notification to FIRB.

In addition, a new national security 'last resort' review power will be introduced which will enable the Commonwealth Treasurer to be able to impose conditions, vary existing conditions or, as a last resort, require the divestment of the foreign interest in any business, entity or land where, subsequent to the investment, national security risks emerge.

Stronger penalties, compliance and enforcement powers

It is proposed that the civil and criminal penalties under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) will be increased significantly. For example, the individual criminal penalties are proposed to increase from $157,000 to $3.15 million and prison terms increase from 3 years to 10 years. For corporations, the criminal penalty will increase from $787,500 to $31.5 million.

It is also proposed that the Government be given:

  • monitoring and investigative powers, in line with those of other business regulators. This will include access to premises with consent or by warrant to gather information; and
  • power to accept enforceable undertakings from foreign persons. This could include situations where, at the time an investment is proposed, an investor offers to undertake certain actions which would have the effect of reducing national interest risks.

Further, the Government will have powers to give directions to investors in order to prevent or address suspected breaches of the foreign investment laws (or any conditions imposed under those laws).

These represent major changes to the enforcement powers and capability of the Government in relation to foreign investment and indicate a continuation of the current high level of scrutiny of foreign investments into the future.

Reforms will also be introduced for greater sharing of foreign investment information across Government agencies and with their international counterparts where national security considerations are present. This will be subject to appropriate safeguards and in line with other legislative requirements.

Finally, it is proposed that the existing agricultural land, water and residential registers will be merged into a single Register of Foreign Ownership. The register will also require notification of divestments, disposals and any changes in their foreign entity status.

It appears that the Australian Taxation Office (ATO) will continue to have the administration role for such information.

Foreign Government investors (FGIs)

Certain entities, such as investment funds, will no longer be treated as FGIs where no FGI has management rights in relation to the investment fund and none of the FGI investors have any influence or control over the investment or operational decisions.

This is a relaxation of the existing position where entities with more than 40% aggregate FGI interest (but less than 20% from any single foreign Government) are treated as FGIs.

Entities with a single foreign Government holding of at least a 20% ownership will still be FGIs.

Private family transactions

Foreign persons would be required to notify of an acquisition made by will or devolution by operation of law (which are currently exempt). This change is mainly to prevent property acquired in breach of FATA to be ‘legitimised’ when the property is subsequently transferred by will or devolution by operation of law.

By requiring these acquisitions to be notified, the Government will have power to impose conditions and order disposals to safeguard the national interest.

It is proposed that where a foreign person provides money to their family members to purchase Australian land, the foreign person will be treated as if they were acquiring an interest in the property and FIRB approval would be required unless it can be shown that the money was given to the family member as a genuine gift.

Other technical changes

Foreign persons will be required to seek further approval for any increase in actual or proportional shareholdings above what has been approved. This includes any increase in shareholdings as a result of 'creep' acquisitions (as permitted under the laws dealing with takeovers) and proportional increases above 20% as a result of share buybacks and selective capital reductions.

The scope of the moneylending exemption will also be narrowed so that it does not apply where foreign moneylenders obtain an interest in a sensitive national security business by way of security. Foreign moneylenders taking security over assets which relate to 'a sensitive national security business' will be required to obtain FIRB approval.

Administrative changes

It is proposed that the schedule of FIRB application fees will be updated to deliver a structure that is fairer and simpler. No further details are available at this stage.

Currently, the statutory period for FIRB to review an application is 30 days, but may be extended by the applicant requesting an extension. The impact of the COVID-19 pandemic has meant that FIRB has routinely suggested to applicants that they request an extension of the statutory deadline to 6 months. Failure to request an extension may lead to an adverse decision.

It is proposed that the Government have a new power to extend, or further extend, the statutory period by up to 90 days. That way, the Government will not need to seek an extension request from the applicant nor issue any interim order.


The reforms proposed are significant and further highlight the renewed importance being placed on the review of foreign investment by the Commonwealth Government.

The practical impact of the reforms will depend on the details, which we will soon know when the exposure draft legislation is released (expected July 2020).

If you have any queries, please contact us.

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