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House of Representatives

Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020

Foreign Investment Reform (Protecting Australia's National Security) Bill 2020

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Josh Frydenberg MP)

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation Definition
ACCC Australian Competition and Consumer Commission
APS Australian Public Service
ATO Australian Taxation Office
Commissioner Commissioner of Taxation
FATA Foreign Acquisitions and Takeovers Act 1975
FATA Fees Act Foreign Acquisitions and Takeovers Fees Imposition Act 2015
FATR Foreign Acquisitions and Takeovers Regulation 2015

Fee Regulation Foreign Acquisition and Takeovers Fee Imposition Regulation 2015
FIRB Foreign Investment Review Board
ICCPR International Covenant on Civil and Political Rights
Imposition Bill Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020
Agricultural Land and Water Register Act Register of Foreign Ownership of Water or Agricultural Land Act 2015
Regulatory Powers Act Regulatory Powers (Standard Provisions) Act 2014
SES Senior Executive Service
TAA Taxation Administration Act 1953
the Bill Foreign Investment Reform (Protecting Australia's National Security) Bill 2020
The Guide The Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers

General outline and financial impact

Foreign Investment Reform (Protecting Australia's National Security) Bill 2020 and the Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020

These Bills include a package of reforms to ensure Australia's foreign investment screening framework keeps pace with emerging risks and global developments while remaining a welcoming destination for foreign investment.

The Bill improves and updates the operation of the framework across national security, compliance monitoring and enforcement, and integrity as well as streamlining requirements and making technical changes to improve the operation of the law.

The Imposition Bill simplifies the existing fee arrangements.

The Bill:

·
introduces a new national security review and gives the Treasurer as a last resort, the ability, in extraordinary circumstance, to issue a divestment order where there is no other remedy for a national security risk;
·
strengthens the Treasurer and Commissioner's enforcement powers through increased penalties, directions powers and new monitoring and investigative powers;
·
improves the integrity of the framework by closing potential gaps in the screening regime;
·
expands the information sharing arrangements to assist with the Treasurer and Commissioner's compliance activities and address national security risks;
·
establishes a new Register of foreign owned assets to record all foreign interests acquired in Australian land; water entitlements and contractual water rights; and business acquisitions that require foreign investment approval; and
·
provides that fees are payable for the new types of actions established under the reforms.

Date of effect: 1 January 2021

Proposal announced: The Bills implement the reforms announced by the Government on 5 June 2020.

Financial impact: The Government announced reforms to Australia's foreign investment framework in the July 2020 Economic and Fiscal Update measure Reforming Australia's Foreign Investment Framework and 2020-21 Budget measure Strengthening Australia's Foreign Investment Framework. These measures are estimated to have the following impact on the underlying cash balance over the forward estimates period ($m):

2020-21 2021-22 2022-23 2023-24
Receipts 20.2 42.4 43.5 43.6
Payments -31.2 -56.1 -40.4 -21.4

The Bills implement certain components of these two measures, including introducing a new national security review, strengthening enforcement powers, improving the integrity of the framework, adding streamlining requirements, establishing a Register of Foreign Ownership of Australian Assets and simplifying the foreign investment fee framework.

Human rights implications: The Bills raise human rights issue. See Statement of Compatibility with Human Rights - Chapter 7.

Compliance cost impact: Low. It is estimated that the reforms will result in around 100 additional applications and 1,800 additional registrations being made by investors each year, involving an additional aggregate compliance cost of approximately $1.5 million per annum, on average.

Summary of regulation impact statement

Regulation impact on business

Impact: Low. It is estimated that the reforms will result in around 100 additional applications and 1,800 additional registrations being made by investors each year, involving an additional aggregate regulatory cost of approximately $1.5 million per annum, on average.

Main points:

·
The new national security review is expected to increase the number of applications investors submit each year. This number will be partly offset by an expected decrease in applications as a result of the new foreign government investor streamlining measures which are proposed to be included in the FATR.
·
The expanded registration obligations under the new foreign ownership register will also increase the number of registration events investors incur each year.
·
These additional regulatory costs will be partly offset by other measures to reduce the complexity of the foreign investment framework and improve the user experience (for example, a simpler and fairer fee framework) that will save investors time and expense.
·
The estimated additional regulatory burden from these reforms is not expected to be a significant deterrent to foreign investment in Australia, particularly with the steps proposed to streamline the investment application process.

Overview and context for foreign investment reforms

Foreign investment is important for Australia's long term economic success, stability and prosperity. It creates jobs, improves productivity, enables the transfer of new technologies and connects Australian businesses to global supply chains. Foreign investment supports:

·
employment (one in ten jobs[1] are created by foreign businesses);
·
the national economy (businesses supported by foreign investment contribute more than a quarter of Industry Value Added); and
·
higher wages (foreign businesses pay wages that are on average $20,000 a year higher).

Australia remains one of the world's most attractive investment destinations, with an overabundance of high-quality investment opportunities that cannot be realised from domestic savings alone. As a net capital importing country, Australia's stable democracy; strong rule of law; highly-skilled and highly-educated workforce; proximity to dynamic and fast-growing markets; abundant natural resources and world-class industry capabilities; and strong and well managed economy, mean choosing to invest in Australia benefits both investors and Australians.

Australia's foreign direct investment (FDI) inflows reflect our status as a leading investment destination, which in the three years to 2019 averaged 3.3 per cent of GDP - compared with 1.7 per cent of GDP for the OECD and 1.5 per cent of GDP for the G20 economies.[2]

Recognising the benefits of economic openness, Australia has maintained an open and transparent foreign investment review framework for over 40 years. It is established clearly in legislation, providing transparency and certainty on our rules. Australia's case-by-case assessment of investment applications ensure proposals are not contrary to the national interest, and maintains public confidence in the integrity of the framework.

However, risks to Australia's national interest, particularly national security, have increased as a result of a confluence of developments - including rapid technological change and changes in the international security environment. The challenge remains balancing the settings to attract foreign capital that supports the economy, while protecting the national interest.

Foreign Investment Reforms

On 5 June 2020 the Government announced its intention to strengthen the foreign investment framework. These changes ensure the framework keeps pace with emerging risks and global developments.

The reforms build on the amendments the Government made to the foreign investment screening regime in 2015. Those reforms modernised the FATA by: bringing all foreign investment into the legislative framework; strengthening the Treasurer's oversight and enforcement of the residential real estate sector; providing greater scrutiny and transparency around agricultural investments; and introducing fees so that the cost of administering the foreign investment regime is borne by foreign investors and not Australian taxpayers.

Under the reforms, individual investments will continue to be reviewed on a case-by-case basis to ensure they are not contrary to the national interest. This is critical to protecting Australia's national interest and national security, and maintaining the Australian public's confidence in the foreign investment regime.

These reforms preserve the core principle underpinning Australia's foreign investment system: Australia welcomes foreign investment for the significant economic benefits it provides.

The reforms strike a balance between the benefits foreign investment into Australia brings and emerging national security concerns.

These comprehensive reforms improve and update the operation of the law across national security, compliance monitoring and enforcement, and integrity as well as streamlining requirements and making technical changes to improve the operation of the law. They strike the right balance between facilitating and attracting foreign investment while protecting the national interest.

National Security Review and Last Resort Power

Rising national security concerns have led many countries to review both their frameworks for screening inward investment and the way in which these frameworks are applied.

The reforms establish a new national security test which:

·
requires mandatory notification of any proposed direct investment in a sensitive 'national security business' (including starting such a business);
·
requires mandatory notification of any proposed investment in sensitive 'national security land';
·
requires the mandatory notification of interests in exploration tenements over national security land;
·
allows a significant action that has not been notified and certain actions not already captured under the FATA to be 'called in' for screening on national security grounds;
·
allows investors to voluntarily notify to receive investor certainty from 'call in' for a particular investment; and
·
in exceptional circumstances, allows the Treasurer to impose conditions, vary existing conditions, or, as a last resort, force the divestment of any realised investment which was subject to the FATA where national security concerns are identified.

Improving the integrity of the framework and technical amendments

The reforms clarify the operation of the change in control test for certain types of significant actions. Increases to approved holdings may also be subject to further approvals, including proportional increases through share buybacks and selective capital reductions.

Where a foreign person acquires a 'national security business' from the Commonwealth or a State, Territory or local government, the reforms ensure that the acquisition is not exempted from the operation of the FATA.

The tracing rules will be expanded to allow interests to be traced through unincorporated limited partnerships.

The Government has improved information sharing provisions to support compliance activities. There are also new information sharing provisions to allow the sharing of protected information with international counterparts where national security considerations are present.

The technical amendments have been made to improve the readability of existing provisions, rectify inconsistencies and address unintended consequences, with a focus on improving clarity for investors.

Improving compliance and additional enforcement tools

The reforms ensure that the Treasurer and Commissioner have enforcement, monitoring and investigative powers, in line with those of other regulators, including access to premises with consent or as permitted by warrant to gather information. This measure will improve the regulators' capabilities to monitor investor compliance and investigate potential non-compliance.

The Treasurer also has new powers to give directions to investors to prevent or address suspected breaches of conditions or of foreign investment laws. This gives the Treasurer flexibility to respond to actual or likely non-compliance.

Increased civil and criminal penalties under the FATA will ensure these penalties act as an effective deterrent. The increase to civil penalty amounts and enabling penalties to be calculated as a proportion of the benefit gained by wrongdoing or the value of the investment links the penalty imposed more directly with misconduct and provides a significant financial incentive for compliance.

The foreign investment infringement notices regime is extended to cover all types of breaches relating to foreign investments and enable proportionate, and appropriate enforcement action in response to investor non-compliance. A third tier of infringement notices applies to high value acquisitions. These changes enable the Treasurer and Commissioner of Taxation to respond to a broader range of compliance issues.

The Treasurer and Commissioner are empowered to remedy situations where foreign persons are given a no objection notification or an exemption certificate based on a foreign investment application that makes an incorrect statement, or omits an important piece of information. This will ensure that there is appropriate recourse available, should the Treasurer or Commissioner makes a decision based on false or misleading information.

Enforceable undertakings are able to be accepted by the Treasurer or Commissioner to manage compliance with the FATA.

To improve visibility of actual foreign investments, foreign persons who have been issued a no objection notification for a proposed action or an exemption certificate are required to notify the Treasurer of certain events.

A fairer and simpler framework for foreign investment fees

The fees applicable for foreign investors have been refined to ensure that fees are fairer and simpler, while ensuring that foreign investors, not Australian taxpayers, bear the costs of administering the foreign investment system.

Register of foreign owned Australian assets

The new Register of Foreign Ownership of Australian Assets will record all 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.

Chapter 1 - National security review and last resort power

Outline of chapter

1.1 Schedule 1 to the Bill amends the FATA to give the Treasurer powers to address new and emerging national security risks. These powers enable the Treasurer to protect the national interest - including national security - wherever risks arise from individual investment proposals taking into account the evolving geopolitical risks, technological change and the kinds of assets available to foreign investors.

1.2 The amendments provide a new national security test which:

·
requires mandatory notification of any proposed direct investment in a sensitive national security business (including starting such a business), proposed investment in Australian land where the location or use of the land could prejudice Australia's national security ('national security land') or an interest in an exploration tenement which is over national security land;
·
allows a significant action that has not been notified and certain actions not otherwise captured under the FATA to be 'called-in' for screening on national security grounds;
·
allows investors to voluntarily notify of an action that could otherwise be called-in, to obtain certainty about the particular investment and prevent being called-in on national security grounds; and
·
allows the Treasurer, in exceptional circumstances, to impose conditions, vary existing conditions, or, as a last resort, force the divestment of any realised investment which was subject to the FATA where national security concerns are identified.

1.3 Investments subject to the new national security test are assessed against factors that give rise to national security concerns.

1.4 The existing national interest test remains unchanged including the factors that typically underpin the assessment process, such as the character of the investor, competition, impact on the economy and community, national security and other Government policies (including tax).

1.5 In order to avoid overlap between the two tests, wherever the broader national interest test applies to a particular action, only that test is used in deciding which of the Treasurer's powers to use. This is because national security is already a relevant factor that the Treasurer considers when assessing the national interest.

National Security Review

Context of amendments

1.6 The FATA deals with certain actions to acquire interests in securities, assets or Australian land, and actions taken about entities and businesses that have a connection to Australia. Under the FATA, the Treasurer has powers for significant actions and must be informed of notifiable actions.

1.7 When exercising various powers under the FATA, the Treasurer considers whether the action is 'not contrary to the national interest' (the national interest test). The national interest test is not defined in the legislation but indicative criteria are set out in guidance material.

1.8 Once the Treasurer has exercised the Treasurer's powers under the FATA, either by issuing a no objection notification (with or without conditions) or prohibiting the proposed acquisitions, the Treasurer does not have subsequent powers to rescind approval after it is granted, provided that any conditions imposed or orders made by the Treasurer are met and the information contained in the original application was correct. The Treasurer can only vary approvals with the person's consent.

1.9 However, risks to Australia's national interest, particularly national security, are increasing as a result of a confluence of developments - including rapid technological change and changes in the international security environment.

1.10 In recent years, many countries have updated their foreign investment regimes to manage a range of new risks. In particular, both advanced and emerging economies have introduced changes to their foreign investment screening rules to strengthen the powers of government to scrutinise investment in sensitive sectors.

1.11 Currently, in Australia, foreign persons must notify the Treasurer of certain actions where the investment meets certain criteria, such as monetary or percentage thresholds that are dependent on the sector, nature of the investment and the country of the investor.

1.12 To ensure appropriate oversight during the coronavirus crisis, the Government announced on 29 March 2020 the temporary reduction to $0 of the monetary screening thresholds for all foreign investments subject to the FATA. Prior to the temporary changes made to the FATR in response to the coronavirus, foreign government investors faced a zero-dollar screening threshold but private investments under $275 million (or $1,192 million for our Free Trade Agreement partners) were not screened.

1.13 The presence of monetary thresholds means investments in some of our most sensitive sectors are not screened which could present vulnerabilities in the foreign investment screening process.

Summary of New Law

Notifiable National Security Actions

1.14 Schedule 1 to the Bill amends the FATA to define a new category of actions, 'notifiable national security actions' to describe actions that must be notified to the Treasurer for review regardless of the value of the investment or whether they are otherwise significant or notifiable actions.

1.15 These actions involve a foreign person acquiring an interest in national security land or an exploration tenement over national security land, or a direct interest in a national security business, or starting a national security business.

1.16 A notifiable national security action is an action that is, by its nature, likely to give rise to a national security concern that, regardless of its size or value, requires review by the Treasurer.

Call-in power

1.17 National security concerns may still be posed by actions that do not need to be notified. However, imposing further notification requirements to include all potentially concerning actions would disproportionately affect non-sensitive investments.

1.18 The Treasurer is able to 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, poses a national security concern. This is referred to as a 'call-in' power.

1.19 The call-in power gives the Treasurer additional visibility and control over those investment proposals that may pose a national security concern without imposing a regulatory burden on those which are less likely to pose concerns. It is expected that the overwhelming majority of investments will not be called-in for review.

1.20 The Treasurer's powers regarding the actions are the same as the Treasurer's other powers in the FATA. The Treasurer may issue a no objection notification for the action, including with conditions; may require that the person divests assets; or may prohibit the action. However, in exercising these powers the Treasurer must consider whether the action is contrary to national security.

1.21 To provide investors with greater certainty, the Treasurer is not able to call-in an action that has been notified to the Treasurer or for which a no objection notification or exemption certificate exists.

1.22 A person can extinguish the Treasurer's ability to use the call-in power by voluntarily notifying of an action.

Last Resort Power

1.23 The last resort power gives the Treasurer a final opportunity to review actions for which no objection notifications have been given if exceptional circumstances arise.

1.24 If a national security risk arises in connection with an action then where certain circumstances exist the Treasurer may give orders directing persons to act to reduce the national security risk. That is, exercise the last resort power.

1.25 Prior to exercising the last resort power, a number of factors need to be present and conditions met. The last resort power may only be exercised if the Treasurer was notified of the action, an application for an exemption certificate was made, or the action was reviewed under the new call-in power. And since that time the business, structure or organisation of the person has changed, or the person's activities have changed, or the circumstances or market have changed, or the Treasurer becomes aware of a relevant material omission or misstatement by the foreign person.

1.26 In addition, before exercising the last resort power, the Treasurer must conduct a review, receive and consider advice in relation to the action from an agency in 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.

1.27 The Treasurer must also be reasonably satisfied that the false or misleading statement or omission directly relates to the national security risk, the national security risk could not have been reasonably foreseen at the time of the original approval, or the relevant material change alters the nature of the national security risk.

1.28 If these requirements are satisfied and relevant considerations given, the Treasurer may impose conditions, or vary or revoke any conditions that have been imposed, and may make orders prohibiting an action or requiring the undoing of a part or whole of an action (including, as a last resort, requiring divestment).

Comparison of key features of new law and current law

1.29 The following table provides a comparison of the key features of the new law and the current law.

New law Current law
Notifiable national security actions
A foreign person must notify the Treasurer before taking a notifiable national security action or a notifiable action. A foreign person must notify the Treasurer before taking a notifiable action.

Call-in powers
The Treasurer also has powers for certain actions not covered by the FATA or significant actions that are not notified if the action poses a national security concern. The Treasurer has powers for significant actions assessed against the national interest.
A person may also voluntarily notify of an action that could be reviewed under the Treasurer's 'call-in' power. A person may voluntarily notify of a proposed action.
Last Resort Powers
The Treasurer is able to give orders necessary to reduce national security risks if:

·
there has been a material misstatement or omission in information provided to the Treasurer; or
·
relevant circumstances or the activities of the person have changed; and
·
all other options, including good faith negotiation and other regulatory powers, have been exhausted.

The Treasurer is unable to unilaterally amend a no objection notification or any conditions in the no objection notification if it is detrimental to the foreign person or without the foreign person's consent.

Notifiable National Security Actions

Detailed explanation of new law

1.30 A new type of action is defined in the FATA - a 'notifiable national security action'. [Schedule 1, items 4, 20, 55, 56 and 72, sections 3, 4, 38, 55A and 55B, and Part 2 (heading) of the FATA]

1.31 The definition of 'notifiable national security action' involves the concepts of 'national security land' and 'national security business'. A notifiable national security action is an action or a proposed action by a foreign person that is to:

·
acquire a direct interest in a national security business;
·
acquire a direct interest in an entity that carries on a national security business;
·
start a national security business;
·
acquire an interest in Australian land that at the time of the acquisition was national security land; or
·
acquire a legal or equitable interest in an exploration tenement over Australian land that at the time of the acquisition is national security land.

1.32 The definitions of national security business and national security land will be prescribed in the FATR. [Schedule 1, item 18, section 4 of the FATA]

1.33 The FATR will define national security businesses to capture endeavours that if disrupted or carried out in a particular way, could create national security risks. This means that national security risks may arise if national security businesses are controlled or influenced by persons acting not in Australia's interests. For this reason it is important to enable the Treasurer the ability to review investments in such businesses by foreign investors.

1.34 Generally, national security businesses will be, are involved in or connected with critical infrastructure, defence, or the national intelligence community or their supply chains. Because of the broad range of factors that can contribute to national security concerns and the wide range of potentially significant enterprises, the definition includes activities that are not usually considered to be businesses. An endeavour may be a national security business as long as it is carried on wholly or partly in Australia, regardless of whether it is carried on in anticipation of profit or gain, and regardless of whether it is carried on by the Commonwealth, a state, a territory, a local governing body, or an entity wholly owned by them.

1.35 A definition of 'starts a national security business' is inserted into the FATA. A foreign person starts a national security business if the person starts to carry on a national security business, not merely because the person was already carrying on a national security business and establishes a new entity. [Schedule 1, items 20 and 27, sections 4 and 8A of the FATA]

1.36 A definition of national intelligence community is also inserted into the FATA and is given the same meaning as in the Office of National Intelligence Act 2018. [Schedule 1, item 18, section 4 of the FATA]

1.37 The FATR will also define national security land with reference to whether the land is defence premises or a national intelligence agency has an interest in the land.

1.38 The definitions of 'national security business' and 'national security land' will operate to require endeavours that are sufficiently likely to give rise to national security concerns to be notified to the Treasurer for review.

1.39 If an action would be a notifiable national security action if taken in relation to a stapled entity, the action is a notifiable national security action in relation to another one of the stapled entities. [Schedule 1, items 81 and 82, paragraphs 65(1)(c) and 65(1)(d) of the FATA]

1.40 A person proposing to take a notifiable national security action must give notice of the action to the Treasurer and must not take the action before receiving a no objection notification, an exemption certificate covering the action or before the decision period lapses, regardless of the size or value of the action. [Schedule 1, items 133 to 136, 139 to 141, and 217, Part 4 (heading), sections 80, 81 and 82, subsections 81(1), 81(2), and 82(1), and paragraph 135(3)(b) of the FATA]

1.41 A person who does not notify the Treasurer of a notifiable national security action may be committing an offence, contravening a civil penalty provision, or both. [Schedule 1, items 143, 147, 159, 163 and 173, section 83, paragraph 84(c), Subdivision A of Division 3 of Part 5 (heading), section 91 and subsection 94(1) of the FATA]

1.42 A person who takes a notifiable national security action before the day mentioned in section 82 of the FATA may be committing an offence, contravening a civil penalty provision, or both. [Schedule 1, items 150, 151, 152, 159, 168, 169, 171 and 174, sections 85 and 92, paragraph 85(b), Subdivision A of Division 3 of Part 5 (heading), paragraph 92(a) and subsection 94(2) of the FATA]

1.43 A notifiable national security action is an action that is by its nature so likely to give rise to a national security concern that regardless of its size or value, requires review by the Treasurer.

1.44 If the notifiable national security action is not otherwise required to be screened (for example an action that is not a significant action), then it will be assessed by the Treasurer on national security grounds and not national interest grounds. [Schedule 1, items 83, 84, 85, 87, 100, 118 and 119, sections 66, 67, subsections 67(1) and 69(1), paragraph 74(2)(a), subparagraph 74(2)(a)(ii) and Division 2 of Part 3 (heading) of the FATA]

1.45 The Treasurer can issue a prohibition order, interim order or disposal order, or issue a no objection notification with or without conditions. [Schedule 1, items 7, 83 to 85, 88 to 90, 93 to 97, 100, 101, 103, 106 to 109, 111, 112, 114, 116, 117, 122 and 124, sections 4, 66 and 67, subsections 67(2), 67(3), 68(2), 69(2), 69(4), paragraphs 70(1)(a) and 70(1)(b), sections 71 to 73, subdivision B of Division 2 of Part 3 (heading), subsection 74(1) and 75(1) and paragraph 76(4)(b) of the FATA]

1.46 If the action is both a notifiable national security action and a significant action then it will be reviewed by the Treasurer on national interest grounds. It is not intended that the national security reforms limit the scope of the national interest test. [Schedule 1, items 83 to 85, sections 66 and 67, and Division 2 of Part 3 (heading) of the FATA]

1.47 The Treasurer can issue a prohibition order, interim order or disposal order, or issue a no objection notification with or without conditions. [Schedule 1, items 19, 83 to 85, 88 to 90, 93 to 97, 101 to 103, 106, 107, 109, 111, 112, 114, 116, 122 and 124, sections 4, 66 and 67, Division 2 of Part 3 (heading), subsections 67(2), 67(3), 68(2) 69(2), 69(4), paragraphs 70(1)(a) and 70(1)(b), sections 71 to 73, Subdivision B of Division 2 of Part 3 (heading), paragraph 74(1)(b), subsection 74(1) and 75(1), and paragraph 76(4)(b) of the FATA]

Example 1.1 Compnay A, a foreign government investor, is proposing to acquire a 15 per cent interest in a critical defence manufacturer. As a foreign government investor, Company A is already subject to a zero dollar monetary screening threshold under the existing national interest test for acquisitions of direct interests in Australian entities or businesses. The proposed acquisition is subject to pre-acquisition notification as both a notifiable national security action, and as a significant and notifiable action. As part of the review process, the Treasurer will consider whether the proposed action would be contrary to Australia's national interest (which includes national security).

1.48 Treasurer has 30 days from when he is notified of a proposed notifiable national security action to make a decision or order. This timeframe can be extended consistent with other amendments being made by Schedule 1 to the Bill. [Schedule 1, item 129, sections 77 and 77A of the FATA]

1.49 In the same way that the Treasurer can vary an order or decision made about a significant action, the Treasurer can vary or revoke a decision or order made about a notifiable national security action. When the action is not also a significant action, the Treasurer must consider whether the variation is contrary to national security. [Schedule 1, items 120, 125 and 132, subsection 74(4) and 76(8), and sections 79L, 79M and 79N of the FATA]

1.50 The FATR will be amended to provide that a foreign person may seek an exemption certificate to undertake a program of acquisitions of actions or kinds of actions that are notifiable national security actions. The regulations may provide that actions of a kind specified in an exemption certificate are not notifiable national security actions, if they otherwise would be. The Treasurer will be able to revoke or vary the certificate if it is not contrary to national security. [Schedule 1, items 73 to 77 and 80, sections 56 and 63, subsections 60(2), section 62 (heading)62(1), paragraph 61(4)(b)of the FATA]

Consequential amendments

1.51 The existing anti-avoidance provisions in the FATA are updated to make clear that the Treasurer can consider national security risks when making an order about persons being considered associates. [Schedule 1 items 130 and 131, section 78 and paragraph 79(1)(b) of the FATA]

1.52 The existing record keeping requirements in the FATA are also updated so that a person must make and keep records of every act, transaction event or circumstance relating to a notifiable national security action. [Schedule 1, items 193 to 196, 199 and 237, Part 7 (heading), paragraphs 116(a) and 117(1)(a), section 116, and subparagraphs 117(1)(d)(i) and 117(1)(d)(ii) of the FATA]

Application and transitional provisions

1.53 The requirement to notify of a notifiable national security action applies to actions taken on or after 1 January 2021. Actions that are notified before this date because the action meets the definition of significant action, but a decision was not made, will be considered under the FATA against the national interest test. [Schedule 1, item 233]

1.54 If a person does notify of a national security action that will be taken on or after 1 January 2021 and that action is not a significant action or notifiable action and the notice is given to the Treasurer before 1 January 2021, the notice will be taken to have been given on or after 1 January 2021. In this way a person who knows that an action will meet the definition from 1 January 2021 does not need to delay notifying. [Schedule 1, item 227]

1.55 The application and transitional provisions are intended to ensure that the national security reform provisions do not apply in a way that would disrupt actions that have already occurred or agreements that have been entered into before 1 January 2021. [Schedule 1, items 230 to 232, 235, and 236]

Call-in power

Detailed explanation of new law

1.56 Schedule 1 to the Bill gives the Treasurer new powers to review actions that have been taken or that are proposed to be taken if the Treasurer considers that the action may pose a national security risk. [Schedule 1, items 2, 3, 55, 56 and 83, sections 3, 38, 66 and 66A, and Part 2 (heading) of the FATA]

1.57 The actions which may be subject to the Treasurer's new powers are a new type of action defined in the FATA as 'reviewable national security actions' and significant actions that have not been notified.

Reviewable national security actions

1.58 There are nine scenarios where a reviewable national security action may arise. In all scenarios an action will not be a reviewable national security action if it is otherwise a significant action, notifiable action or notifiable national security action. [Schedule 1, item 72, sections 55C, 55C, 55D, 55E, 55F and 55G of the FATA]

1.59 Broadly, reviewable national security actions are those actions expected to give foreign persons potential influence and rights, such as the ability to influence or participate in the central management or policy of an entity or business, or the right to occupy Australian land. This includes instances where a foreign person is already in a position to influence or participate in the central management or control of the entity, but as a result of the reviewable national security action gains further power to influence or participate

1.60 The first scenario where an action would be a reviewable national security action is where a person takes an action or proposes to take an action, to acquire an interest of any percentage in an entity, and as a result of the action a foreign person either:

·
acquires or will acquire a direct interest in the entity and this is not otherwise a significant action, notifiable action or notifiable national security action;
·
will be in a position, or a further position to influence or participate in the central management and control of the entity; or
·
will be in a position, or a further position to influence or participate in or determine the policy of the entity. [Schedule 1, item 72, subsection 55D(1) of the FATA]

1.61 Where the circumstance is to acquire an interest in shares, the entity must be a corporation that carries on an Australian business or the holding entity of such a corporation. Otherwise, the entity must be a corporation that carries on an Australian business or the holding entity (other than a foreign corporation) of such a corporation. If the action involves a unit trust, the entity must be an Australian unit trust or a holding entity of an Australian unit trust. [Schedule 1, item 72, subsection 55D(3) of the FATA]

1.62 The second scenario is where a person takes an action or proposes to take an action that is to issue securities in an entity and as a result of the action a foreign person either:

·
acquires or will acquire a direct interest in the entity and this is not otherwise a significant action, notifiable action or notifiable national security action;
·
will be in a position, or a further position to influence or participate in the central management and control of the entity; or
·
will be in a position, or a further position to influence or participate in or determine the policy of the entity. [Schedule 1, item 72, subsection 55D(2) of the FATA]

1.63 The third and fourth scenarios are where a person takes an action or proposes to take an action:

·
to enter an agreement about the affairs of an entity under which one or more senior officers of the entity will be under an obligation to act in accordance with the directions, instructions, or wishes of a foreign person who holds a direct interest in the entity; or
·
to alter a constituent document of an entity as a result of which one or more senior officers of the entity will be under an obligation to act in accordance with the directions, instructions or wishes of a foreign person. [Schedule 1, item 72, subsection 55D(2) of the FATA]

1.64 In the case of the second, third and fourth scenarios the entity must be, for an acquisition in shares or an issue of shares, a corporation that is a relevant entity that carries on an Australian business or the holding entity of such a corporation. For any other action relating to a corporation, the entity must be an Australian business or the holding entity (other than a foreign corporation) of such a corporation. If the action involves a unit trust, the entity must be an Australian unit trust or a holding entity of an Australian unit trust. [Schedule 1, item 72, subsection 55D(4) of the FATA]

Example 1.2 Company B, a foreign person, has a 10 per cent holding with no influence in the management of an entity, Company C. A new shareholder agreement is entered into which provides that all shareholders with a 10 per cent or more holding in Company C are to be directors on the board. As a result of the new shareholder agreement senior officers within Company C are subject to the directions and instructions of Company B. The action of entering into a new shareholder agreement would be a reviewable national security action.

1.65 The fifth, sixth and seventh scenarios where an action may be a reviewable national security action is where a person takes or proposes to take an action that is either:

·
to acquire an interest of any percentage in an Australian business;
·
to acquire an interest in the assets of an Australian business; or
·
to enter or terminate a significant agreement with an Australian business. [Schedule 1, item 72, subsection 55E(1) of the FATA]

1.66 And as a result of the action or proposed action, the foreign person will:

·
acquire or acquires a direct interest in the Australian business and this is not otherwise a significant action, notifiable action or notifiable national security action;
·
be in a position, or a further position to influence or participate in the central management and control of the Australian business; or
·
be in a position, or a further position to influence or participate in or determine the policy of the Australian business. [Schedule 1, item 72, subsection 55E(1) of the FATA]

Example 1.3 Company D, a large foreign-owned corporation, leases a widget from a small Australian business (Company E). As part of the lease arrangement, Company E agrees to Company D nominating a director to sit on the board of Company E. This would be a reviewable national security action.

1.67 The eighth scenario where an action may be a reviewable national security action is where a foreign person takes or proposes to take an interest in Australian land. [Schedule 1, item 72, section 55F of the FATA]

1.68 The final scenario where an action may be a reviewable national security action is where a foreign person starts or proposes to start an Australian business. [Schedule 1, item 72, subsection 55E(2) of the FATA]

1.69 The definition of a reviewable national security action requires that other definitions are also inserted into the FATA and that some existing definitions are amended. The following definitions are inserted into the FATA or amended by Schedule 1 to the Bill:

·
to start an Australian business;
·
an interest of specified percentage in an Australian business; and
·
to acquire an interest of a specified percentage in an Australian business. [Schedule 1, items 7, 16, 20, 27, 34 and 41 sections 4, 8A, 16A and 19A of the FATA]

1.70 If an action would be a reviewable national security action if taken in relation to a stapled entity, the action is a reviewable national security action in relation to another one of the stapled entities. [Schedule 1, items 81 and 82, paragraphs 65(1)(c) and 65(1)(d) of the FATA]

Treasurer's power to call-in an action

1.71 The Treasurer is able to review a reviewable national security action or a significant action that has not been notified if the Treasurer considers that the action may pose a national security concern. [Schedule 1, item 83, sections 66 and 66A of the FATA]

1.72 From a practical perspective, a review by the Treasurer under the call-in power will operate in a similar way as if the person notified the action under the FATA, such as, a notifiable action. The information required will most likely be similar to the information required as part of a notification, so that the Treasurer has a comprehensive view of the action and persons who are taking, or who have taken the action.

1.73 If the Treasurer reviews an action using the call-in power the Treasurer must give a written notice to the person who proposes to take the action or who has taken the action, of the review. Once the Treasurer has issued the notice, the Treasurer has 30 days to issue a no objection notification (including with conditions) or issue an order requiring the disposal of the investment or prohibiting the investment, depending on whether the action has been taken or not. [Schedule 1, items 83 and 127 to 129, sections 6, 66A, 77 and 77A, and Division 3 of Part 3 (heading) of the FATA]

1.74 This 30 day timeframe leverages the existing 'decision period' in the FATA. This means that the timeframe may be extended at the request of the foreign person. Consistent with other changes being made by Schedule 1 to this Bill the decision period can also be extended at the Treasurer's discretion but not for longer than 90 days. [Schedule 1, items 127 to 129, sections 77 and 77A, and Division 3 of Part 3 (heading) of the FATA]

1.75 Once the Treasurer gives the person a notice of the review, and that action has not been taken yet, the person must not take the action before the earliest of 10 days after the end of the decision period, before the end of the period mentioned in an interim order or the day a no objection notification is given. [Schedule 1, items 140 and 141, section 82 of the FATA]

1.76 A person may commit an offence, contravene a civil penalty provision, or both, if the person takes an action while prohibited from doing so following the exercise of the call-in power. [Schedule 1, items 150, 151, 154, 159, 168, 169 and 171, sections 85 and 92, Subdivision A of Division 3 of Part 5 (heading) and paragraph 92(a) of the FATA]

1.77 If the Treasurer does not make an order or issue a no objection notification before the end of the decision period, the Treasurer's powers are extinguished, with the exception of the last resort power.

1.78 Similar to the existing FATA framework, the Treasurer is able to issue a no objection notification with or without conditions. The Treasurer will consider whether conditions are needed to ensure the action is not contrary to national security. The Treasurer is also able to vary or revoke an existing condition or impose a new condition with the person's consent and if it is not contrary to national security. [Schedule 1, items 19, 113 to 117, 122 and 124, section 4, paragraph 74(1)(a), subparagraph 74(1)(c)(ii) subsection 74(1) and 75(1) and paragraph 76(4)(b) of the FATA]

1.79 The possible orders the Treasurer could make are listed in the following table. The Treasurer is also able to issue an interim order. The Treasurer is able to vary or revoke an order if the Treasurer is satisfied that the variation or revocation is not contrary to national security. [Schedule 1, items 83 to 109, 111, 112, and sections 79L, 79M and 79N, sections 66 and 67, subsections 67(2), 67(3), 68(2), 69(1) 69(2), 69(4), paragraphs 67(1)(a), 69(1)(a), 70(1)(a) and 70(1)(b), sections 71 to 73, and sections 79L, 79M and 79N, and subdivision B of Division 2 of Part 3 (heading) of the FATA]

Table 1.1 - Treasurers powers for called in action

Where the action has not been taken
If the action is to... The Treasurer may make an order prohibiting...
Acquire an interest in an entity or Australian business the whole or part of the proposed acquisition.
Start an Australian business the starting of the whole or part of the Australian business.
Acquire an interest in the assets of an Australian business the whole or part of the proposed action.
Issue securities in an entity the whole or part of the proposed issue of the securities.
Enter an agreement entering the proposed agreement.
Alter a constituent document the proposed alteration.
Enter or terminate a significant agreement with an Australian business the entering or terminating of the agreement.
Acquire an interest in Australian land the proposed action.
Where an action has been taken
If the action was to... The Treasurer may make an order directing...
Acquire an interest in an entity or Australian business the person who acquired the interest to dispose of the interest within a specified period to one or more persons who are not associates of the person.
Start an Australian business specified persons to do within a specified period, or refrain from doing, specified acts or acts of a specified kind.
Acquire an interest in the assets of an Australian business the person who acquired the interest to dispose of the interest within a specified period to one or more persons who are not associates of the person.
Enter an agreement specified persons to do within a specified period, or refrain from doing, specified acts or acts of a specified kind.
Alter a constituent document specified persons to do within a specified period, or refrain from doing, specified acts or acts of a specified kind.
Enter or terminate a significant agreement with an Australian business. specified persons to do within a specified period, or refrain from doing, specified acts or acts of a specified kind.
Acquire an interest in Australian land the person who acquired the interest to dispose of the interest within a specified period to one or more persons who are not associates of the person.

1.80 The orders are made as notifiable instruments and published on the Federal Register of Legislation. [Schedule 1, item 132, section 79M of the FATA]

1.81 The Treasurer is unable to review an action under the 'call-in' power if the person notified the Treasurer of the action or the Treasurer has issued a no objection notification about the action or an exemption certificate. The Treasurer is also unable to review an action if an order, being a disposal order, interim order or prohibition order, has been made about the action. [Schedule 1, item 83, subsection 66A(4) of the FATA]

1.82 In this way, if a person wants certainty that an action being taken, or that has been taken cannot later be reviewed by the Treasurer, with the exception of the last resort power, the person may voluntarily notify the Treasurer of the action. This is also similar to the existing FATA framework where a person may voluntarily notify of a significant but not notifiable action and extinguish the Treasurer's powers.

1.83 However, if a person gives notice of a proposed reviewable national security action the person is prevented from taking the action before a day mentioned in section 82. If the person does take the action before this time the person may commit an offence, contravene a civil penalty provision, or both. [Schedule 1, items 140, 141, 150 to 152, 168, 169, 171, section 82, subsection 82(1), sections 85 and 92, paragraphs 85(b) and 92(a) of the FATA]

1.84 A regulation making power is also included to limit the time period in which the Treasurer may start a review with reference to when the action was taken. [Schedule 1, item 83, subsection 66A(2) of the FATA]

1.85 Existing provisions in the FATA apply to deem when certain actions are taken. In very simple terms these existing provisions typically provide that an action is deemed to have been taken when an agreement has been entered into between the relevant parties.

1.86 For the purpose of determining when an action has been taken and when the time prescribed in the regulations will begin to countdown the amendments disregard the application of existing:

·
Paragraphs 15(1)(b) and 15(1)(c).
·
Paragraphs 17(1)(c) and 17(2)(c).
·
Subparagraphs 19A(1)(c)(ii) and 20(1)(c)(iii). [Schedule 1, item 83, subsection 66A(3) of the FATA]

1.87 This means that a person will not be deemed to have taken an action where the person has a right or option over an interest or asset but that right or option has not been exercised.

1.88 The FATR will be amended to provide that a foreign person may seek an exemption certificate to undertake a program of acquisitions of actions or kinds of actions that would otherwise be reviewable national security actions. Amendments are required to the FATA to support the regulations. The regulations may provide that actions of a kind specified in an exemption certificate are not reviewable national security actions, if they otherwise would be. The Treasurer may vary or revoke an exemption certificate if the Treasurer is satisfied that the variation or revocation is not contrary to national security. [Schedule 1, items 73 to 75, 77, 80, sections 56 and 63, subsections 60(2) and 62(1), paragraph 61(4)(b)of the FATA]

1.89 To assist in the review, the Treasurer can seek information from the person or any other person the Treasurer thinks has relevant information about the action under the existing information gathering powers in the FATA.

1.90 If the Treasurer asks for information, the person will need to provide this information within the period specified by the Treasurer, which may be less than 14 days. This is less than the timeframe allowed in the FATA in other circumstances where the Treasurer asks for information but reflects the need to consider any possible national security concerns promptly. [Schedule 1, items 214 and 215, paragraph 133(3)(a) and subsection 133(3) of the FATA]

Consequential amendments

1.91 The existing anti-avoidance provisions in the FATA are updated to make clear that the Treasurer can consider national security risks when making an order about persons being considered associates. [Schedule 1 items 130 and 131, section 78 and paragraph 79(1)(b) of the FATA]

1.92 The existing record keeping requirements in the FATA are also updated so that a person must make and keep records of every act, transaction event or circumstance relating to a reviewable national security action that was notified to the Treasurer. The record keeping requirements also apply to the disposal of an interest in residential land where the Treasurer called-in the action for review. [Schedule 1, items 193 to 195, 197, 200, 201, and 237, Part 7 (heading), paragraphs 116(a), 117(1)(a), 117(1)(d), 118(a), and section 116, of the FATA]

Application and transitional provisions

1.93 The call-in power can only be used by the Treasurer on actions that are taken or proposed to be taken on or after 1 January 2021. [Schedule 1, items 229 and 233]

1.94 If a person does notify of a reviewable national security action that will be taken on or after 1 January 2021 and the notice is given to the Treasurer before 1 January 2021, the notice will be taken to have been given on or after 1 January 2021. In this way a person who knows that an action will meet the definition from 1 January 2021 does not need to delay notifying if they are seeking reassurance that the action will not be called-in. [Schedule 1, item 228].

Last Resort Power

Detailed explanation of new law

1.95 Schedule 1 to the Bill introduces a new division that gives the Treasurer powers to impose conditions, vary existing conditions, or, as a last resort, force the divestment of any realised investment which was subject to the FATA where national security concerns are identified. [Schedule 1, item 132, sections 79E, 79G, 79H, 79J and 79K of the FATA]

1.96 The Treasurer must conduct a national security review of an action before using the last resort power. The foreign person is able to seek merits review of the outcome of the review. [Schedule 1, items 132 and 207, sections 79A and 130A of the FATA]

Review of Actions

1.97 The Treasurer is required to review an action before the last resort power may be available. [Schedule 1, item 132, sections 79C and 79F of the FATA]

1.98 Schedule 1 to the Bill limits the circumstances in which the Treasurer may exercise the last resort power by specifying that the Treasurer may only review actions if the Treasurer is satisfied that particular conditions are met. [Schedule 1, item 132, subsections 79A of the FATA]

1.99 The first condition is that any of the following circumstances has been met:

·
that the Treasurer has given a no objection notification or an exemption certificate about the action (or is deemed to have given one because a response to a notice of an action or an application for an exemption certificate was not provided within the decision period);
·
a notice imposing conditions under an earlier exercise of the last resort power has been given; or
·
an interim order was made, but no further orders were made after the time period expired.

[Schedule 1, item 132, paragraph 79A(1)(a) of the FATA]

1.100 The second condition is that at least one of three factors needs to be present. The three factors are:

·
a statement or omission that was false or misleading in a material particular was made orally or in the notification of the action or application for the exemption certificate, or that statement or notification omitted a matter or thing without which the statement was misleading in a material particular. This would include any subsequent communication by the investor about the statement or notification;
·
the business, structure or organisation of the person has, or the person's activities have, materially changed;
·
the circumstances or the market relevant to the action have materially changed. [Schedule 1, items 121 and 132, subsection 74(8) and paragraph 79A(1)(b) of the FATA]

1.101 If the conditions described above are met, the Treasurer may review the relevant action.

Example 1.4 Company F, a foreign person, was approved to acquire a controlling stake in an online gambling company operating in Australia. At the time of the application, Company F failed to declare the connection of several directors to money laundering crimes. This omission was material and misleading. The Treasurer may review this action. Example 1.5 Company G, a foreign person, was approved to acquire a small data centre that hosted public news websites. Since the firm did not have active plans or a strategy to host more sensitive data, limited conditions were included in the no objection notification. After several years, a number of competitors go out of business, and Company G decides to expand its operations into other sectors, securing contracts to host sensitive intellectual property and customer records of a number of Australian banks. The Treasurer is able to review the action.

1.102 In reviewing an action, the Treasurer must decide whether a national security risk exists about the action. In doing so, the Treasurer must have received and considered advice from a relevant agency in the national intelligence community about the national security risks related to the action. [Schedule 1, item 132, subsection 79A(2) of the FATA]

1.103 To ensure that the person is aware of the review and is able to provide information to the Treasurer if they choose to, the Treasurer must notify the person of the review in writing unless doing so would prejudice Australia's national security interests. [Schedule 1, item 132, paragraph 79A(3)(a) of the FATA]

1.104 If the Treasurer gives a person a notice that a review is being conducted, and the person has not yet taken the action, then the person must not take the action until the review is completed and the Treasurer gives effect to the outcome of the review (by giving a no objection notification, a notice imposing conditions, an order or by notifying that further action will not be taken). This also applies to actions or kinds of actions covered by an exemption certificate. [Schedule 1, item 132, paragraph 79A(3)(b) and subsection 79A(4) of the FATA]

1.105 A person who takes an action while prevented from doing so because a review is being conducted, may be committing an offence, contravening a civil penalty provision, or both. [Schedule 1, items 155, 172 and 176, subsections 85A and 92A, and section 95 of the FATA]

1.106 If the Treasurer gives a person a notice that a review is being conducted and the person has taken the action, then the Treasurer may include in the notice a direction to the person about the action or a related activity that the Treasurer considers necessary to address the national security risk. [Schedule 1, item 132 subparagraph 79A(3)(c)(i) of the FATA]

1.107 The Treasurer may give further orders in writing for the same purpose until the review is complete. [Schedule 1, item 132, subparagraph 79A(3)(c)(ii) of the FATA]

1.108 The effect of these powers is that during the review the Treasurer may pause a particular action or activities following an action. However, the Treasurer is not able to require the disposal of interests until a review is completed and the full process for giving orders under the last resort power is followed. [Schedule 1, item 132, subsection 79A(5) of the FATA]

1.109 If, after reviewing an action, the Treasurer decides a national security risk exists, the Treasurer must give the person notice of this and the reasons for this decision. However, if the Treasurer considers that no national security risks exist, the Treasurer must give the person a notice to this effect. [Schedule 1, item 132, subsection 79B(1) of the FATA]

1.110 This notice may be redacted in part or in full on grounds of national security. [Schedule 1, item 132, subsections 79B(2) and (3) of the FATA]

Merits Review

1.111 A person may apply to the Administrative Appeals Tribunal for review of the Treasurer's decision that a national security risk exists. [Schedule 1, items 6, 20, 24 and 207, section 4 and subsection 130A of the FATA]

1.112 The application must be considered by the Security Division of the Administrative Appeals Tribunal. [Schedule 1, item 207, section 130E of the FATA]

1.113 The processes in place for the operation of the Security Division are already tailored to decisions made on national security grounds, and to dealing with matters of a sensitive national security nature.

1.114 Schedule 1 to the Bill sets out the manner in which a person can apply for a review of a decision, requires that the Treasurer is notified of the application and requires the Treasurer to lodge certain material with the Administrative Appeals Tribunal. [Schedule 1, item 207, sections 130B, 130C and 130D of the FATA]

1.115 Schedule 1 to the Bill also sets out the procedure for review, publication of material and allows for material to be withheld. [Schedule 1, item 207, sections 130F, 130G and 130H of the FATA]

1.116 Schedule 1 to the Bill also sets out the process for the treatment of the Administrative Appeals Tribunal's findings, places restrictions on the Treasurer's powers after the Administrative Appeals Tribunal has made findings, provides for the payment of costs and provides that certain provisions of the Administrative Appeals Tribunal Act 1975 do not apply. [Schedule 1, item 207, sections 130J, 130K, 130L, 130M and 130N of the FATA]

Last Resort Power: Orders, Notices and Variations

1.117 No objection notifications and exemption certificates given after 1 January 2021 will inform persons that the last resort power will be available for actions covered by the notification or the exemption certificate. [Schedule 1, item 123, subsection 76(1) of the FATA]

1.118 The last resort power may be exercised in different ways, appropriate to the nature of the action that poses the national security risk and which takes into account whether the action has been taken and whether the Treasurer has given any notices relating to the action prior to the review. The different ways are based on the same principle that the Treasurer should be able to prevent or, in extraordinary circumstances undo, an action that poses an unforeseen and unacceptable national security risk that cannot be adequately reduced in other ways.

1.119 The possible ways are:

·
making an order prohibiting a proposed action [Schedule 1, item 132, section 79D of the FATA];
·
making a disposal order [Schedule 1, item 132, section 79E of the FATA];
·
varying a no objection notification to revoke, vary or impose a new condition [Schedule 1, items 19 and 132, sections 4 and 79G of the FATA];
·
giving a notice imposing conditions [Schedule 1, item 132, section 79H of the FATA]; and
·
varying a notice imposing conditions [Schedule 1, item 132, section 79J of the FATA].

1.120 Before using the last resort power, the Treasurer must be satisfied that:

·
a review has been conducted and found that a national security risk exists about the action [Schedule 1, item 132, paragraphs 79C(a) and 79F(a) of the FATA];
·
the exercise of the last resort power is reasonably necessary to reduce or eliminate the national security risk [Schedule 1, item 132, subparagraphs 79C(c)(ii) and 79F(c)(ii) of the FATA];
·
reasonable steps have been taken to negotiate in good faith to eliminate or reduce the national security risk to avoid giving the order [Schedule 1, item 132, subparagraphs 79C(c)(i) and 79F(c)(i) of the FATA]; and
·
other regulatory systems of the Commonwealth, States and Territories would not adequately eliminate or reduce the national security risk [Schedule 1, item 132, subparagraphs 79C(c)(iii) and 79F(c)(iii) of the FATA].

1.121 Where the person made a false or misleading statement the Treasurer must be reasonably satisfied that the misstatement directly relates to the national security risk. [Schedule 1, item 132, paragraphs 79C(b) and 79F(b) of the FATA]

1.122 Where the business, structure or organisation of the person has materially changed, the Treasurer must be reasonably satisfied that the national security risk that has emerged as a result of this change could not have been reasonably foreseen at the time of the original approval or the likelihood of the risk arising was remote. [Schedule 1, item 132, paragraphs 79C(b) and 79F(b) of the FATA]

1.123 Where the market in which the action is taken has materially changed, the Treasurer must be reasonably satisfied that the change altered the nature of the national security risk posed at the time the decision was made. [Schedule 1, item 132, paragraphs 79C(b) and 79F(b) of the FATA]

1.124 Once the requirements described above are satisfied or the relevant consideration given, the Treasurer is able to use the last resort power in a manner appropriate for the status and circumstances of the action or proposed action. The Treasurer may give orders and impose, revoke or vary conditions, or where a no objection notification had not been previously issued, issue a notice with conditions.

1.125 As described above, the Treasurer's making of orders and the exercise of other last resort powers is constrained by the requirement to take reasonable steps to negotiate in good faith with the relevant person to reduce the national security risk.

1.126 This obligation provides an important safeguard that embodies the principles that will apply in the wide variety of possible situations where the orders and powers may be considered by the Treasurer. It is sufficiently flexible to accommodate particular circumstances of each national security risk that may be difficult to foresee but remains connected to a well understood common law principle that applies to commercial agreements.

1.127 The incorporation of the common law concept of good faith avoids the creation of a difference between the common law and an alternative concept in legislation that could potentially grow wider as the common law concept is refined by the courts. If necessary this could be supplemented by additional guidance for applicants.

1.128 The good faith concept is frequently used in Commonwealth legislation to impose obligations or standards on persons. This standard will be familiar to the types of entities expected to be affected by these amendments to the FATA. While the negotiations are intended to promote a mutually agreed resolution and forestall any legal proceedings, the good faith obligation is consistent with the Commonwealth's model litigant obligations in the Legal Services Directions 2017.

Orders

1.129 If the Treasurer is satisfied that a proposed action would be contrary to national security, the Treasurer may, by notifiable instrument, make an order which would prohibit all or part of the proposed action. [Schedule 1, item 132, sections 79D and 79M of the FATA]

1.130 The details of possible orders prohibiting proposed actions are set out in the table in section 79D of the FATA. Additional orders that can be made about some types of actions if an order prohibiting the action are also set out in section 79D of the FATA.

1.131 If the Treasurer is satisfied that the result of an action that was taken is contrary to national security, the Treasurer may, by notifiable instrument, make an order which would require the person to dispose of interests acquired by taking the action or to act (or not to act) in a particular way. [Schedule 1, item 132, sections 79E and 79M of the FATA]

1.132 The details of possible disposal orders corresponding to types of actions that have been taken are set out in the table in section 79E of the FATA.

1.133 If the Treasurer makes a disposal order that has effect for a specified period, the Treasurer may extend the order before it ends. [Schedule 1, item 132, subsection 79E(4) of the FATA]

1.134 The process and requirements for making an order under the last resort power do not apply to variations or revocations of the order because the order making power is excluded from the application of subsection 33(3) of the Acts Interpretation Act 1901. [Schedule 1, item 132, subsection 79L(4)of the FATA]

1.135 Orders prohibiting actions, additional orders and disposal orders must be registered on the Federal Register of Legislation within 10 days after being made. [Schedule 1, item 132, paragraph 79M(1)(b)of the FATA]

1.136 Orders prohibiting actions, except additional orders, commence on the day they are registered. [Schedule 1, item 132, paragraph 79M(2)(b) of the FATA]

1.137 Disposal orders and additional orders commence on the day specified in the order (but not earlier than 30 days after they are registered). [Schedule 1, item 132, paragraph 79M(2)(a) of the FATA]

1.138 If an action could be subject to more than one kind of order because it is an action of more than one kind, the Treasurer may make any of the orders about the action. [Schedule 1, item 132, section 79N of the FATA]

1.139 Where the Treasurer makes an order prohibiting or requiring disposal of an action subject to a no objection notification or a notice imposing conditions, the no objection notification or notice imposing conditions is revoked on the day the order commences. [Schedule 1, item 132, subsections 79D(4) and 79E(5) of the FATA]

Notices and variations

1.140 If the last resort power is available to the Treasurer it may be used to revoke, vary or impose new conditions in a no objection notification that was given to a person about an action. [Schedule 1, items 19 and 132, sections 4 and 79G of the FATA]

1.141 The last resort power (when available) may also be used to impose conditions by notice on actions that do not have an existing no objection notification that can be amended. Such notices may themselves be varied. [Schedule 1, items 20, 132, 198 and 202, sections 4, 79H and 79J, and paragraphs 117(1)(c) and 118(b) of the FATA]

1.142 Similar to how no objection notifications operate, the Treasurer must issue the notice imposing conditions before the end of 10 days after the decision is made. The notice imposing conditions must be given to a person at an address including via email. The content of the notice imposing conditions must specify an action or multiple actions it relates to, a requirement that it must be taken before the end of a specified period (usually 12 months, unless the Treasurer considers a long time period to be not contrary to national security or the national interest), and that the Treasurer in some circumstances, may review the actions to which the notification relates to. The notice imposing conditions may specify a foreign person or a foreign person that is yet to be incorporated or a trustee of a trust not yet established if applicable. [Schedule 1, items 132, 175 and 216, section 79H, subsection 95(5) and paragraph 135(3)(b)of the FATA]

1.143 A notice imposing conditions may be varied other than by using the last resort power either because the person has applied for the variation, consented to the variation or the Treasurer is satisfied that the variation will not disadvantage the person. Before making the variation, the Treasurer must be satisfied it is not contrary to national security. [Schedule 1, item 132, sections 79P and 79Q of the FATA]

1.144 A person may commit an offence, breach a civil penalty or both if the person engages in conduct that contravenes a condition included in a notice imposing conditions. [Schedule 1, items 156, 157, and 177 to 179, subsections 96(1), 96(3) and 97(1), and paragraphs 87(a) and 87(b) of the FATA; Schedule 2, item 10, section 93 of the FATA]

Consequential amendments

1.145 The Administrative Appeals Tribunal Act 1975 is amended to allow for subsequent modifications to support the review of decisions made that a national security risk exists under the FATA. [Schedule 1, items 221 to 224, subsections 25(6) and 46(2) and paragraphs 46(1)(a) and 46(3)(a) of the Administrative Appeals Tribunal Act 1975]

1.146 The Security of Critical Infrastructure Act 2018 allows the Minister of Home Affairs to issue directions if there is a risk of an act or omission that would be prejudicial to security. However the direction can only be issued if the Minister is satisfied no other Commonwealth regulatory system could be used. As Schedule 1 to this Bill introduces the Treasurer's last resort power, the Security of Critical Infrastructure Act 2018 is amended to provide that Act with priority over the last resort power, that is the Minister of Home Affairs is able to issue directions under section 32 of the Security of Critical Infrastructure Act 2018. [Schedule 1, item 225, subsection 32(3A) of the Security of Critical Infrastructure Act 2018]

Application and transitional provisions

1.147 The Treasurer's last resort power is only available for actions that were notified to the Treasurer (or taken, if they were not notified) on or after 1 January 2021. [Schedule 1, item 234]

Chapter 2 - Improving the integrity of the framework and technical amendments

Outline of chapter

2.1 Schedule 1 to the Bill amends Australia's foreign investment review framework to: improve the integrity of the framework, enable greater information sharing aimed at enhancing compliance and addressing national security risks, and make minor and technical amendments to address drafting errors and ensure the legislative framework supports the screening framework as intended.

2.2 The amendments:

·
provide that some actions may be significant actions without requiring the change in control test to be met where the foreign person already controls the relevant entity or business;
·
provide that increases in actual or proportional holdings of securities, including through company share buybacks or unit trust redemptions, may be notifiable actions or significant actions, or both;
·
amend the definition of Australian business to include State and Territory business functions;
·
expand the tracing rules to unincorporated limited partnerships;
·
give the Treasurer the power to extend or further extend the decision period by up to 90 days;
·
ensure the Treasurer can make an order prohibiting a proposal where an earlier purported order is found to be invalid and the decision period has expired; and
·
allow for greater information sharing domestically with relevant government agencies and internationally with foreign counterparts.

2.3 Finally, Schedule 1 to the Bill makes a number of minor amendments which clarify the meaning of 'notifiable actions'; the application of fee waivers; and when an agreement is entered into for the purposes of the FATA.

Context of amendments

Improving the integrity of the foreign investment review framework

2.4 The foreign investment review framework must remain fit for purpose in these changing times. It also needs to meet community expectations regarding the acquisitions that fall within the framework. To maximise compliance, it is important that foreign investors understand their obligations under the framework. The amendments outlined below have been guided by these objectives, so that the FATA can appropriately manage the benefits and risks of foreign investment in Australia.

Information sharing

2.5 Information obtained under the FATA or for the purposes of the FATA is protected information. The FATA limits the further use or disclosure of protected information.

2.6 Protected information obtained under the FATA may be disclosed to relevant government officials and employees for the purposes of the Treasurer making a decision under the FATA. The disclosed information remains protected information in the hands of the recipient.

2.7 If a government agency seeks to use such protected information in administering its legislation, a disclosure of the information can be made to a Minister or accountable authority of the Commonwealth, for the purposes of the administration of Acts prescribed by the FATA. Information disclosed in this way is no longer protected information in the hands of the recipient.

2.8 Disclosure of protected information to foreign overseas government counterparts for the purposes of protecting national security (both for the benefit of Australia and for the benefit of overseas government counterparts) is not permitted.

Other technical amendments

2.9 Since the 2015 reforms to the FATA, amendments have been identified which would improve the readability of the existing provisions, rectify inconsistencies and unintended consequences and address feedback from investors seeking greater certainty.

Summary of new law

2.10 Schedule 1 to the Bill amends the circumstances where an investor satisfies the change in control test; deems a foreign person to have acquired an interest in securities in an entity where the person's proportional holdings have increased without the person taking any action; redefines an Australian business so that it also includes certain government activities and functions that are not carried out for profit; and extends the tracing rules to allow interests to be traced through unincorporated limited partnerships.

2.11 Schedule 1 to the Bill also amends Division 3 of Part 7 of the FATA to allow for information sharing with foreign governments, to expand the purposes for which information can be shared within the Commonwealth, and to allow for the ATO to disclose protected information to specific persons appointed by the Commonwealth for the purposes of the FATA.

2.12 The Bill also makes a number of technical amendments.

Comparison of key features of new law and current law

Integrity of the foreign investment review framework

2.13 The following table provides a comparison of the key features of the new law and the current law.

New law Current law
The change of control test is not a factor in determining that an action is a significant action once a foreign person controls an entity or business. An action to acquire interests in securities in an entity or an interest in the assets of a business is not a significant action unless the change of control test is met.
A foreign person is deemed to have taken an action and acquired an interest in securities in an entity where the person's proportional holdings have increased without the person taking any action.

This deemed action may be a notifiable action or significant action or both.

Where a foreign person's percentage holding in an entity increases (e.g. as a result of not participating in a share buyback) but the person has not acquired any additional securities, the foreign person is not considered to be taking an action.
The definition of 'Australian business' includes activities carried on by Government irrespective of whether the activity is carried on for profit or gain. The definition of 'Australian business' may not necessarily cover all activities carried on by Government, as these activities are not generally carried on in anticipation of profit or gain.
The tracing rules of the FATA apply to unincorporated limited partnerships. The tracing rules of the FATA do not apply to unincorporated limited partnerships.
The Treasurer may extend or further extend the decision period by up to 90 days without issuing an interim order or the person's consent. Where the Treasurer has been notified of a proposed action, the Treasurer has 30 days to make a decision about the action. This decision period can only be extended if the Treasurer makes an interim order or the foreign person requests an extension to the decision period.
If a court finds an order or decision made by the Treasurer to be invalid, the Treasurer can make a new order or decision. If a court finds an order or decision made by the Treasurer to be invalid, the Treasurer cannot make a new order or decision if the decision period has ended.

Greater information sharing

2.14 The following table provides a comparison of the key features of the new law and the current law.

New law Current law
Protected information about decisions or orders made under the FATA may be shared with a Minister, an officer or employee of the Commonwealth, State or Territory or an officer or employee of the Commonwealth, State or Territory body (the recipient), where they have provided information that assisted with the decision or order. The information can be shared if the discloser reasonably believes the disclosure of the information may assist the recipient in the performance of their functions or duties or exercise of power. Protected information about a decision made under the FATA cannot be disclosed to a Minister, an officer or employee of the Commonwealth, State or Territory or an officer or employee of the Commonwealth, State or Territory body, where they have provided information that assisted with the decision.
Protected information may be shared with a foreign government and separate government entities where national security risks may exist and where it is not contrary to the national interest. The information can only be shared if there is an agreement in place between the Commonwealth and the other government entity. Protected information cannot be disclosed to a foreign overseas government.

In addition to the existing prescribed Acts, protected information may be disclosed under the FATA for the purposes of administering three additional Acts:

·
the Competition and Consumer Act 2010;
·
the Australia's Foreign Relations (State and Territory Arrangements) Act 2020; and
·
the Northern Australia Infrastructure Facility Act 2016.

The Treasurer can prescribe additional Acts.

Protected information may be disclosed under the FATA to a Minister or an accountable authority of the Commonwealth for the purposes of the administration of the prescribed list of Acts. The regulations can prescribe additional Acts.

In addition to the existing permitted purposes, protected information may be disclosed under the FATA for the purposes of a Minister discharging that Minister's responsibility for matters about water, telecommunications and infrastructure.

Protected information may be disclosed under the FATA to a Minister or an accountable authority of the Commonwealth or departmental secretary responsible for agriculture, industry, investment promotion, taxation policy, foreign investment in Australia, defence and for national security purposes.
The Commissioner may disclose protected information directly to persons appointed by the Commonwealth for the purposes of the FATA. The Commissioner is not permitted to disclose protected information to persons appointed by the Commonwealth for the purposes of the FATA.
Protected information under the FATA can be disclosed if it does not or not reasonably capable of identifying a person. Protected information under the FATA may only be disclosed if it is periodic aggregate information disclosed for the purposes of reporting on the administration of the FATA, and if it is not reasonably capable of identifying a person.

Minor and technical amendments

2.15 The following table provides a comparison of the key features of the new law and the current law.

New law Current law
It is clarified that for the purposes of the FATA, if a foreign person enters into an agreement to acquire an interest and the provisions of the agreement to acquire the interest are conditional on foreign investment approval, then the actions covered by the agreement are not taken to have occurred unless that approval has been given. For the purposes of the FATA, actions covered by an agreement are taken to have occurred when a person enters into the agreement unless the provisions of the agreement to acquire the interest are subject to conditions which have not yet been met.
It is clarified that the Treasurer or the Commissioner can apply to the court for an order where a foreign person has contravened the restrictions on the ownership of established residential dwellings. The Treasurer may apply to a court to make an order if a foreign person has contravened a civil penalty provision under the FATA.
Typographical errors are corrected.

Detailed explanation of new law

Improving the integrity of the foreign investment review framework

Change in control test not relevant in certain situations

2.16 Currently, increases in interests in an Australian business or entity are only significant actions if the acquisition results in a change of control as defined in the FATA. This means that private investors may be able to increase their holdings in a target Australian business or entity over time without enlivening the Treasurer's powers under the FATA.

2.17 The amendments provide that once a foreign person controls an entity or business, the change of control test does not need to be met for an action to be a significant action. This is limited only to acquisitions of interests in securities of an entity, issuing of securities in an entity, and acquisitions of interests in assets of an Australian business. [Schedule 1, items 58 and 59, subsections 40(7) and 41(6) of the FATA]

Example 2.1 Company A, a foreign person under the FATA, currently holds 60 per cent of the securities in Company B, an Australian entity that carries on an Australian business. Under the FATA Company A has control of Company B. The remaining 40 per cent interest is held by Company C, also a foreign person. Company A is proposing to acquire an additional 10 per cent interest in Company B from Company C.The acquisition by Company A of an additional 10 per cent interest in Company B is a significant action. The change of control test does not need to be met as Company A already controls the entity.

2.18 Schedule 1 to the Bill provides that substantial interests are relevant for the meaning of control. The FATA no longer provides for a person to control an entity or business if the person is one of two or more persons holding an aggregate substantial interest in the entity. The definition of 'aggregate substantial interest' remains relevant for determining whether an entity is a 'foreign person' (see definition of 'foreign person' in section 4). A person may hold a substantial interest in an entity alone or together with one or more associates (see section 17 of the FATA). [Schedule 1, item 71, paragraph 54(4)(b) of the FATA]

2.19 A consequential amendment is made as a result of the change of control test not needing to be met for an action to be a significant action. [Schedule 1, item 61, section 46 of the FATA]

2.20 The amendments to the change in control test apply in relation to actions taken, or proposed to be taken, on or after 1 January 2021. [Schedule 1, item 241]

Passive increases in securities holdings are actions under the FATA

2.21 The amendments deem a person to have taken an action to acquire an interest in securities in an entity if two conditions are met. The first condition is that the person holds an interest of a particular percentage in the entity. The second condition is that the percentage interest increases without the person acquiring interests in securities in the entity. [Schedule 1, item 38, subsection 18A(1) of the FATA]

Example 2.2 Sam is a foreign person who holds 500 Australia Bank shares, which represents a 9 per cent interest. Australia Bank runs a share buyback and Sam does not participate. After the buyback is finalised, Sam's 500 shares now represent a 12 per cent interest. Sam is deemed to have acquired an interests in securities in an entity.

2.22 A person is deemed to propose to take an action to acquire an interest in securities in an entity, if there are reasonable grounds to believe the person's percentage interest may increase without them acquiring interests in securities in the entity. [Schedule 1, item 38, subsections 18A(2) and 18(3) of the FATA]

2.23 Whether or not this deemed action will be a significant action or notifiable action or both, will depend on whether the other conditions which determine whether an action meets these definitions is met. Similarly, the deemed action may be a notifiable national security action if the deemed acquisition relates to a national security business or a reviewable national security action depending on the result of the action vis a vis a foreign person. [Schedule 1, item 38, note after subsection 18A(1) of the FATA]

2.24 Existing provisions are applied to the action with modifications. [Schedule 1, item 38, subsection 18A(4) of the FATA]

2.25 The meaning of 'to acquire an interest of a specified percentage in an entity is modified' for the purpose of passive increases to provide that for the purposes of subsection 20(1) of the FATA the person holds the interest in the entity immediately after the action is taken. [Schedule 1, item 38, table item 1 in the table in subsection 18A(4) of the FATA]

Example 2.3 Nick is a foreign person who holds 18 per cent of Company X. Company X is an Australian corporation carrying on an Australian business. Company X undertakes a share buyback and Nick does not participate. After the buyback is finalised, Nick holds 21 per cent of Company X. Nick has taken an action of acquiring interests in securities in an entity.

2.26 Existing section 81 requires all foreign persons to notify and wait for the Treasurer's approval before taking a notifiable action. However, it may be difficult for a person to predict their percentage shareholding might be where the person is not taking an action.

2.27 The amendments allow a person who takes a notifiable action by way of a passive increase, to notify up to 30 days after the action is taken. For example, in the event of an off-market buyback, a person must notify within 30 days of the buyback. In the event of an on-market buyback, the 30 day period would commence from the final buyback (for example, as indicated on the Australian Securities Exchange lodgement of a final share buy-back notice). [Schedule 1, items 5 and 138, section 3 and subsection 81(1A) of the FATA]

2.28 The requirement to notify the Treasurer before a notifiable action is taken and the corresponding offence and civil penalty does not apply for passive increases. Instead, the person commits an offence and is liable to a civil penalty if they fail to notify within the 30 days after the action is taken. [Schedule 1, items 137, 146, 149, 164 and 167, subsections 81(1), paragraph 84(b), subsection 84(2), section 91 and subsections 91(2) to 91(4) of the FATA]

2.29 A person who takes an action by way of a passive increase, is not subject to the limitation on taking the action after notice is given, nor does the person commit an offence or is liable for a civil penalty if the action is taken before the end of the decision period. [Schedule 1, items 142, 153 and 170, subsections 82(3), 85(c) and section 92 of the FATA]

2.30 The FATA is also modified to provide that a foreign person is only taking a notifiable action if the person did not hold a direct interest or substantial interest immediately before the passive increase. Similarly, the FATA is modified for the purpose of determining whether a passive increase is a notifiable national security action. A passive increase is only a notifiable national security action if the person did not hold a direct interest in the entity that carries on a national security business immediately before the increase. [Schedule 1, item 38, table items 2 and 4 in the table in subsection 18A(4) of the FATA]

Example 2.4 Caitlin is a foreign person who holds 25 per cent of Company Y. Company Y is an Australian corporation carrying on an Australian business with total shares value of $600 million. Company Y undertakes a share buyback and Caitlin does not participate. After the buyback is finalised, Caitlin holds 26.5 per cent of Company Y.Caitlin has not taken a notifiable action because she held a substantial interest in Company Y prior to the buyback. However, Caitlin may be taking a significant action.

2.31 The FATA is also modified for the purposes of the threshold test. For a deemed acquisition of a direct interest in an Australian entity that is an agribusiness the threshold test becomes the total value, after the action is taken, of all interests held by the person. [Schedule 1, item 38, table item 3 in the table in subsection 18A(4) of the FATA]

2.32 There are some limitations on the Treasurer's powers for deemed acquisitions. The Treasurer will not have the ability to prohibit the action. The Treasurer will have the power to direct the person to dispose of their interests in order to restore the percentage of interests as nearly as possible to what the person held immediately before the increase. [Schedule 1, item 38, table items 5 and 6 in the table in subsection 18A(4) and subsection 18A(5) of the FATA]

2.33 The decision period still applies to passive increases. The FATA is modified to provide that the decision period for a passive increase starts when the Treasurer receives a notice, even if that notice is received in the 30 days after the action. [Schedule 1, item 38, table item 7 in the table in subsection 18A(4) of the FATA]

2.34 The last resort is extended to these deemed actions but only to restore the percentage of interests that the person holds to what it was immediately before it increased. [Schedule 1, item 38, table items 8 and 9 in the table in subsection 18A(4) of the FATA]

2.35 For the purposes of determining whether a tier 2 or tier 3 infringement notice applies where there is a breach of the FATA about a passive increase the threshold is calculated on the total value, after the action is taken, of all interests held by the person. [Schedule 1, item 38, table item 10 in the table in subsection 18A(4) of the FATA]

2.36 Certain provisions of the FATA are not applied for the purpose of passive increases. This includes interim orders and no-objection notifications imposing conditions, because they are not suitable to these types of deemed actions. Also omitted are offences for taking an action while waiting for a decision by the Treasurer. [Schedule 1, item 38, table item 11 in the table in subsection 18A(4) of the FATA]

2.37 Schedule 1 to the Bill allows the FATR to modify the FATA in certain circumstances. The amendments about passive increases effectively add a new action type to the FATA. The intent of the regulation making power is to enable a more straight forward approach to address any unintended consequences from the new type of action. In particular, the amendments should not inappropriately impede the operation of foreign investors or markets. The regulation making power is limited and narrow. [Schedule 1, item 38, subsection 18A(6) of the FATA]

2.38 It only applies to passive increases that have been deemed to occur under the FATA. It is envisaged the regulation making power would be used to ensure the new passive increases action appropriately applied to acquisitions through a land entity.

2.39 Separately, Schedule 1 to the Bill provides that an entity does not acquire an interest in itself if it buys back a security. [Schedule 1, item 29, subsection 9(6) of the FATA]

2.40 Consequential amendments are made to clarify that for an action to be a significant action, the action must in most cases be taken by a foreign person. This clarifies that a passive increase may be a significant action. [Schedule 1, items 1 and 57, sections 3 and 39 of the FATA]

2.41 Consequential amendments are made as a result of the modifications to the offences and civil penalty provisions for passive increases. These include inserting new subheadings and subsection numbers, and correcting references. [Schedule 1, items 144, 145, 148, 161, 162 and 165, sections 84 and 91 of the FATA]

2.42 The amendments that deem passive increases in securities holdings to be actions under the FATA apply in relation to a percentage interest in an entity that increases on or after 1 January 2021. The amendments that deem passive increases in securities holdings to be proposed actions under the FATA apply in relation to a percentage interest in an entity that may increase on or after 1 January 2021. [Schedule 1, item 239]

Extending the tracing rules to apply to unincorporated limited partnerships

2.43 Currently, section 19 of the FATA provides for substantial interests in a corporation or trust to be traced back through the ownership of relevant entities. This process can be applied multiple times so that a person's interest can be traced through many entities.

2.44 The current tracing rules cannot be applied to unincorporated limited partnerships. This means that where there is an ownership structure with an unincorporated limited partnership, the interest cannot be traced through that unincorporated limited partnership to the higher entities that the Treasurer may be seeking to impose conditions on.

2.45 Schedule 1 to the Bill amends the tracing rules so that the tracing rules can be applied to unincorporated limited partnerships in the same manner as they apply to corporations and trusts. The amendments allow interests to be traced back through the ownership structure. This means that limited partners, alone or together with one or more associates, can be deemed to hold a substantial interest in an Australian entity. [Schedule 1, items 39 and 40, section 19 (heading), subsections 19(1) and 19(2) of the FATA]

2.46 The amendments achieve this by providing for the measurement of a partner's interest in an unincorporated limited partnership. The interest is determined using one of the following metrics: the partner's voting power or the partner's proportion of the distribution of property. This means that a limited partner can be deemed to hold an interest in the unincorporated limited partnership. [Schedule 1, items 31, 35, 36 and 37, section 11A, section 17 (heading), subsections 17(2A) and 17(3) of the FATA]

2.47 These amendments enable the Treasurer to impose conditions on higher entities in the ownership structure as required, to ensure that an acquisition is not contrary to the national interest.

Example 2.5 : Tracing through unincorporated limited partnerships Company A and Company B are foreign persons (who are not foreign government investors) and limited partners that each hold an interest in the Limited Partnership, an unincorporated limited partnership.BikCo would be required to notify the Treasurer of its proposed acquisition of the Australian Target if the action is a notifiable action. Assuming that the action was acquiring a substantial interest in the Australian Target, by virtue of the acquisition being carried out and the tracing rules, Company A and Company B would also be taken to be acquiring a substantial interest in the Australian Target. The Treasurer may impose conditions on Company A, Company B, the General Partner on behalf of the Limited Partnership and BikCo in any no objections notification. This is set out in Diagram 2.1.

Diagram 2.1: illustrating Example 2.5

Example 2.6 : Tracing through multiple unincorporated limited partnerships Limited Partner 1, Limited Partner 2 and Limited Partner 3 are foreign persons (who are not foreign government investors) that are limited partners of an unincorporated limited partnership. Limited Partner 2 and Limited Partner 3 each hold a substantial interest in the unincorporated limited partnership of 65% and 20% respectively.BikCo would be required to notify the Treasurer of its proposed acquisition of the Australian Target if the action is a notifiable action. Assuming that the action was acquiring a substantial interest in the Australian Target, by virtue of the acquisition being carried out and the tracing rules, Limited Partner 2 and Limited Partner 3 would also be taken to have a substantial interest in the Australian Target. The Treasurer may impose conditions on Limited Partner 2, Limited Partner 3, the General Partner B of Limited Partnership B, Company A, the General Partner of Limited Partnership A and BikCo. This is set out in diagram 2.2.

Diagram 2.2: illustrating Example 2.6

2.48 The amendments enable tracing through unincorporated limited partnerships where the general partner of an unincorporated limited partnership is another unincorporated limited partnership. Where the general partner of an unincorporated limited partnership is another unincorporated limited partnership, the general partner is an intermediate partnership. This allows tracing through an unincorporated limited partnership (that is a general partner) to a higher party in the ownership structure. This process can be applied multiple times.

2.49 For ownership structures with multiple unincorporated limited partnerships, reapplying the rules means there may be multiple intermediate partnerships that are looked at to determine whether a general partner (the intermediate partner) of any of those intermediate partnerships controls the voting power or holds interests in the lower party. The tracing rules allow tracing through the intermediate partnerships and the person will be taken to control the voting power or hold the interest in the lower party that the intermediate partner controls or holds. The Treasurer may exercise powers against this person. [Schedule 1, item 40, subsections 19(2A) and 19(2B) of the FATA]

Example 2.7 : Tracing through multiple unincorporated limited partnerships where the general partner is another unincorporated limited partnership Limited Partner 1, Limited Partner 2 and Limited Partner 3 are foreign persons (who are not foreign government investors) that are limited partners of an unincorporated limited partnership. Limited Partner 2 and Limited Partner 3 each hold a substantial interest in the unincorporated limited partnership of 65% and 20% respectively.BikCo is proposing to acquire the Australian Target. BikCo would be required to notify the Treasurer of its proposed acquisition of the Australian Target if the action is a notifiable action. General Partner A of Limited Partnership A is an unincorporated partnership (an intermediate partnership). The general partner of the intermediate partnership is General Partner I. General Partner I holds the shares in BikCo as general partner of the intermediate partnership as general partner of Limited Partnership A.Assuming that the action was acquiring a substantial interest in the Australian Target, by virtue of the acquisition being carried out and the tracing rules, Limited Partner 2 and Limited Partner 3 would also be taken to have a substantial interest in the Australian Target. The Treasurer may impose conditions on Limited Partner 2, Limited Partner 3, the General Partner B of Limited Partnership B, Company A, General Partner I as general partnership of the intermediate partnership as general partner of Limited Partnership A and BikCo. This is set out in diagram 2.3.

Diagram 2.3: illustrating Example 2.7

2.50 Schedule 1 to the Bill provides that only substantial interests are traced. The FATA no longer provides for the tracing of aggregate substantial interests. The definition of 'aggregate substantial interest' remains relevant for determining whether an entity is a 'foreign person' (see definition of 'foreign person' in section 4). A person may hold a substantial interest in an entity alone or together with one or more associates (see section 17 of the FATA). [Schedule 1, item 40, subsection 19(1) of the FATA]

2.51 Consequential amendments extend the voting power rules, the definitions of 'constituent document', 'general meeting', 'interest', 'substantial interest', and 'associate', and the application of the FATA provision to unincorporated limited partnerships. Definitions of 'general partner', 'limited partner' and 'limited partnership' are inserted into the FATA. [Schedule 1, items 10, 13, 14, 15, 17, 18, 21, 22, 23, 28, 30 and 42 to 53 , section 4, subsection 6(3), note 2 after subsection 9(1), note 2 after sections 10 and 11, note after subsection 21(1), sections 22 and 23, and 29 of the FATA]

2.52 A consequential amendment is made to the simplified outline of Division 4 so that it no longer references the holding of an aggregate substantial interest. [Schedule 1, item 65, section 50 of the FATA]

2.53 The amendments to the tracing rules apply in relation to actions taken, or proposed to be taken on or after 1 January 2021. [Schedule 1, item 240]

Oversight of government asset sales of national security businesses and national security land

2.54 Existing subsection 8(1) of the FATA provides that an Australian business is a business that is carried on in anticipation of profit or gain. Schedule 1 to the Bill modifies the requirement for anticipation of profit or gain requirement as it applies to activities carried on by government. The definition of business or Australian business includes activities carried on by government.

2.55 Schedule 1 to the Bill amends section 4 of the FATA to provide that the definition of business includes an activity carried on by the Commonwealth, a State, a Territory, or a local governing body, or by an entity wholly owned by the Commonwealth, a State, a Territory or local governing body. [Schedule 1, item 8, section 4 of the FATA]

2.56 Schedule 1 to the Bill amends section 8 of the FATA to provide that the definition of Australian business includes a business, whether or not it is carried on in anticipation of profit or gain, that is carried on by the Commonwealth, a State, a Territory, or a local governing body, or by an entity wholly owned by the Commonwealth, a State, a Territory or local governing body. [Schedule 1, item 26, subsection 8(3) of the FATA]

2.57 The amendments also provide that an activity carried on by a government can be both a business and an Australian business, if the activity would, or could, be carried on in anticipation of profit or gain by someone other than an Australian government, or a foreign government, or a separate government entity. [Schedule 1, item 26, paragraph 8(3)(b) of the FATA]

2.58 These amendments, in conjunction with proposed amendments to the FATR, will mean that the privatisation of certain government functions will not be exempt from being significant and notifiable actions.

2.59 Subsection 31(1) of the FATR excludes Australian business carried on by, or land acquired from, government bodies from the FATA. This exemption is moderated by subsection 31(2) of the FATR, which has the effect of reapplying the FATA to certain acquisitions.

2.60 The operation of subsections 31(1) and (2) of the FATR is not affected by the amendments to section 8 of the FATA. The amendments to section 8 expand the definition of 'Australian business', which will affect only the scope of the actions that subsections 31(1) and (2) of the FATR apply to.

2.61 Proposed amendments to the FATR will expand the scope of subsection 31(2) to reapply the FATA to certain acquisitions that would otherwise be covered by subsection 31(1). It is proposed that the amendments to the FATR would provide that, where a foreign person acquires from Government an interest in a national security business, national security land, or an Australian business the assets of which include an exploration tenement that is on national security land, the acquisition will not be exempt from the operation of the FATA.

2.62 The proposed amendments to the FATR would ensure that assets relevant to national security do not avoid scrutiny, including where the acquisition is from the Commonwealth, a State, a Territory or local governing body. These amendments will be made after Schedule 1 to this Bill has received Royal Assent.

2.63 The amendment to the definition of Australian business to include businesses carried on by the Commonwealth, States, Territories or local governing bodies applies in relation to actions taken, or proposed to be taken, on or after 1 January 2021. [Schedule 1, item 238]

Treasurer's power to extend the statutory decision period

2.64 Schedule 1 to the Bill amends the FATA to allow the Treasurer to extend or further extend the decision period under section 77 of the FATA by up to 90 days. The total period by which the Treasurer can extend the decision period is 90 days. However, multiple extensions may be made to reach the maximum 90 days. [Schedule 1, item 129, subsections 77A(1) and 77A(2) of the FATA]

2.65 The Treasurer must provide a reason to the applicant for the extension [Schedule 1, item 129, subsection 77A(3) of the FATA]

2.66 The amendments are intended to provide more efficient processing of sensitive or significant applications than the current methods of extension, such as issuing an interim order. Interim orders are costly, involve a lengthy process, and make a proposed acquisition public (because interim orders must be published on the government gazette).

2.67 The amendments enable the Treasurer to extend the decision period more efficiently where more time is required to consider the national interest including national security. This is not uncommon in cases of sensitive or significant applications, where a longer decision period is necessary to consult with Commonwealth, State or Territory bodies, consider their expert input or develop bespoke conditions.

2.68 The natural justice hearing rule will not apply to decisions by the Treasurer to use this power. On balance this is appropriate, as it allows the Treasurer to balance the needs of the applicant with the potential harm to the national interest of rushing consideration of the application. The detriment to the applicant is relatively minor; any foreseeable delay can be managed by the submission of an early application. Further, affording natural justice by way of seeking the applicant's comments would be akin to the existing mechanism under paragraph 77(5)(b) of the FATA and may create further delays. [Schedule 1, item 129, subsection 77A(4) of the FATA]

2.69 While the Treasurer is not required to consult with a person before extending the decision period, the person will still be afforded natural justice at other times in the decision making process, such as if the Treasurer will apply conditions to the no objection notification.

2.70 The amendment applies to events set out in the table in subsection 77(6) (as inserted by this Schedule) that occur on or after 1 January 2021. Section 77, as in force immediately before its repeal by this Schedule, continues to apply in relation to notices received by the Treasurer before 1 January 2021. [Schedule 1, item 244]

Time limits on making orders and decisions, and remaking invalid orders

2.71 Schedule 1 to the Bill also repeals and replaces existing section 77 to clarify the operation of decision periods, and to fix an unintended consequence relating to orders invalidated by a court. The amendments also ensure there are decision periods that start for the new national security actions inserted by Schedule 1 to this Bill. [Schedule 1, item 129, section 77 of the FATA]

2.72 The Treasurer must make an order or decision under Division 2 within the decision period. The decision period is usually 30 days after the day the Treasurer was notified that a significant action is proposed to be taken. The Treasurer is restricted from making orders or decisions after the decision period ends with limited exceptions. [Schedule 1, item 129, subsection 77(1) of the FATA]

2.73 The decision period can be extended by the making of an interim order. The interim order must be made and registered before the end of the decision period to be valid. [Schedule 1, item 129, subsection 77(2) of the FATA]

2.74 The decision period can also be extended if, before the end of that period, the person requests in writing that the Treasurer extend the period, or the Treasurer extends the decision period using the Treasurer's new power to extend the decision period by 90 days. [Schedule 1, item 129, paragraph 77(8)(b) and subsection 77(9) of the FATA]

2.75 If the action is taken before the end of the decision period, the Treasurer is no longer restricted by the time limits. [Schedule 1, item 129, subsection 77(3) of the FATA]

Example 2.8 Tomas is a foreign person who proposes to purchase a house on residential land in Hobart. This action is a notifiable action and a significant action under the FATA, and Tomas notifies the Treasurer. However Tomas purchases the house only 10 days after notifying, and without receiving the Treasurer's approval.The Treasurer may issue a disposal order. As the action has been taken the Treasurer is no longer restricted by a 30 day decision period.

2.76 Once an initial order (other than an interim order) is made for an action, there is no time limit on any subsequent orders. The FATA expressly contemplates that there might be a subsequent exercise of power under Division 2 following the initial exercise of power within the section 77 time limit. For example, where a prohibition order is made, and then the action is taken in contravention of such a prohibition order, the Treasurer is able to make subsequent orders that are not restricted by the section 77 time limit. [Schedule 1, item 129, subsection 77(4) of the FATA]

Example 2.9 Anan is a foreign person who proposes to acquire agricultural land in Western NSW for a consideration of $18 million. This is a significant action and notifiable action and Anan notifies the Treasurer before making the acquisition. The Treasurer considers that the proposed acquisition, if taken, will be contrary to the national interest and the national interest risks identified could not be mitigated by imposing conditions on the acquisition.Within 30 days of being notified of the proposed acquisition, the Treasurer issues a prohibition order directing Anan not to acquire the said agricultural land in Western NSW. Despite the prohibition order, Anan purchases the agricultural land. The Treasurer then decides to issue a disposal order to Anan regarding the agricultural land. The Treasurer is allowed to do this under subsection 77(4) of the FATA.

2.77 Subsections 77(5) and (6) work together to allow later decision periods for the same action (in certain circumstances). Subsection 77(5) allows the Treasurer to make an order or decision after the initial decision period has ended. Subsection 77(6) resets the decision period, meaning that the time limits and restrictions still apply to the Treasurer. The table at subsection 77(6) sets out when decision periods start for certain actions. It covers new actions created by the Bill. [Schedule 1, item 129, subsections 77(5) and 77(6) of the FATA]

2.78 Subsection 77(6) also fixes an unintended consequence of the current law. The Treasurer cannot make an order or decision after the decision period has ended, unless he has already made an order or decision. If an order is successfully challenged in a court, it may be found to be invalid and so be taken as never having been made. By the time of the court's decision it is almost certain that the original 30 day decision period would have expired, and the Treasurer would be prohibited from making any orders. Item 5 of subsection 77(6) fixes this by allowing a later decision period if such an event takes place. [Schedule 1, item 129, table item 5 in the table in subsection 77(6) of the FATA]

2.79 Subsection 77(7) is the same as the repealed subsection 77(4) of the current FATA. It provides that the decision period does not include any days affected by the giving of a section 133 notice. [Schedule 1, item 129, subsection 77(4) of the FATA]

2.80 Consequential amendments are made to other provisions of the FATA that refer to section 77 to correct references. [Schedule 1, items 12 and 213, sections 4 and note after subsection132(2) of the FATA]

2.81 The amendment applies to events set out in the table in subsection 77(6) (as inserted by this Schedule) that occur on or after 1 January 2021. The amendments apply to orders or decisions the Treasurer purported to make under Division 2 of Part 3 of the FATA that are set aside by a court, on or after 1 January 2021. Section 77, as in force immediately before its repeal by this Schedule, continues to apply in relation to notices received by the Treasurer before 1 January 2021. [Schedule 1, item 244]

Information sharing

Information sharing about decisions where the Commonwealth, State or Territory Minister or body provided information

2.82 Schedule 1 to the Bill provides that protected information under the FATA may be shared with a Minister, an officer or employee of the Commonwealth, State or Territory or an officer or employee of the Commonwealth, State or Territory body (the recipient), if the information is about a decision or order that the Treasurer has made under Part 3 of the FATA. The recipient or otherwise another officer or employee of the Commonwealth, State or Territory body must have provided information for the purposes of making the relevant decision. [Schedule 1, item 205, subsections 123A(a), 123A(b) and 123A(c) of the FATA]

2.83 The protected information may only be disclosed if the discloser reasonably believes the disclosure may assist the recipient with the performance of their duties or functions or exercise of their power. [Schedule 1, item 205, subsection 123A(d) of the FATA]

2.84 One example of protected information that may be disclosed that relates to a decision made under Part 3 of the FATA, is a no objection notification letter that was provided to the applicant. The information sharing to the recipient is necessary as the outcome of the Treasurer's decision may impact on the recipient's duties, functions or exercise of power. The sharing will inform the recipient of the no objection notification, including any conditions.

Example 2.10 Company H submitted a FIRB application to acquire agricultural land in NSW. Department of Mining was consulted on and provided relevant information to the Treasurer. On the basis of the information that was provided from Department of Mining the Treasurer issues a no objection notification with conditions under section 74. A Treasury officer considers the sharing of the no objection notification with conditions with the Department of Mining would reasonably assist the Department of Mining with the performance of its duties or functions or exercise of power. On this basis, Treasury may share the no objection notification with the Department of Mining.

Information sharing with foreign governments

2.85 Schedule 1 to the Bill provides that protected information under the FATA may be shared with foreign governments in limited circumstances where national security risks may exist, where it is not contrary to the national interest, subject to agreements in place between the Commonwealth and the foreign counterpart.

2.86 The amendments authorise the disclosure of protected information to foreign governments and separate government entities and provide that:

·
a person may disclose protected information in performing the person's functions or duties or exercising the person's powers under the FATA; and
·
the person is satisfied that the disclosure of information will assist the foreign government entity to perform a function or duty, or exercise a power of the government entity.

2.87 This ensures that information can only be shared with foreign governments and separate government entities, when it is relevant to the purposes of the FATA or if the information will assist the foreign government. [Schedule 1, item 205, paragraph 123B(1)(a) of the FATA]

2.88 Information sharing with foreign governments may only take place if three key tests are met. All three tests need to be satisfied before the information can be shared. These tests provide appropriate safeguards to ensure that information is only shared when necessary and appropriate. The three tests are:

·
information can only be shared if it relates to national security;
·
sharing the information must not be contrary to the national interest; and
·
an agreement regarding information sharing must be in place between the Commonwealth and the foreign government.

2.89 Information can only be disclosed if a person is satisfied that the information relates to national security and disclosing the information is not contrary to the national interest. The person must also be satisfied that the information will only be used in accordance with the agreement between the Commonwealth and the foreign government and that the information will not be further disclosed unless in accordance with that agreement. [Schedule 1, item 205, paragraphs 123B(1)(b) to (e) of the FATA]

2.90 The national security test facilitates the Treasurer's assessment of cases related to national security. The Treasurer needs to be able to share protected information if there are relevant national security considerations domestically or internationally. This is enabled by the amendments in Schedule 1 to the Bill. [Schedule 1, item 205, paragraph 123B(1)(b) of the FATA]

2.91 Information sharing with foreign governments or separate government entities is subject to the existing national interest test. [Schedule 1, item 205, paragraph 123B(1)(c) of the FATA]

2.92 Information sharing with foreign government entities is subject to separate individual agreements between the Commonwealth and the foreign government or separate government entity. These agreements will set out mutually agreed standards for the handling of personal information that provides privacy protection and, where relevant, limitations surrounding public disclosure of commercial in confidence information. The agreements will also specify that the information provided can only be used for the purpose for which it was provided - that is, to assist the foreign government to perform a function or duty, or exercise a power of the government or entity. This will provide certainty for regulators and investors and appropriately protect information, including possibly personal or commercial information. [Schedule 1, item 205, subsection 123B(2) of the FATA]

2.93 For example, an agreement could have specific arrangements for disclosure to the foreign entity; what the disclosed information can be used for; the categories of personal information that may be disclosed under the agreement; and that the foreign government or separate government entity must take reasonable steps to destroy or de-identify personal information where the overseas recipient no longer needs the information.

2.94 Notwithstanding that an agreement is in place, the Treasurer may impose in writing specific conditions on a foreign government or separate government entity for the handling of disclosed protected information. Any conditions imposed by the Treasurer are not a legislative instrument within the meaning of section 8 of the Legislation Act 2003. The Treasurer may impose specific conditions tailored to the circumstances of a particular disclosure of particular information if necessary. These conditions must not conflict with obligations under the Privacy Act 1988. [Schedule 1, item 205, subsections 123B(3) and (4) of the FATA]

2.95 Protected information is defined in section 120 of the FATA to mean information obtained under and in accordance with the FATA (with certain exceptions). Protected information can include personal information as defined under the Privacy Act 1988. The Australian Privacy Principles apply to the disclosures made under section 123B of the FATA. The amendments authorise cross-border disclosure of personal information that complies with Australian Privacy Principle 8.2(c), the disclosure is authorised under law. In addition, personal information disclosed under the amendments must have been obtained in accordance with the FATA, in the performance of the person's functions or duties or exercising of the person's powers under the FATA.

Information sharing within the Commonwealth

2.96 Existing section 122 provides that protected information could be disclosed under the FATA to a Minister or an accountable authority of the Commonwealth for the purposes of the administration of the prescribed list of Acts and for particular matters. Schedule 1 to the Bill replaces section 122 with a new provision which overlaps considerably with former section 122. The section describes who the information can be shared with, and ensures the list of prescribed Acts is in alphabetical order.

2.97 Schedule 1 to the Bill expands the prescribed list of Acts and adds three new matters for permitted sharing of protected information within the Commonwealth. Protected information may be disclosed to a person for the purposes of administering the prescribed list of laws or for the purposes of a Minister discharging the Minister's responsibilities for a particular matter. A person who may receive this information includes:

·
a Commonwealth Minister who has responsibility for administering that law or particular matter;
·
a person employed by the Minister under the Members of Parliament Act 1984, who is a member of staff of the Minister, or a consultant for the Minister; and
·
an officer or employee of a Department of State or an authority or agency of the Commonwealth administered by such a Minister. An officer may also include the Secretary of a Department and the Commissioner of Taxation. [Schedule 1, item 204, subsections 122(1) and (2) of the FATA]

2.98 The list of prescribed Acts in repealed section 122 is replicated. However three new Acts have been inserted in alphabetical order.

2.99 The Competition and Consumer Act 2010, the Foreign Relations (Effect of State and Territory Arrangements) Act 2020 and the Northern Australia Infrastructure Facility Act 2016 have been added to the list of prescribed laws, allowing for disclosures to the relevant person for the purposes of administrating that law. This provision has also been redrafted for clarity and the Acts listed alphabetically. [Schedule 1, item 204, subsection 122(3) of the FATA]

2.100 The inclusion of the Competition and Consumer Act 2010 ensures that information can be shared with the Minister responsible for the ACCC, a person employed by the Minister or an officer or employee of the ACCC for the purposes of administering the Competition and Consumer Act 2010. The national interest test considers competition to be one of the factors that should be considered when determining whether or not an acquisition is contrary to the national interest. Appropriate sharing of protected information will ensure the ACCC can properly administer the Competition and Consumer Act 2010 to determine whether certain transactions would have an impact on competition. [Schedule 1, item 204, paragraph 122(3)(h) of the FATA]

2.101 The inclusion of the Foreign Relations (Effect of State and Territory Arrangements) Act 2020 ensures that information can be shared with the Minister for Foreign Affairs and Trade, a person employed by the Minister or an officer or employee of the Department of Foreign Affairs and Trade for the purposes of administering the Foreign Relations (Effect of State and Territory Arrangements) Act 2020.

2.102 The Foreign Relations (Effect of State and Territory Arrangements) Act 2020 established a legislative scheme to enable the Commonwealth to oversee and regulate the negotiation of, and entry into, arrangements between State and Territory governments and foreign governments. Arrangements considered under the Foreign Relations (Effect of State and Territory Arrangements) Act 2020 could also be investments screened under the FATA. Appropriate sharing of protected information will ensure a consistent and whole-of-government approach on approving certain acquisitions where there is overlap. [Schedule 1, item 204, paragraph 122(3)(f) of the FATA]

2.103 The inclusion of the Northern Australia Infrastructure Facility Act 2016 ensures that information can be shared with the Minister for Resources, Water and Northern Australia or an officer or employee employed by the Department of Industry, Science, Energy and Resources for the purposes of administering the Northern Australia Infrastructure Facility Act 2016. The Northern Australia Infrastructure Facility Act 2016 offers financial assistance to encourage and assist private sector investment in the Northern Territory, and the responsible agency may need protected information to determine if financial assistance is appropriate. Applicants for assistance are assessed against particular criteria to determine their eligibility and these assessments would benefit from protected information obtained under the FATA. [Schedule 1, item 204, paragraph 122(3)(p) of the FATA]

2.104 Schedule 1 to the Bill provides that protected information can be shared for the purposes of discharging particular responsibilities of Commonwealth Ministers. Three new matters have been added to the list of prescribed responsibilities: infrastructure, telecommunications, and water. This ensures that protected information can be shared with the relevant Minister to assist that Minister to discharge his or her duties. This provision has also been redrafted for clarity. The list of matters in repealed section 122 is replicated and includes the following matters: agriculture; water; infrastructure; telecommunications; industry policy; investment promotion; taxation policy and foreign investment in Australia. [Schedule 1, item 204, subsection 122(5) of the FATA]

2.105 The provisions focus on relevant matters, rather than agencies or legislation, to ensure the operation of information sharing is not hampered when changes are made to portfolios or legislation.

2.106 Current paragraph 122(1)(w) allows regulations to prescribe other Acts for the administration of which information may be shared. Schedule 1 to the Bill changes the regulation making power to an instrument making power. This provides the Treasurer with the ability to prescribe any other Acts, by legislative instrument. This amendment allows for a more streamlined process and more flexibility, as it ensures information can be shared in a timely manner. [Schedule 1, item 204, subsection 122(4) of the FATA]

2.107 The Treasurer cannot delegate this power. [Schedule 1, item 219 and 220, subsection 137(1) and note at the end of subsection 137(1) of the FATA]

2.108 Where a disclosure under section 122 of the FATA includes personal information, Australian Privacy Principle 6.2(b) authorises the disclosure as it is an Australian law authorising the disclosure of personal information. However, other Australian Privacy Principles continue to apply, in particular, Australian Privacy Principle 11.1, which requires that an Australian Privacy Principle entity must take reasonable steps to protect personal information from misuse, interference or loss, and from unauthorised access, modification or disclosure.

Information sharing between the Commissioner of Taxation and the FIRB

2.109 Schedule 1 to the Bill amends the TAA to provide the Commissioner with the ability to disclose protected information to persons appointed by the Commonwealth for the purposes of the FATA.

2.110 Currently, only members of the FIRB are persons appointed for the purposes of the FATA. FIRB plays a key role in advising the Treasurer on matters about foreign investment. Enabling the Commissioner to disclose information directly to FIRB allows for a more efficient and streamlined process. The amendments to the TAA ensure that the Commissioner is able to disclose protected tax information to FIRB if it is for the purpose of advising the Treasurer about the administration of the FATA. [Schedule 1, item 226, table item 7A of subsection 355-65(4) in Schedule 1of the Tax Administration Act]

2.111 Schedule 1 to the Bill makes amendments to paragraph 120(2)(c) of the FATA to ensure that information that is provided to the FIRB members remains FATA protected information and is subject to Division 3 of Part 7, which governs how protected information under the FATA is treated. [Schedule 1, item 226, paragraph 120(2)(c) of the FATA]

2.112 The definition of Commonwealth entity has been repealed, as it is no longer used. [Schedule 1, item 226, definition of Commonwealth entity in section 4 of the FATA]

Amendments to section 124

2.113 Current section 124 of the FATA authorises disclosures of periodic aggregate information. A person may disclose protected information if it is specified in the FATR for the purposes of reporting on the administration of the FATA and if the information does not or could not identify a person.

2.114 Schedule 1 to the Bill repeals and replaces section 124 of the FATA and provides that protected information can be disclosed as long as it does not identify a person and is not reasonably capable of identifying a person. [Schedule 1, item 206, section 124 of the FATA]

2.115 The replacement of section 124 of the FATA ensures that the provision is not limited to disclosures made for the purposes of reporting on the FATA. Regulations will no longer need to be made to specify and allow for the sharing of protected information as long as the information does not or could not reasonably identify a person. Removing the regulation making power and not limiting information disclosure to the reporting on the administration of the FATA allows protected information to be disclosed as long as it does not or could not identify a person.

2.116 Protected information disclosed under section 124 could include a range of statistical or summarised information that relates to foreign investment in Australia, including information regarding the screening process, the administration of the regime and any trends in applications and decisions. Any disclosures would not contain personal information.

2.117 Examples of the types of quantitative protected information that may be shared in a given time period, that would not identify a person include:

·
the numbers of approvals with or without conditions;
·
the numbers of approvals or dollar value of investments in a particular sector, such as agriculture, mining or commercial real estate;
·
dollar value of certain exemption certificates;
·
the number of approvals or dollar value of investments from particular countries;
·
the number of withdrawals;
·
the number of variations received;
·
the number of exemption certificates received;
·
the number of orders made;
·
a specified value or total value; and
·
case processing time and trends.

2.118 Other examples of protected information that may be shared could include de-identified conditions that indicate what sector and type of investment. For example a redacted copy of a no objection notification with conditions. The sharing would be for the purposes of showing examples of the kinds of conditions that are imposed on particular sectors.

2.119 Examples of who the information could be shared to ranges from within government, and to the public if requested. For example, the information could be shared annually and publicly in the FIRB annual report. The FIRB annual report details proposed investment in particular sectors and details the source country of proposed investments. The information is usually in the form of statistics.

2.120 The information may also be shared, as requested, with federal, state and territory government officials. Information may also be shared, if requested, with Australian universities. Australian universities from time to time may seek specific data for research and academic purposes. Such sharing may consist of aggregate information, statistical information or summarised information when in the national interest.

2.121 For example, Treasury could share aggregate information on the value of exemption certificates given during a certain time period to another agency. The sharing would be for the purpose of sharing trends on exemption certificates and how their value may have changed over time. This could help inform the other agency of foreign investment trends.

Application of information sharing provisions

2.122 The amendments apply to the recording, disclosure, or use of information on or after 1 January 2021, regardless of whether the information was obtained before, on or after that day. [Schedule 1, item 249]

2.123 For the purposes of satisfying the requirement that information can be shared with foreign governments in accordance with an agreement, the agreement can be a pre-existing agreement. [Schedule 1, item 249]

Minor and technical amendments

Ensuring that interests acquired by entering agreements or acquiring options are treated in accordance with policy intent

2.124 For the purposes of the FATA, an interest is generally considered to have been acquired if an agreement to acquire an interest has been entered into, regardless of whether or not an interest has been legally acquired (i.e. whether or not completion of the transaction has occurred). This is intended to encourage foreign investors to seek approval before entering into a binding agreement.

2.125 The amendment repeals and replaces the note after subsection 15(5) to clarify that, where an agreement to acquire or sell an interest is conditional on obtaining a no objection notification, the agreement would become binding only (and therefore the action taken) when the Treasurer has given the no objection notification. [Schedule 1, item 33, note after subsection 15(5) of the FATA]

Example 2.11 Company K, a foreign corporation, begins negotiations with, an Australian corporation, to purchase a 25 per cent interest in that entity. This acquisition is a significant action and a notifiable action and requires approval. To avoid breaching the FATA, Company K should notify the Treasurer before entering into an agreement. Alternatively, Company K can avoid a potential breach by entering an agreement where the acquisition of the 25 per cent interest in the Australian corporation is conditional on foreign investment approval and seek the foreign investment approval prior to acquiring the interest in the Australian corporation. This means that until the Treasurer has made a decision, the action remains a proposed action. The Treasurer may choose to issue a prohibition order to prevent the acquisition, or approve the action. If the action is approved, the FIRB approval condition is satisfied and Company K has taken the action at that point in time, provided all other conditions in the agreement have already been satisfied.

2.126 Section 15 is also amended to recognise that Part 4 also includes notices for notifiable national security actions and notices that may be given for other actions that are inserted into the FATA as part of this Bill. [Schedule 1, item 32, paragraph 15(4)(a) of the FATA]

Court powers for contraventions of section 95 in accordance with policy intent

2.127 Currently under section 132 of the FATA, the Federal Court, the Federal Circuit Court and the Supreme Court of a State or Territory may make a broad range of orders if a person has committed an offence or contravened a civil penalty provision in Part 5. A court may make such an order regardless of whether the offender has been convicted of an offence or a civil penalty order has been made, and regardless of whether other proceedings relating to the contravention have been or are to be instituted.

2.128 The FATA also provides additional enforcement options to achieve its objectives. For example, where a civil penalty order is sought, the Treasurer may also seek an order restraining any dealings in property connected to the alleged breach so that the property is available to satisfy payment of a civil penalty order.

2.129 The amendments expand subsection 132(1) to enable a court to make orders as it thinks fit on the basis of a contravention of section 95, that is, for holding interests in established dwellings for the purpose of preserving the interest which gave rise to the contravention. This is consistent with the kinds of orders a court can currently make in respect of a contravention involving a failure to comply with section 81 or section 82 of the FATA. [Schedule 1, item 210, paragraph 132(1)(ab) of the FATA]

2.130 Orders for the purpose of 'preserving the interest' would include, for example, orders restraining a foreign person from dealing with the established dwelling in question. This may assist in ensuring that the dwelling to which the interest relates is available to satisfy a civil penalty order.

2.131 Further consequential amendments are made to reflect the inclusion of contraventions of section 95 as a trigger for court's power to make orders under section 132. The current section heading for section 132 is amended to reflect the availability of section 132 in respect of a breach of section 95, which would not necessarily involve any orders made by a court. This is also the case currently in respect of a contravention covered by paragraph 132(1)(a). [Schedule 1, items 208, section 132 (heading) of the FATA]

2.132 The table in subsection 132(3) which sets out the kinds of orders a court may make is amended to reflect the inclusion of section 95 contraventions, which are for 'the holding of an interest in Australian land' as distinct from 'the acquisition of an interest in Australian land'. [Schedule 1, item 212, table item 3 in the table in subsection 132(3) of the FATA]

2.133 The amendment applies to contraventions occurring on or after 1 January 2021. [Schedule 1, item 250]

2.134 Consequential amendments are also made to section 132 to reflect that some acquisitions of residential land could fall within the description of the new national security actions. [Schedule 1, items 209 and 211, subsection 132(1) of the FATA]

Amendments to correct previous drafting errors

2.135 Section 51 of the FATA outlines the threshold test for acquiring an interest in entities and businesses. Schedule 1 to the Bill removes the word 'significant' from section 51 of the FATA, aligning it with section 52. This clarifies that the threshold test as outlined in section 51 applies to notifiable actions, as well as significant actions. [Schedule 1, items 66 and 67, section 51 and heading to column 1 in the table in section 51 of the FATA]

2.136 Schedule 1 to the Bill clarifies that under subsection 53(1), where multiple actions are taken under one agreement and one action meets the threshold test, only that particular action meets the threshold test. The other actions are not deemed to meet the threshold test simply because they are covered under an agreement where a different action has met the test. [Schedule 1, item 69, subsection 53(1) of the FATA]

2.137 Subsection 53(2) is amended to correct the reference to the 'threshold test is met'. [Schedule 1, item 70, subsection 53(2) of the FATA]

2.138 Consequential amendments are made to the simplified outline in section 50 of the FATA, and to the table in section 51 of the FATA. A new table item has been inserted to put beyond doubt that a notifiable action of acquiring a substantial interest in an Australian entity is covered. [Schedule 1, items 64 and 68, section 50 and item 2A in the table in section 51 of the FATA]

2.139 Currently, subsection 37(5) of the FATA refers erroneously to 'paragraph 4(a)'. Schedule 1 to the Bill corrects the typographical error, so that subsection 37(5) refers to 'subsection (4)'. [Schedule 1, item 54, subsection 37(5) of the FATA]

2.140 Existing section 47 of the FATA sets out the conditions of a notifiable action. Schedule 1 to the Bill clarifies that in paragraph 47(2)(a) the first condition is that the action is either: to acquire a direct interest in an Australian entity that is an agribusiness; or to acquire a direct interest in an Australian business that is an agribusiness. [Schedule 1, item 62, paragraph 47(2)(a) of the FATA]

2.141 Schedule 1 to the Bill amends subsection 47(4) to only reference the new subparagraph of 47(2) that deals with 'Australian entities that are agribusinesses'. [Schedule 1, item 63, subsection 47(4) of the FATA]

2.142 Section 114 of the FATA is amended to remove a redundant reference to 'remitted', as a fee cannot be remitted if it has not yet been paid. [Schedule 1, item 189, section 114 of the FATA]

Chapter 3 - Improving compliance and additional enforcement tools

Outline of chapter

3.1 Schedules 1 and 2 to the Bill contain amendments to ensure the Treasurer and the Commissioner have appropriate powers to administer the FATA, including enhancements to the Treasurer's power to give directions to investors to prevent or address breaches of conditions.

3.2 Civil and criminal penalties have been increased to ensure appropriate deterrence is achieved and the infringement notice regime is extended to cover all types of breaches.

Context of amendments

3.3 Ensuring compliance with the foreign investment framework is crucial to the credibility and effective functioning of the regime. These reforms update the existing legislative framework to ensure that appropriate scrutiny is given to cases and non-compliance can be appropriately addressed.

3.4 The changes to the compliance framework bring it into line with other comparable regulatory regimes and enable more nuanced and targeted enforcement and compliance activities. These changes modernise the enforcement framework to allow for a graduated and proportional response to compliance issues, which strengthens the overall effectiveness of the regime.

Summary of new law

3.5 Schedules 1 and 2 to the Bill amend the FATA to:

·
expand the infringement notices regime to cover all types of foreign investments and introduce a third tier to allow for a more graduated and proportional approach to enforcement;
·
increase civil and criminal penalties under the FATA to ensure these penalties act as an effective deterrent;
·
remedy situations where foreign persons are given a no objection notification or an exemption certificate based on a foreign investment application that makes an incorrect statement or omits an important piece of information;
·
require foreign persons who have been issued a no objection notification for a proposed action or an exemption certificate, to notify the Government of certain events, including that the action has occurred;
·
provide the Treasurer with the power to give directions to investors in order to prevent or address suspected breaches of conditions or of the foreign investment laws;
·
provide the Treasurer with the standard monitoring and investigative powers (in line with those of other business regulators), including access to premises with consent or by warrant to gather information, to improve regulators' capability to monitor investor compliance and/or investigate potential non-compliance; and
·
provide the Treasurer with the power to accept enforceable undertakings from foreign persons to manage compliance.

Comparison of key features of new law and current law

3.6 The following table provides a comparison of the key features of the new law and the current law.

New law Current law
An infringement officer may issue an infringement notice if the infringement officer believes on reasonable grounds that the person contravened a civil penalty provision in the FATA. An infringement officer may issue an infringement notice if the infringement officer believes, on reasonable grounds, that the person contravened a civil penalty provision relating to residential land.
An infringement notice is a tier 1 infringement notice if the notice relates to an alleged contravention of a civil penalty provision by a person that is discovered because the person informed the Treasurer (or the Commissioner on behalf of the Treasurer) or the Registrar of the conduct. An infringement notice is a tier 1 infringement notice if the notice relates to an alleged contravention of a civil penalty provision by a person that is discovered because the person informed the Commonwealth of the conduct that constituted the alleged contravention.
A tier 3 infringement notice can be issued where the Treasurer (or the Commissioner on behalf of the Treasurer) discovers a breach through active compliance, or information provided by a member of the public.

A tier 3 infringement notice may be issued where the value for the action to which the alleged contravention relates, determined according to the introduced valuation rules, is equal to or more than:

·
$275 million for business acquisitions and other non-residential real estate acquisitions; or
·
$5 million for residential acquisitions.

A tier 3 infringement notice cannot be issued in relation to certain civil penalty provisions.

No equivalent
The maximum criminal penalty of:

·
Individual - 15,000 penalty units or 10 years imprisonment.
·
Corporation - 150,000 penalty units.

These penalties apply to the following criminal offences in the FATA and offences introduced by this Bill:

·
section 84 (Failing to give notice);
·
new subsection 84(2) (Failure to give notice where there is a passive increase in percentage held in an entity);
·
section 85 (Taking action before end of period);
·
new section 85A (Taking certain prohibited actions);
·
section 86 (Contravening orders under Part 3);
·
section 87 (Contravening conditions);
·
subsection 88(1) (Failing to advertise new dwellings); and
·
section 88A (Contravening directions and interim directions).

The maximum criminal penalty of:

·
Individual - 750 penalty units or 3 years imprisonment.
·
Corporation - 3,750 penalty units.

These penalties apply to the following criminal offences in the FATA:

·
section 84 (Failing to give notice);
·
section 85 (Taking significant action before end of period);
·
section 86 (Contravening orders under core Part 3);
·
section 87 (Contravening conditions); and
·
subsection 88(1) (Failing to advertise new dwellings).

The maximum financial penalty for a breach of a civil penalty provision is:

·
Individual - the greater of:

-
5,000 penalty units; or
-
75 per cent of the value for the action to which the alleged contravention relates, determined according to the introduced valuation rules.

However, the penalty is capped at a maximum monetary value of 2.5 million penalty units.

·
Corporation - the greater of:

-
50,000 penalty units; or
-
75 per cent of the value for the action to which the alleged contravention relates, determined according to the introduced valuation rules.

However, the penalty is capped at a maximum monetary value of 2.5 million penalty units.

These penalties apply to contraventions of the following civil penalty provisions in the FATA:

·
section 89 (Contravening orders under Part 3);
·
subsection 91(1) (Failing to give notice);
·
new subsection 91(2) (Failing to give notice in circumstances involving a passive increase in securities held in an entity);
·
section 92 (Taking a significant action before the end of the period);
·
new section 92A (Taking a prohibited action)
·
subsection 93(1) (Contravening conditions);
·
new subsection 93(1A) (Contravening conditions);
·
new subsections 93(2) (contravening conditions in exemption certificate); and
·
new section 98B (false or misleading information and documents).

The maximum financial penalty for a breach of a civil penalty provision is:

·
Individual - 250 penalty units.
·
Corporation - 1,250 penalty units.

The penalties apply to a contravention of the following civil penalty provision in the FATA:

·
section 89 (Contravening orders under Part 3);
·
section 91 (Failing to give notice);
·
section 92 (Taking a significant action before the end of the period); and
·
section 93 (Contravening conditions).

The maximum financial penalty for a contravention of a civil penalty provision relating to residential land under section 94 of the FATA, where a foreign person acquires an interest in residential land without giving a notice under section 81, or if the notice is given, takes an action before the day mentioned in section 82, is increased to be the greater of the following:

·
the amount of the capital gain that was made or would be made on the disposal of the interest in the relevant residential land;
·
25 per cent of the consideration for the residential land acquisition;
·
25 per cent of the market value of the interest in the relevant residential land.

The maximum financial penalty for a contravention of a civil penalty provision relating to residential land under section 94, where a foreign person acquires an interest in residential land without giving a notice under section 81, or if the notice is given, takes an action before the day mentioned in section 82, is the greater of the following:

·
10 per cent of the consideration for the residential land acquisition;
·
10 per cent of the market value of the interest in the relevant residential land.

The maximum financial penalties for contravention of the strict and absolute liability offence listed in section 119 of the FATA for failing to make and keep records is increased to 250 penalty units. The maximum financial penalties for contravention of the strict and absolute liability offence listed in section 119 of the FATA for failing to make and keep records is 30 penalty units.
The maximum financial penalties for contravention of section 133 of the FATA for failing to comply with the notice given by the Treasurer to provide information necessary for exercising the Treasurer's powers is 250 penalty units, or imprisonment for 6 months, or both. The maximum financial penalties for contravention of section 133 of the FATA for failing to comply with the notice given by the Treasurer to provide information necessary for exercising the Treasurer's powers is 30 penalty units, or imprisonment for 6 months, or both.
A person is liable for a civil penalty of 250 penalty units or 'tier 1' or 'tier 2' infringement notice for making a false or misleading statement including omitting relevant information, in a vacancy fee return to the Commissioner under subsection 115D(1) of the FATA. No equivalent
The Treasurer can revoke a no objection notification or exemption certificate given under the FATA, if the Treasurer is satisfied that the person gave false or misleading information, including giving false or misleading information by omitting important information relevant to that no objection notification or exemption certificate. The Treasurer may also vary the exemption certificate in such cases.

A person is also liable to a civil penalty or an infringement notice for making that false or misleading statement including where such a statement is made by omission.

No equivalent
Foreign persons who have been issued a no objection notification for a proposed significant action, or an exemption certificate are required to notify the Treasurer within 30 days of when the action has occurred.

The maximum penalty for a failure to notify is 250 penalty units for individuals and 1,250 penalty units for corporations.

A foreign person is required to notify the Treasurer when taking action specified in a no objection notification where it is included as a condition in the no objection notification. This currently occurs for all residential land acquisitions.

A foreign person must give notice to the Commissioner of their holdings of agricultural land as at the start of 1 July 2015 and water entitlements and contractual water rights as at the end of 30 November 2017; and any later events causing the start or ceasing of such interest to be held by foreign persons.

The Treasurer may issue directions or interim directions where the Treasurer has reason to believe that a person has engaged, is engaging, or will engage in conduct that constitutes a contravention of a provision of the FATA. No equivalent
The Treasurer has standard monitoring powers under Part 2 of the Regulatory Powers Act, including access to premises with consent or by warrant to gather information in order to monitor compliance with the FATA. No equivalent
The Treasurer has standard investigative powers under Part 3 of the Regulatory Powers Act, including access to premises with consent or by warrant to gather information in order to investigate potential non-compliance with the relevant offence or civil penalty provisions of the FATA. The Commissioner has investigative powers under the TAA, which may be used in relation to provisions of the FATA that are taxation laws. The provisions of the FATA that are taxation laws are those where powers or functions have been delegated to the Commissioner under section 137 of the FATA.
The Treasurer can accept enforceable undertakings relating to compliance with the FATA provisions, which are enforceable under Part 6 of the Regulatory Powers Act. No equivalent

Detailed explanation of new law

Harmonising and expanding the availability of infringement notices under the FATA

3.7 Currently, the FATA allows for less serious breaches of the foreign investment rules to be punishable by way of an infringement notice, but only for residential real estate investments. Infringement notices are issued using the framework in the Regulatory Powers Act.

3.8 Infringement notices are commonly used for minor breaches that are likely to occur frequently and can be assessed using objective criteria. For example, an infringement notice can be issued for three successive late submissions of a report where an investor is required to report on a quarterly basis about transactions that have taken place under an exemption certificate. Another example is where the investor submits a retrospective application to rectify the breach and is issued with an infringement notice to penalise the conduct.

3.9 The current framework sets two tiers of infringement notices - tier 1 notices and associated penalties are available where a person discloses the breach to the Commonwealth and tier 2 notices are issued when the breach is discovered by a means other than self-disclosure.

3.10 However, for other breaches of the FATA not currently covered by the infringement notice regime, the only existing mechanism for penalising breaches is to initiate court proceedings to impose civil or criminal penalties and in some cases, a disposal order can be issued.

3.11 The current definition of the tier 1 infringement notice in subsection 101(1) of the FATA requires notification to the Commonwealth. This is a broad provision and the amendment clarifies that it is only information provided directly to the Treasurer (or delegate) for the purpose of foreign investment administration, which could be taken to have met the disclosure requirement. Expanding the infringement notice regime

3.12 Schedule 2 to the Bill enlivens the framework of the Regulatory Powers Act which provides that an infringement officer may issue an infringement notice if the officer believes on reasonable grounds that the person contravened a civil penalty provision of the FATA. This enables the regulators to respond to a range of compliance issues, and aims to provide more credible deterrence for low to mid-range non-compliance with any civil penalty provision of the FATA. [Schedule 2, items 22 to 25, Subdivision AA - Application of the Regulatory Powers Act - Infringement notice, paragraph 100(1)(a), (ba) and (d) of the FATA]

3.13 The FATA provides that an infringement officer is a person who holds an APS 6 Level position or higher who is appointed by the Secretary in relation to issuing any infringement notices under the FATA. In addition to that, the Registrar may also appoint a person as prescribed by regulations, to be an infringement officer specifically in relation to issuing infringement notices in relation to registers. [Schedule 2, items 26 and 27, subsections 100(2) and (3A) of the FATA]

3.14 For the purpose of Part 5 of the Regulatory Powers Act, the FATA provides that the Secretary and the Commissioner of Taxation are the relevant chief executives in relation to any infringement notices under the FATA. In addition to that, the Registrar is also the relevant chief executive in relation to infringement notices that relate to registers. The Registrar may delegate its function to an eligible Registrar appointee or any other person as prescribed by the regulations. In exercising powers, delegates are required to comply with any directions of the delegator. [Schedule 2, items 28 to 30, subsection 100(4), (4BA), and (4C) of the FATA] Update to the definition of tier 1 infringement notice

3.15 The definition of a tier 1 infringement notice has been updated to clarify that it is the Treasurer, or the Commissioner on behalf of the Treasurer, and not the Commonwealth that must be notified through a direct voluntary disclosure by a foreign person of an alleged contravention for the purposes of the FATA. A disclosure made to the Registrar about a contravention involving failing to give notice to the Registrar may also constitute a voluntary self-disclosure for the purposes of meeting the definition of a tier 1 infringement notice .[Schedule 2, items 35 and 36, section 101 (heading) and paragraph 101(1)(b) of the FATA]

3.16 Limiting the disclosure for the purposes of the FATA ensures that other disclosures made to the Treasurer or other part of the Commonwealth under any other legislation within the Treasurer's portfolio will not constitute a self-disclosure for the purposes of working out whether an infringement notice should be classed as a tier 1 infringement notice.

3.17 A disclosure by a person in reaction to engagement from the regulator such as an early show cause notice, or any intimation of impending compliance action is not considered voluntary 'self-disclosure' for the purposes of working out whether an infringement notice should be classed as a tier 1 infringement notice. [Schedule 2, items 36 and 37, paragraph 101(1)(c) and subsection 101(1A) of the FATA]

3.18 Schedule 2 to the Bill further provides that for the purposes of a tier 1 infringement notice, a disclosure must be made in the manner approved by the Secretary under section 135 of the FATA. [Schedule 2, item 45, paragraph 135(3)(ba) of the FATA]

Introduction of tier 3 infringement notice

3.19 A third tier infringement notice is introduced for non-compliance of high-value acquisitions. This enables proportionate and graduated action in response to an investor's non-compliance that is commensurate with the quantum of the investment. Examples of circumstances when a tier 3 infringement notice may be issued could include repeated and systemic failure to comply in a timely manner with reporting conditions for a high-value acquisition, or taking a high value notifiable action before giving notice to the Treasurer.

3.20 A tier 3 infringement notice may apply where a notice is not otherwise classed as a tier 1 or 2 infringement notice. This means a tier 3 infringement notice will generally only apply where the Treasurer, or the Commissioner on behalf of the Treasurer, discovers the conduct through active compliance, such as by undertaking data-matching, or information provided by a member of the public. It will also only apply where the value of the action to which the contravention relates meets certain thresholds, which determine the cut-off between a tier 2 and tier 3 infringement notice. [Schedule 2, items 38, 39 and 1, subparagraphs 101(2)(c)(ii) and (iii), subsections 101(3), (4), (5) and (6), 101AA(1) and section 4 of the FATA]

3.21 A tier 3 infringement notice cannot be issued for certain civil penalty provisions, irrespective of the value of the relevant action. It is considered that it is more appropriate that certain civil penalty provisions are classed as tier 2 infringement notices (or tier 1 if there is a relevant self-disclosure) in order to ensure that penalties in an infringement notice are not higher than the related civil penalty amount. The civil penalty amount for these provisions is 250 penalty units, which is less than the amount payable under a tier 3 infringement notice. This will include certain civil penalty provisions relating to contravening conditions, contravening directions and interim directions, non-compliance with notification requirements, contraventions relating to vacancy fees for foreign acquisitions of residential land and contraventions relating to the new Register provisions. [Schedule 2, item 38, subparagraph 101(2)(c)(i), paragraph 101(4)(b) and subsection 101(3) of the FATA]

3.22 The amount payable under a tier 3 infringement notice is 300 penalty units for an individual and 1,500 penalty units in the case of a body corporate. This penalty amount is necessary to reflect the seriousness of breaches on the part of major investors and potential harm to the national interest that can arise from misconduct in such cases. For these breaches, the standard approach to penalty setting referred to in the Guide would not operate as a sufficient deterrent, nor would it adequately capture the benefits that could flow from misconduct. [Schedule 2, item 34, paragraph 100(6)(c) of the FATA]

3.23 A tier 2 infringement notice applies where the value of the action to which the contravention relates is less than either: $5 million for a contravention relating to residential land, or $275 million for other contraventions which are not related to residential land. The threshold value of $275 million was established to align with the threshold for business investment by non-government foreign investors to be deemed a significant action (prior to implementation of the temporary zero dollar threshold imposed as a result of the COVID-19 pandemic). The threshold value of $5 million for a contravention relating to residential land also reflects investor's sophistication level and tries to align with the notion that an infringement is not simply a cost of doing business. A tier 3 infringement notice applies where the value of the action to which the contravention relates exceeds the monetary thresholds for tier 2 infringement notices. The threshold values may be indexed annually in accordance with regulations made for the purposes of subsection 139(2) of the FATA. [Schedule 2, items 38 and 39, subsections 101(2) and (3), 101AA(1), and (7) of the FATA]

3.24 These amendments introduce a valuation table. This table is used to work out if the value of an action crosses the relevant thresholds to be classed as a tier 3 infringement notice. The table specifies the valuation approach to determine the value of the action to which the contravention of the civil penalty provision relates. If the determined value is lower than the monetary thresholds, a tier 2 infringement notice is issued, provided a person did not make a voluntary self-disclosure of the contravention, in which case a tier 1 infringement notice would apply. [Schedule 2, item 39, subsection 101AA(3) of the FATA, valuation table]

Table 3.1 - Approach for valuing actions for the purposes of assessing value against the tier 2/tier 3 thresholds

Item This kind of action ... that is mentioned in any of these provisions ... has this value ...
1 an acquisition of a direct interest in an entity or a business paragraph 40(2)(a) (significant action)

paragraph 47(2)(a) (notifiable action)

paragraph 55B(1)(b) or (c) (notifiable national security action)

The total of the following:

(a) the value of the consideration for the acquisition;

(b) the total value of the other interests held by the person, alone or together with one or more associates:

(i) in the entity or business; or

(ii) previously acquired from the entity or business

1A an acquisition of an interest of any percentage in an entity or a business paragraph 55D(1)(a) or subparagraph 55E(1)(a)(i) (reviewable national security action) The total of the following:

(a) the value of the consideration for the acquisition;

(b) the total value of the other interests held by the person, alone or together with one or more associates:

(i) in the entity or business; or

(ii) previously acquired from the entity or business

2 an acquisition of a substantial interest in an Australian entity paragraph 47(2)(b) (notifiable action) The higher of the following:

(a) the total asset value for the entity;

(b) the total issued securities value for the entity

3 an acquisition of interests in securities in an entity paragraph 40(2)(b) (significant action) The higher of the following:

(a) the total asset value for the entity;

(b) the total issued securities value for the entity

4 an issue of securities in an entity paragraph 40(2)(c) (significant action)

subparagraph 55D(2)(a)(i) (reviewable national security action)

The higher of the following:

(a) the total asset value for the entity;

(b) the total issued securities value for the entity

5 an entering into an agreement paragraph 40(2)(d) (significant action)

subparagraph 55D(2)(a)(ii) (reviewable national security action)

The total asset value for the entity to which the agreement relates
6 an alteration of a constituent document of an entity paragraph 40(2)(e) (significant action)

subparagraph 55D(2)(a)(iii) (reviewable national security action)

The total asset value for the entity
7 an acquisition of a direct interest in an Australian business that is an agribusiness paragraph 41(2)(a) (significant action) The total of the following:

(a) the value of the consideration for the acquisition;

(b) the total value of the other interests held by the person, alone or together with one or more associates:

(i) in the business; or

(ii) previously acquired from the business

8 an acquisition of interests in assets paragraph 41(2)(b) (significant action)

subparagraph 55E(1)(a)(ii) (reviewable national security action)

The value of the consideration for the acquisition
9 entering into or terminating a significant agreement with an Australian business paragraph 41(2)(c) (significant action)

subparagraph 55E(1)(a)(iii) (reviewable national security action)

The total value of the assets of the business
10 an acquisition of an interest in Australian land section 43 (significant action)

paragraph 47(2)(c) (notifiable action)

paragraph 55B(1)(d) (notifiable national security action)

section 55F (reviewable national security action)

the greater of the following:

(i) the value of the consideration for the acquisition;

(ii) the market value of the interest

11 starting a business paragraph 55B(1)(a) (notifiable national security action)

paragraph 55E(2)(a) (reviewable national security action)

the market value of the business
12 an acquisition of a legal or equitable interest in an exploration tenement in respect of Australian land subparagraph 55B(1)(e) (notifiable national security action) the greater of the following:

(i) the value of the consideration for the acquisition;

(ii) the market value of the interest

13 if no previous item applies-an action specified in regulations that specify, or set out a method for determining, an amount for the action regulations made for the purposes of section 44 (significant action)

regulations made for the purposes of section 48 (notifiable action)

that amount
14 if no previous item applies-an action specified in regulations regulations made for the purposes of section 44 (significant action)

regulations made for the purposes of section 48 (notifiable action)

the greater of the following:

(i) the value of the consideration for the action;

(ii) the market value of the benefit obtained by the action

Example 3.1 Company I is issued a no objection notification to acquire a direct interest in an Australian business. One of the conditions in the no objection notification is to undertake an audit and provide financial reports of the accounts for the acquired Australian entity on a quarterly basis.Company I makes late submissions of a report on three successive occasions. This is a contravention of subsection 93(1) of the FATA which is a civil penalty provision. The Treasurer decides to issue an infringement notice to penalise the conduct.The Treasurer uses the valuation approach provided under item 1 of the valuation table (since the significant action that the contravention relates to is an acquisition of a direct interest in an Australian business). Under item 1 of the valuation table, the value of the action is determined to be $200 million.Since the value of the action to which the contravention relates does not exceeds the monetary threshold of $275 million, the Treasurer issues a tier 2 infringement notice.

3.25 For a contravention of a civil penalty provision that relates to an exemption certificate, the valuation table should be used to determine the value of the action covered by that exemption certificate, disregarding the effect of the exemption certificate. If the kind of the action to which the contravention relates can be covered by more than one item of the table, the value of that action is determined as being the greatest of the respective amounts worked out under those items. [Schedule 2, item 39, subsections 101AA(3), (4) and (5) of the FATA]

3.26 For a contravention of a civil penalty provision that relates to an acquisition of interests in multiple established dwellings by a temporary resident under subsection 95(1) of the FATA, the value of the action will be the total of the market values of the interests referred. Where a contravention relates to the acquisition of an interest by a foreign person who is not a temporary resident, the value of the action is ascertained as the greater of the value of consideration for the acquisition and the market value of the interest referred. [Schedule 2, item 39, subsection 101AA(6) of the FATA]

3.27 Similar rules apply for a contravention of a civil penalty provision that relates to giving false or misleading information or documents in relation to a no objection notification or an exemption certificate. The value of the action to which the contravention relates will be the sum of the values (worked out in accordance with the valuation table), for each core Part 3 action, where false statements were given in respect of that action. [Schedule 2, item 39, paragraph 101AA(1)(b) and subsection 101AA(2) of the FATA]

3.28 Where the valuation table does not cover an action, the value of the action is the value of the consideration for the acquisition (where the action is an acquisition) or the market value of the benefit obtained by the action. [Schedule 2, item 39, subsection 101AA(3) of the FATA]

3.29 If there is no consideration for the action to which the contravention relates, and the market value of the action cannot be ascertained, the value of the action is taken to be nil. In these cases, tier 2 infringement notices will apply rather than tier 3 notices, as the value of the action will fall short of the relevant thresholds. [Schedule 2, item 39, subsection 101AA(8) of the FATA]

3.30 Where a tier 3 infringement notice could be issued, the Treasurer may decide to issue a tier 2 infringement notice instead, despite the value of the relevant action if the Treasurer considers that a tier 2 notice is more appropriate. [Schedule 2, item 38, subsections 101(5) and (6) of the FATA]

3.31 In making this decision, the Treasurer will have regard to the conduct of the person after the alleged contravention, such as the steps taken by the person to remedy the alleged contravention and level of cooperation with the regulators in addressing the alleged contravention. The Treasurer will also ensure that the imposition of a tier 2 infringement notice is not contrary to the national interest. [Schedule 2, item 38, subsection 101(7) of the FATA]

3.32 For example, an investor was, for a limited period of time, in breach of a condition requiring a certain board composition. However, the investor has quickly rectified the situation and was cooperative during the investigation of the breach. The breach was significant enough to warrant a tier 3 infringement notice. However, due to the quick rectification, steps taken and cooperation of the investor, a tier 2 infringement notice is issued instead.

3.33 Regulator-imposed penalties such as an infringement notice scheme should be limited to situations where imposing the penalty does not reflect a judgment as to the person's guilt or liability.

3.34 The infringement notice regime is expanded to civil penalty provisions, where it is generally expected that an infringement notice be issued on the basis of straightforward factual questions, without involving discretion from the infringement officer. For example, where the contravention involves a failure to notify arising where an objective circumstance, such as an acquisition occurs. However, the FATA regulates actions that can be factually complex. Where the factual circumstances raise doubt as to whether a contravention has occurred, it is not intended that an infringement notice be issued.

3.35 A regulator should not be exercising significant discretion in determining the level of penalty to be imposed on a recipient by way of infringement notice, other than in strict accordance with factual criteria set out in the legislation. The infringement notice framework in the FATA provides some discretion to the Treasurer to impose a tier 2 infringement notice for an alleged contravention where the value of the relevant action is higher than the monetary threshold. However, the amendments to the FATA set out the factors the Treasurer would consider in deciding the level of infringement notice to impose such as an investor's conduct or national interest factors. This limits the element of discretion for the regulator to determine the amount payable under an infringement notice. This approach enables the Treasurer to issue a tier 2 infringement notice where the contravention and the surrounding circumstances, as stated in the legislation, are taken into account to issue a proportionate infringement notice. This also ensures natural justice for a person, and encourages them to actively engage and cooperate with the regulators and take steps to address the breach, which in turn provides better regulatory outcomes.

Exemptions from standard content requirements for infringement notices

3.36 These amendments remove the need for an infringement notice under the FATA to include certain standard content otherwise required under the Regulatory Powers Act, which would be inaccurate in the FATA context. Specifically, the amendments ensure that an infringement notice under the FATA does not need to set out the amount of the penalty worked out in accordance with rules under the Regulatory Powers Act. There are bespoke rules for calculating the penalty amount in an infringement notice under the FATA that depend on whether the notice is a tier 1, tier 2 or tier 3 notice (which replace the standard rules under the Regulatory Powers Act). [Schedule 2, items 33 and 31, paragraph 100(5)(b) and subsection 100(5) of the FATA]

3.37 These amendments remove the need for an infringement notice relating to certain civil offence provisions under the FATA to include certain standard content otherwise required under the Regulatory Powers Act, which may be irrelevant, impracticable or difficult to determine in the FATA context. Specifically, the amendments ensure that for some infringement notices under the FATA, the notice need not set out the maximum civil penalty a court could impose for a contravention of that provision and the time, day and place of an alleged contravention. The particulars of time, day and place are generally not material to contraventions under the FATA, such as failing to provide a notice. It may also be difficult to determine the maximum civil penalty that a court could impose, where this amount is based on the value of an action. [Schedule 2, item 32, paragraph 100(5)(a) of the FATA].

Updating the penalties for certain criminal offences and contravention of civil penalties under the FATA

3.38 Current monetary penalties under the FATA are low compared to those available to other business regulators. Part 5 of the FATA (about offences and civil penalties) is amended to increase the maximum term of imprisonment, maximum financial penalties for certain criminal offences and the maximum financial penalties for the contravention of certain civil penalties.

Increase to imprisonment terms and financial penalties applicable to certain criminal offences

3.39 Schedule 1 and Schedule 2 to the Bill increases the penalties for certain offences to reflect the seriousness of those offences, and to deter and punish such behaviour as appropriate.

3.40 The increases to the maximum penalties applicable to certain offences have been increased to: reflect the seriousness of the offence; act as a deterrent from committing offences; effectively punish those who commit offences; ensure consistency in the penalties for offences compared to other regulators; safeguard Australia's national interest; and maintain the integrity of Australia's foreign investment framework.

3.41 Maximum penalties provide a court with guidance on how to punish criminal behaviour. They restrict the court's sentencing discretion as the court is unable to order a penalty in excess of the prescribed maximum penalty. The maximum penalty is generally reserved only for the most egregious cases.

3.42 Offences where the maximum term of imprisonment has been increased are listed in the table below. If the offence does not appear in the table, the penalty for the offence has not changed. The table also includes new offence provisions introduced by Schedules 1 and 2 to the Bill.

Table 3.2 - Offences where the maximum term of imprisonment and monetary penalties have been increased or new offence provisions have been created

Offence provision Current imprisonment term and financial penalty New imprisonment term and financial penalty Brief description
Subsection 84(1) (previous section 84) Imprisonment for 3 years, or 750 penalty units, or both. Imprisonment for 10 years, or 15,000 penalty units (or 150,000 penalty units if the person is a corporation), or both A foreign person must provide notice under section 81 before taking a notifiable action or notifiable national security action.
Subsection 84(2) No equivalent Imprisonment for 10 years, or 15,000 penalty units (or 150,000 penalty units if the person is a corporation), or both A foreign person must provide notice where they are deemed through section 18A to take a notifiable action or notifiable national security action because there is passive increases in securities they hold in an entity
Subsection 85(1) (previous section 85) Imprisonment for 3 years, or 750 penalty units, or both. Imprisonment for 10 years, or 15,000 penalty units (or 150,000 penalty units if the person is a corporation), or both A foreign person must not take a significant action, notifiable national security action, reviewable national security action that has been notified to the Treasurer or an action that may pose a national security concern that has not been taken before the day mentioned in section 82.
Subsection 85(2) No equivalent Imprisonment for 10 years, or 15,000 penalty units (or 150,000 penalty units if the person is a corporation), or both A foreign person must not take an action that has not been taken at the time the Treasurer gives the person a notice that the action may pose a national security concern.
Section 85A No equivalent Imprisonment for 10 years, or 15,000 penalty units (or 150,000 penalty units if the person is a corporation), or both A foreign person must not take an action that is prohibited by paragraph 79A(3)(b) or subsection 79A(4)
Section 86 Imprisonment for 3 years, or 750 penalty units, or both. Imprisonment for 10 years, or 15,000 penalty units (or 150,000 penalty units if the person is a corporation), or both A person must not engage in conduct contravening an order made under Part 3.
Section 87 Imprisonment for 3 years, or 750 penalty units, or both. Imprisonment for 10 years, or 15,000 penalty units (or 150,000 penalty units if the person is a corporation), or both A person must not engage in conduct contravening conditions specified under section 74 relating to a significant action or in an exemption certificate.
Subsection 88(1) Imprisonment for 3 years, or 750 penalty units, or both. Imprisonment for 10 years, or 15,000 penalty units (or 150,000 penalty units if the developer is a corporation), or both The developer must advertise new dwellings prior to disposing of an interest in the dwelling to a foreign person, contravening a condition of the exemption certificate.
Section 88A No equivalent Imprisonment for 10 years, or 15,000 penalty units (or 150,000 penalty units if the developer is a corporation), or both A person must not engage in conduct that contravenes directions and interim directions.
Subsection 133(5) Imprisonment for 6 months or 30 penalty units, or both. Imprisonment for 6 months or 250 penalty units, or both. A person must comply with the notice given by the Treasurer to provide information necessary for exercising the Treasurer's powers

[Schedule 1, item 149, 154, 155, 158 and 160, subsections 84(2) and 85(2), sections 85A, 88A and 90 of the FATA; Schedule 2, items 3 to 7 and 44, sections 84, 85, 86, 87, subsection 88(1) and 133(5), of the FATA]

3.43 The corporate multiplier for these offences is a factor of 10 for financial penalties. This higher relative penalty is necessary and appropriate to ensure that a corporation does not obtain financial benefits from illegal behaviour and to recognise the financial benefits that can be obtained by not complying with the law. Corporate bodies can be well resourced and may see the financial penalties as a cost of doing business. To ensure financial penalties act as an adequate deterrent, punish illegal behaviour and are commensurate to the size and capacity of corporate bodies, this higher penalty will apply. This provides an adequate penalty that will deter and punish illegal behaviour.

3.44 The approach to determining the maximum term of imprisonment recognises that criminal breaches relating to conduct that places the national interest at risk require a significant jail term as an option available to the court. In this instance, applying standard ratios of maximum fines to maximum terms of imprisonment would give rise to a manifestly excessive maximum jail term. The prescribed 10 year maximum term reflects the seriousness of these offences.

Increase to financial penalties applicable to certain civil penalty provisions

3.45 The Bill increases the financial penalties for breaches of certain civil penalty provisions. The increase in penalty amounts ensures that investors who do not comply with their legal requirements are appropriately penalised, and aligns civil penalty amounts under the FATA with those of other business regulators.

3.46 Civil penalty provisions where the maximum monetary penalties have been increased are listed in the table below. If the civil penalty provision does not appear in the table, the penalty for the provision has not changed. The table also includes new civil penalty provisions introduced by Schedules 1, 2 and 3 to the Bill.

Table 3.3 - Civil penalty provisions where the maximum monetary penalties have been increased or new civil penalties have been introduced

Civil penalty provision Current financial penalty New financial penalty Brief description
Subsection 89(1)

(previous section 89)

250 penalty units (or 1,250 penalty units if the person is a corporation) The lesser of the following: (a) 2,500,000 penalty units;

(b) the greater of the following:

(i) 5,000 penalty units (or 50,000 penalty units if the person is a corporation);

(ii) the amount worked out under section 98F for the action in relation to which the order was made.

A person must not contravene an order made under Part 3
Subsection 91(1) (previous section 91) 250 penalty units (or 1,250 penalty units if the person is a corporation) The lesser of the following: (a) 2,500,000 penalty units;

(b) the greater of the following:

(i) 5,000 penalty units (or 50,000 penalty units if the person is a corporation);

(ii) the amount worked out under section 98F for the action.

A foreign person who proposes to take a notifiable action or a notifiable national security action must give a notice under section 81 before taking the action.
Subsection 91(2) No equivalent The lesser of the following: (a) 2,500,000 penalty units;

(b) the greater of the following:

(i) 5,000 penalty units (or 50,000 penalty units if the person is a corporation);

(ii) the amount worked out under section 98F for the action.

A foreign person must provide notice where they are deemed through section 18A to take a notifiable action or notifiable national security action because there is passive increases in securities they hold in an entity
Subsection 92(2)

(previous section 92)

250 penalty units (or 1,250 penalty units if the person is a corporation) The lesser of the following: (a) 2,500,000 penalty units;

(b) the greater of the following:

(i) 5,000 penalty units (or 50,000 penalty units if the person is a corporation);

(ii) the amount worked out under section 98F for the action.

A foreign person who proposes to take a significant action, notifiable national security action, an action that poses a national security concern, or a reviewable national security action that has been notified must not take the action before the day mentioned in section 82.
Section 92A No equivalent The lesser of the following: (a) 2,500,000 penalty units;

(b) the greater of the following:

(i) 5,000 penalty units (or 50,000 penalty units if the person is a corporation);

(ii) the amount worked out under section 98F for the action.

A foreign person must not take an action prohibited by paragraph 79A(3)(b) or subsection 79A(4)
Subsection 93(1) 250 penalty units (or 1,250 penalty units if the person is a corporation) The lesser of the following: (a) 2,500,000 penalty units;

(b) the greater of the following:

(i) 5,000 penalty units (or 50,000 penalty units if the person is a corporation);

(ii) the amount worked out under section 98F for the core Part 3 action.

A person who is given a no objection notification must not contravene a condition specified in the notification.
Subsection 93(2) No equivalent The lesser of the following: (a) 2,500,000 penalty units;

(b) the greater of the following:

(i) 5,000 penalty units (or 50,000 penalty units if the person is a corporation);

(ii) the amount worked out under section 98F for the action.

A person who is given a notice must not contravene a condition specified in that notice.
Subsection 93(3) 250 penalty units (or 1,250 penalty units if the person is a corporation) 5,000 penalty units (or 50,000 penalty units if the person is a corporation) A person who is specified an exemption certificate must not contravene a condition specified in the certificate.
Subsection 94(4) The greater of the following:

(a) 10 percent of the consideration for the residential land acquisition;

(b) 10 per cent of the market value of the interest in the relevant residential land.

The greatest of the following:

(a) the amount of the capital gain that was made or would be made on the disposal of the interest in the relevant residential land;

(b) 25 per cent of the consideration for the residential land acquisition;

(c) 25 per cent of the market value of the interest in the relevant residential land.

A foreign person who proposes to take a notifiable action, notifiable national security action, reviewable national security action or an action that poses a national security concern and that is a residential land acquisition must give a notice under section 81 and must not take the action before the day mentioned in section 82.
Section 95A No equivalent The greatest of the following:

(a) the amount of the capital gain that was made or would be made on the disposal of the interest in the relevant residential land;

(b) 25% of the consideration for the residential land acquisition;

(c) 25% of the market value of the interest in the relevant residential land.

A foreign person must not take an action relating to residential real estate acquisition prohibited by paragraph 79A(3)(b) or subsection 79A(4)
Subsection 97(1A) No equivalent 250 penalty units A person who is given a notice relating to residential real estate acquisition must not contravene a condition specified in that notice.
Section 98A No equivalent 5,000 penalty units (or 50,000 penalty units if the person is a corporation) A person must not engage in conduct that contravenes directions and interim directions.
Section 98B (1) No equivalent The lesser of the following: (a) 2,500,000 penalty units;

(b) the greater of the following:

(i) 5,000 penalty units (or 50,000 penalty units if the person is a corporation);

(ii) the sum of the amounts worked out under section 98F for each of the core Part 3 actions to which the no objection notification relates where the information was or the documents were false or misleading in a material particular

A person must not give a false or misleading information or documents that relates to a no objection notification for core Part 3 actions
Section 98B (2) No equivalent 5,000 penalty units (or 50,000 penalty units if the person is a corporation) A person must not give a false or misleading information or documents that relates to an exemption certificate
Section 98C, 98D and 98E No equivalent 250 penalty units A person must notify the Treasurer of taking of action specified in no objection notification and exemption certificate. A person must also notify the Treasurer of taking of action specified in section 98E.
Section 130ZV No equivalent The lesser of the following:

(a) 25 penalty units for each period of 30 days or part of a period of 30 days starting at the notice time and ending when the notice is given;

(b) 250 penalty units.

A foreign person is required to give notice to Registrar under Division 3 or 4 of Part 7A of the FATA before the notice time

[Schedule 1, items 167, 179, 172, 176, subsection 91(2), 91(3), 91(4) and 97(1A) and section 92A and 95A of the FATA; Schedule 2, items 9, 10, 12 to 16, subsections 89(2), 89(3), 92(2), 92(3), 93(1) to (7), and 94(4), sections 98A, 98B, 98C, 98D and 98E of the FATA; Schedule 3, item 8, section 130ZV of the FATA]

3.47 Under Part 4 of the Regulatory Powers Act, if a body corporate contravenes a civil penalty provision, the penalty for a body corporate is five times the pecuniary penalty specified for the civil penalty provision. However, the amendments to the FATA deviate from this approach, instead providing that the pecuniary penalty for body corporates is 10 times the penalty specified for some civil penalty provisions. This higher relative penalty is necessary and appropriate to ensure that a corporation does not obtain financial benefits from illegal behaviour. To ensure financial penalties act as an adequate deterrent, punish illegal behaviour and are commensurate to the size and capacity of corporate bodies, this higher penalty will apply. For civil penalty provisions that relate to residential land, the penalty is fixed to the value of the interest so that it will have the same impact on any gain made regardless of the value of the interest. For that reason, if a body corporate contravenes the provision there is no provision that the person pay five times the penalty that could be imposed on an individual. [Schedule 2, items 21, subsection 99(4) of the FATA]

3.48 For the purpose of Part 4 of the Regulatory Powers Act, the FATA provides that the Secretary and the Commissioner are the authorised applicants in relation to any civil penalties provision under the FATA. In addition to that, the Registrar is also the authorised applicant in relation to a civil penalty that relates to registers. The Registrar may delegate its function to an eligible Registrar appointee or any other person as prescribed by the regulations. In exercising powers, delegates are required to comply with any directions of the delegator. [Schedule 2, items 17, 18, 19 and 20, Subdivision A of Division 4 of Part 5 (heading), subsection 99(2), (2BA) and (2C) of the FATA]

3.49 The amendments set out how civil penalty amounts for penalty provisions under the FATA are to be calculated. These calculations are based on the value of the action, and are set out in the valuation table. The civil penalty amount is 75 per cent of the value of the action as determined under the valuation rules. [Schedule 2, item 16, subsection 98F(1) of the FATA]

3.50 Where a contravention of a civil penalty provision that relates to giving false or misleading information or documents in relation to a no objection notification or an exemption certificate; where the no objection notification covers one or more core Part 3 action. The value of the action to which the contravention relates will be the sum of the values (worked out in accordance with the valuation table), for each core Part 3 action, where false statements were given in respect of that action. [Schedule 2, item 16, subsection 98F(2) of the FATA]

Table 3.4 - The value of an action for the purposes of calculating a civil penalty is worked out under a valuation table for the relevant action as follows:

Item This kind of action ... that is mentioned in any of these provisions ... has this value ...
1 an acquisition of a direct interest in an entity or a business paragraph 40(2)(a) (significant action)

paragraph 47(2)(a) (notifiable action)

paragraph 55B(1)(b) or (c) (notifiable national security action)

the greater of the following:

(i) the value of the consideration for the acquisition;

(ii) the market value of the direct interest

1A an acquisition of an interest of any percentage in an entity or a business paragraph 55D(1)(a) or subparagraph 55E(1)(a)(i) (reviewable national security action) the greater of the following:

(i) the value of the consideration for the acquisition;

(ii) the market value of the interest

2 an acquisition of a substantial interest in an Australian entity paragraph 47(2)(b) (notifiable action) the greater of the following:

(i) the value of the consideration for the acquisition;

(ii) the market value of the substantial interest

3 an acquisition of interests in securities in an entity paragraph 40(2)(b) (significant action) the greater of the following:

(i) the value of the consideration for the acquisition;

(ii) the market value of the interests

4 an issue of securities in an entity paragraph 40(2)(c) (significant action)

subparagraph 55D(2)(a)(i) (reviewable national security action)

the greater of the following:

(i) the value of the consideration for the issue;

(ii) the market value of the securities

5 entering into an agreement paragraph 40(2)(d) (significant action)

subparagraph 55D(2)(a)(ii) (reviewable national security action)

the greater of the following:

(i) the value of the consideration for the entering into the agreement;

(ii) the market value of the benefit obtained by the entering into the agreement

6 an alteration of a constituent document of an entity paragraph 40(2)(e) (significant action)

subparagraph 55D(2)(a)(iii) (reviewable national security action)

the greater of the following:

(i) the value of the consideration for the alteration;

(ii) the market value of the benefit obtained by the alteration

7 an acquisition of a direct interest in an Australian business that is an agribusiness paragraph 41(2)(a) (significant action) the greater of the following:

(i) the value of the consideration for the acquisition;

(ii) the market value of the direct interest

8 an acquisition of interests in assets paragraph 41(2)(b) (significant action)

subparagraph 55E(1)(a)(ii) (reviewable national security action)

the greater of the following:

(i) the value of the consideration for the acquisition;

(ii) the market value of the interests

9 entering into or terminating a significant agreement with an Australian business paragraph 41(2)(c) (significant action)

subparagraph 55E(1)(a)(iii) (reviewable national security action)

the greater of the following:

(i) the value of the consideration for the entering into or terminating of the significant agreement;

(ii) the market value of the benefit obtained by the entering into or terminating of the significant agreement

10 an acquisition of an interest in Australian land section 43 (significant action)

paragraph 47(2)(c) (notifiable action)

paragraph 55B(1)(d) (notifiable national security action)

section 55F (reviewable national security action)

the greater of the following:

(i) the value of the consideration for the acquisition;

(ii) the market value of the interest

11 starting a business paragraph 55B(1)(a) (notifiable national security action)

paragraph 55E(2)(a) (reviewable national security action)

the market value of the business
12 an acquisition of a legal or equitable interest in an exploration tenement in respect of Australian land subparagraph 55B(1)(e) (notifiable national security action) the greater of the following:

(i) the value of the consideration for the acquisition;

(ii) the market value of the interest

13 if no previous item applies-an action specified in regulations that specify, or set out a method for determining, an amount for the action regulations made for the purposes of section 44 (significant action)

regulations made for the purposes of section 48 (notifiable action)

that amount
14 if no previous item applies-an action specified in regulations regulations made for the purposes of section 44 (significant action)

regulations made for the purposes of section 48 (notifiable action)

the greater of the following:

(i) the value of the consideration for the action;

(ii) the market value of the benefit obtained by the action

[Schedule 2, item 16, subsection 98F(3) of the FATA, valuation table]

Example 3.2 Company Q repeatedly contravenes a reporting obligation imposed under one of the conditions in a no objection notification.Rather than issue an infringement notice, the Treasurer decides to seek the imposition of a civil penalty under section 93(1) of the FATA.The valuation approach under item 1 of the table applies since the significant action that the contravention relates to is an acquisition of a direct interest in an Australian business.The market value of the interest at the time of the contravention is determined to be $2 million and the value for the consideration was $1.4 million. In this case, the market value of the interest is greater than the consideration value.Therefore, under item 1 of the valuation table and applying the rules for determining civil penalty amounts for provision based on value, the maximum civil penalty that could be imposed by a court in this instance will be up to $1.5 million (i.e. 75 % of $2 million).

3.51 Where the valuation table does not cover an action, the value of the action is the value of the consideration for the acquisition (where the action is an acquisition) or the market value of the benefit obtained by the action. [Schedule 2, item 16, subsection 98F(3) of the FATA]

3.52 For a contravention of a civil penalty provision that relates to an exemption certificate, the valuation table should be used to determine the value of the action covered by that exemption certificate, disregarding the effect of the certificate. If the kind of action to which the contravention relates can be covered by more than one item of the table, the value of that action is determined as being the greatest of the respective amounts worked out under those items. [Schedule 2, item 16, subsections 98F(4) and (5) of the FATA]

3.53 If there is no consideration for the relevant action, or the market value of the action cannot be ascertained, the value for the action is nil. [Schedule 2, item 16, subsection 98F(6) of the FATA]

3.54 Where the value is nil, the civil penalty would generally be 5,000 penalty units (or 50,000 penalty units if the person is a corporation), capped at a maximum of 2.5 million penalty units.

3.55 The amendments to the maximum penalty are to ensure that appropriate penalties are available when the impact of non-compliance can cause serious harm to Australia's national interest. Failure to comply with these obligations can create community distrust in the foreign investment framework. The maximum penalty is considered appropriate to adequately deter misconduct. The court determines which method provides the greatest penalty, and the court retains its discretion to determine what penalty to impose up to the maximum amount. This discretion would include consideration of proportionality when the foreign investor holds only a part of the total investment. As a model litigant, the Commonwealth would draw any such issue to the attention of the court.

3.56 The method for calculating the pecuniary penalty applicable provides flexibility and ensures the penalty reflects the seriousness of the contravention and is not considered a cost of doing business. The amount is intended to deter and punish serious misconduct.

Example 3.3 A foreign investor has a no-objection notification, with conditions, for a takeover of an Australian corporation with a property portfolio. The takeover costs $4.3 billion and the property portfolio is valued at over $600 million, earning substantial profits for the foreign investor.Over the years, the foreign investor contravenes a number of conditions in the no objection notification. Treasurer initially works with the foreign investor to educate them on their obligations, before moving to issuing infringement notices and accepting an enforceable undertaking. However, the foreign investor again fails to comply with a number of conditions and the enforceable undertaking.Considering other civil and administrative measures have been exhausted and the foreign investor's continued failure to comply with the conditions in the no objection notification, the Treasurer decides to commence civil penalty proceedings for contravening the conditions and the enforceable undertaking.In the application to the court to commence the proceedings, the Treasurer asks the court to impose a maximum possible civil penalty as the foreign investor has shown a continued disregard to the legal requirements of the foreign investment framework, the breach of several conditions and the enforceable undertaking.The valuation approach under item 1 of the valuation table applies since the significant action that the contravention relates to is an acquisition of a direct interest in an Australian business. Therefore, the maximum civil penalty that could be imposed in this instance will be lesser of 2.5 million penalty units or 75 % of the value of the consideration for the acquisition (i.e. 75 % of $4.3 billion). Considering the facts of the case, the court imposes a maximum possible civil penalty of $555 million (i.e. 2.5 million penalty units).

3.57 The financial penalty for failing to make and keep records in accordance with Division 2 of Part 7 of the FATA has been increased from 30 penalty units to 250 penalty units. It is an offence of strict liability. [Schedule 2, item 43, section 119 of the FATA]

3.58 This penalty amount for a strict liability offence for an individual reflects the seriousness of the offence and the manner in which breaches of the law can occur, and is appropriate as it makes the amounts proportionate to the other penalty increases and acts as a sufficient deterrent.

Infringement notices and civil penalty for vacancy fee lodgements

3.59 The Bill establishes a new civil penalty, where the information provided in a vacancy fee return to the Commissioner under subsection 115D(1) contains false or misleading information or omits a material fact or a thing. The maximum penalty is 250 penalty units. Alternatively, the person may be liable for a tier 1 or tier 2 infringement notice for making a false or misleading statement in a vacancy fee return. [Schedule 2, item 41, section 115DA of the FATA].

3.60 The Treasurer may declare that a charge applies to Australian land owned by the foreign person if the Treasurer is satisfied that the declaration is necessary to secure the payment of the unpaid vacancy penalty for the false or misleading information given in the vacancy fee return. [Schedule 2, item 42, subparagraph 115K(2)(b)(ia) of the FATA]

Remedy incorrect statements

3.61 Currently, criminal prosecution is the only avenue for addressing false or misleading statements under the FATA.

3.62 Schedule 2 to the Bill amends the FATA to provide the Treasurer with adequate powers to remedy a situation where a foreign person is given a no objection notification or exemption certificate based on an application that is false or misleading. This includes where the information or documents given are false or misleading by omission. The Treasurer can revoke the no objection notification or exemption certificate and the person may also be liable to a civil penalty or an infringement notice.

Revocation of no objection notification

3.63 These amendments allow the Treasurer to revoke a no objection notification where the Treasurer is satisfied that a person has given false or misleading information or documents, or omitted a material fact or a thing where this information is relevant and given before the no objection notification is issued. This new power applies in addition to and does not limit the other circumstances in which the Treasurer may revoke a no objection notification. [Schedule 1, items 110 and 126, subsections 70(3), 76A(2), (3), (4) and (6) of the FATA]

3.64 Prior to exercising the new power, the Treasurer must give the person who was given the no objection notification notice, in writing, that the Treasurer is considering revoking the no objection notification on these grounds and must not make the revocation decision later than 120 days after this notice. The 120 day time limit for the Treasurer to make a revocation decision provides investor certainty. Before giving the notice, the Treasurer must reasonably believe that false or misleading information or documents were given. [Schedule 1, item 126, subsections 76A(1), (2) and (3) of the FATA]

3.65 In order to comply with procedural fairness obligations, it is expected that the Treasurer will give a person an opportunity to make submissions on the matter before the Treasurer makes a revocation decision.

3.66 The Treasurer has 10 days to notify the person of the revocation decision. The 10 day requirement is consistent with other provisions in the FATA. [Schedule 1 , item 126, subsection 76A(5) of the FATA]

3.67 After the no objection notification is revoked, the Treasurer is allowed to rectify an unsatisfactory outcome by making an order prohibiting the action or requiring the person to dispose of the acquisition, or reissuing a new no objection notification with different conditions responding to the relevant national interest considerations.

3.68 The decision to issue an order or a new no objection notification should be made by the Treasurer as if the no objection notification had never been given. A decision to make an order or issue a new no objection notification needs to be made within 30 days after the Treasurer gives notice that the initial no objection notification is revoked. This is consistent with the decision period the Treasurer normally has to consider a notification from a person stating that a significant action (including a significant action that is a notifiable action) is proposed to be taken. [Schedule 1, items 126 and 129, subsection 76A(7) and table item 3 in subsection 77(6) of the FATA]

3.69 The Treasurer's powers cannot be exercised again in certain instances. For example, prohibiting a person from doing something where the relevant action has already been taken before the order was made. These amendments include a note to clarify that the Treasurer cannot make an order prohibiting proposed actions under section 67 of the FATA, or an interim order under section 68 of the FATA about the action which a person has already taken before the revocation. [Schedule 1, item 126, note to section 76A of the FATA]

Revocation or variation of exemption certificate

3.70 These amendments allow the Treasurer to vary or revoke an exemption certificate where the Treasurer is satisfied that a person has given false or misleading information or documents, or omitted a material fact or a thing where this information is relevant and given before the exemption certificate is issued. [Schedule 1, item 79, subsections 62A(3) and (4) of the FATA]

3.71 This new power applies in addition to and does not limit the Treasurer's existing powers to vary or revoke an exemption certificate. [Schedule 1, item 79, subsection 62A(6) of the FATA]

3.72 The new power is available in relation to an exemption certificate that is taken to be given under section 61 of the FATA, which operates to deem a certificate as being given where the Treasurer does not make a decision on an application within the relevant decision period. [Schedule 1, item 79, subsections 62A(7) of the FATA]

3.73 The same requirements will apply for the exercise of the Treasurer's power as those that apply when revoking a no objection notification involving false or misleading information. That is, the Treasurer will be:

·
required to provide a notice that the Treasurer is considering revoking the exemption certificate on the grounds that the Treasurer reasonably believes that the information was false or misleading; and
·
subject to the 120 day time limit for exercising the power, starting from the date of the notice; and
·
required to notify the person, in writing, of the revocation or variation before the end of 10 days after the revocation or variation is made.

[Schedule 1, item 79, paragraphs 62A(3)(b) and (c) and subsections 62A(1), (2) and (5) of the FATA]

3.74 In order to comply with procedural fairness obligations, it is expected that the Treasurer will give a person an opportunity to make submissions on the matter before the Treasurer makes a revocation or variation decision.

3.75 The new power would allow the Treasurer to choose to vary an exemption certificate, with effect from the time the variation is made or from the date of effect of the variation if the variation specifies such a time. For example, the Treasurer could vary the exemption certificate to include new or different conditions.

3.76 If the Treasurer chooses to revoke an exemption certificate, the Treasurer could still consider a new application for an exemption certificate involving the same subject matter.

Effect of revocation or certain variations of exemption certificates - Clarifying the status of actions taken prior to variation or revocation

3.77 The amendments clarify that actions already taken whilst a revoked or varied exemption certificate was in force would not retrospectively become a significant action or other 'core Part 3 action' (introduced as part of this Bill) as a consequence of the exemption certificate being revoked or varied. The relevant action may become a significant action or other core Part 3 action from the time when the revocation or variation is made or takes effect according to its terms. [Schedule 1, item 79, subsections 62B(1), (2) and (3) of the FATA]

Effect of revocation or certain variations of exemption certificates - Prohibition and interim orders available for actions not yet taken

3.78 The amendments clarify that an action covered by an exemption certificate may become a significant action or other core Part 3 action following the revocation or variation of that exemption certificate. This may mean that the Treasurer is able to exercise powers that are available in relation to significant actions or other core Part 3 actions. For example, where the action has not yet been taken, the Treasurer may make orders under sections 67 and 68 of the FATA prohibiting the action, in accordance with those provisions. [Schedule 1, item 79, subsections 62B(1), (2) and (3) of the FATA]

3.79 A decision to make an order must be made within 30 days after the action becomes a core Part 3 action, as a result of the revocation or variation. [Schedule 1, item 129, table item 2 in subsection 77(6) of the FATA]

Effect of revocation or certain variations of exemption certificates - Allowing disposal orders

3.80 In accordance with section 69 of the FATA and pursuant to other amendments in this Bill, in order to make a disposal order the Treasurer must be satisfied that, at the time of making the order, a significant action or other core Part 3 action has been taken and the result is contrary to the national interest.

3.81 Without the amendments introduced by this Schedule, these pre-conditions for the Treasurer's disposal powers will not be met where an exemption certificate covered the action due to section 45 and similar provisions in the FATA. Section 45 of the FATA deems specified actions covered by an exemption certificate as not being significant actions.

3.82 These amendments ensure that once an exemption certificate is revoked or varied (such that it no longer relates to an action) on the grounds that information was false or misleading, the relevant action can prospectively be considered a significant action. This ensures that disposal order powers may be available in accordance with section 69 of the FATA. The amendments also ensure disposal orders are available for other core Part 3 actions that were covered by a revoked or similarly varied exemption certificate. The action may be considered a core Part 3 action from the time the revocation or variation is made, or in accordance with its date of effect if the revocation or variation specifies such a time. [Schedule 1, item 79, subsections 62B(1), (2) and (3) of the FATA]

3.83 The amendments clarify that disposal order powers under section 69 of the FATA may be utilised, even if at the time an action covered by a revoked or varied exemption certificate was taken, it was not a core Part 3 action or it was not contrary to the national interest or to the national security. [Schedule 1, item 79, subsections 62B(4) and (5) of the FATA]

Penalties for making false or misleading statements

3.84 A person is liable for a civil penalty or an infringement notice can be imposed, if the Treasurer finds that an incorrect outcome has arisen because a person gave false or misleading information or documents, or omitted an important piece of information in seeking a no objection notification or exemption certificate. Establishing a civil penalty and an ability to issue an infringement notice provides the regulator with a number of avenues and tools to seek enforcement action against an applicant or their representative where they provide false or misleading information. This is intended to operate as a significant disincentive to giving incorrect information or documents to the Treasurer and to ensure that appropriate penalties are available depending on the nature of the breach.

3.85 The civil penalty for making false and misleading statements (including by omitting material) in seeking a no objection notification is the greater of:

·
5,000 penalty units (or 50,000 penalty units if the person is a corporation);
·
the sum of the value amounts worked out for each core Part 3 action to which the no objection notification relates, calculated in accordance with the valuation rules introduced by this Bill.

3.86 However, the maximum civil penalty is capped at a monetary value of 2.5 million penalty units. [Schedule 2, item 16, subsections 98B(2) and (3) and section 98F of the FATA]

3.87 The maximum civil penalty for making false and misleading statements (including by omitting material) in seeking an exemption certificate is 5,000 penalty units (or 50,000 penalty units if the person is a corporation). [Schedule 2, item 16, subsections 98B(5) and (6) of the FATA]

3.88 The Guide was considered in determining the applicable civil penalty amounts. It is important that an appropriate range of options are available for responding to situations where false or misleading information relevant to a no objection notification or exemption certificate is provided. The ability to issue civil penalties provides a deterrent for such behaviour, and supports the integrity of the FATA framework by encouraging the provision of accurate and honest information in a context where inaccurate information may result in outcomes contrary to Australia's national interest.

3.89 The maximum civil penalty is generally reserved only for the most egregious cases, and it is expected the court will exercise its discretion and consider a range of factors making it unlikely that the maximum penalty would be imposed in every instance. Factors typically considered by the court will include:

·
the nature and extent of the conduct which led to the contravention;
·
the relevant circumstances;
·
the size of the organisation involved; and
·
whether or not the contravention was deliberate.

Notification requirement

3.90 It is fundamental for a regulator to know the population it is expected to regulate. However, currently there is no uniform notification requirement that exists under the FATA. A foreign person is required to notify the Treasurer of taking an action if the requirement to notify is included as a condition in a no objection notification. However, there is no notification requirement if the person is issued an unconditional no objection notification under section 75 of the FATA.

3.91 Schedule 2 to the Bill introduces uniform notification requirements for foreign persons issued with a no objection notification or an exemption certificate for a proposed core Part 3 action. The notification requirement applies if the person takes that action. [Schedule 2, item 16, subsections 98C(1), 98C(2), 98D(1) and 98D(2) of the FATA]

3.92 The person is also required to notify the Treasurer after the action has been taken, when specified related events take place, where the person becomes aware, or ought reasonably to have become aware, of that situation. [Schedule 2, item 16, subsection 98E(1) of the FATA]

·
A person must notify the Treasurer if there is a subsequent change of control of the entity or business to which the core Part 3 action relates. [Schedule 2, item 16, subsection 98E(1) and paragraphs 98E(2)(a) of the FATA]
·
A person must notify the Treasurer where the person ceases to have a direct interest in the Australian entity or a part of their interest in Australian land. [Schedule 2, item 16, subsection 98E(1) and paragraphs 98E(2)(b) and (d) of the FATA]
·
A person must notify the Treasurer where there is a decrease in the percentage of interest held by the person in an entity or a business after the acquisition where that decrease means the person's holding is less than or equal to the person's holding immediately before the initial increase [Schedule 2, item 16, subsection 98E(1) and paragraph 98E(2)(c) of the FATA]
·
A person must give a notice to the Treasurer, if the regulations made for the purposes of section 44 of the FATA specify that a notice is required for one or more situations about the relevant core Part 3 action, and any of those situations cease to exist. [Schedule 2, item 16, paragraph 98E(2)(e) of the FATA]
·
If the core Part 3 action is covered by regulations made for the purposes of section 44 of the FATA, and relates to acquiring either a direct interest or an interest of at least a certain percentage in an entity or business, and the person ceases to hold a direct interest or an interest of at least that percentage in the entity or business, they are required to notify that action. [Schedule 2, item 16, subparagraphs 98E(2)(f)(i) and (ii) of the FATA]
·
Where the core Part 3 action was starting an Australian business, the foreign government investors need to notify when they cease to carry on that business. The notification requirement would also apply for the core Part 3 action that relates to acquisition of interest in a tenement, and the person ceases to hold all or part of that interest. [Schedule 2, item 16, subparagraphs 98E(2)(f)(iii) and (iv) of the FATA]
·
This notification requirement also extends to acquiring an interest of at least a certain percentage of the securities of an entity. A notification requirement applies to foreign government investors where they cease to have an interest of at least that percentage of the securities of the entity. [Schedule 2, item 16, paragraph 98E(2)(f)(v) of the FATA]

3.93 The notification requirement will not apply to certain acquisitions administered by the ATO, mainly acquisitions of interests in commercial or residential land. It is intended that these exemptions be prescribed by regulations.

Time period for notice to be given

3.94 In order to comply with the notification requirement, the person must notify the Treasurer within 30 days after the later of the following:

·
the day on which the person took the relevant core Part 3 action or the day a specified related event that needs to be notified took place;
·
the day on which the no objection notice or exemption certificate was given.

3.95 For the purposes of the new notification requirements, the effect of section 15 of the FATA (which deems a person to have acquired an interest in certain circumstances) should be disregarded if the core Part 3 action relates to the acquisition of an interest in a security, asset, trust or Australian land. The 30 day count for any core Part 3 action in relation to such an acquisition will be later of the day on which the person acquired the interest in a security, asset, trust or Australian land, or the day on which the no objection notice or exemption certificate was given. [Schedule 2, item 16, subsections 98C(2), 98D(2), and 98E(3) of the FATA]

3.96 The notice must contain relevant details such as describing the action that has been taken and the date when the action was taken. The regulations may specify any additional content required in the notice. The notice must be made in the manner approved by the Secretary under section 135 of the FATA. [Schedule 2, items 16 and 45, subsections 98C(3), 98D(3), and 98E(4), and paragraph 135(3)(bb) of the FATA]

Contravention of notification requirement

3.97 A person may be liable for a civil penalty or receive an infringement notice for failing to comply with the notification requirement. The civil penalty for contravention of the notification requirement is 250 penalty units. This is consistent with the maximum civil penalty amounts specified for similar contraventions under the FATA relating to a failure to give a notice. See for example, section 97 of the FATA (about a person contravening a condition requiring the giving of a notice). [Schedule 2, item 16, subsections 98C(2) and 98D(2) of the FATA]

Direction Powers

3.98 The Treasurer may give a direction to a person where the Treasurer has a reason to believe that a person has engaged, is engaging, or will engage in conduct that constitutes a contravention of a provision of the FATA. A direction can be given in relation to one or more suspected contraventions. [Schedule 1, item 132, subsections 79R(1) and (2) of the FATA]

3.99 Directions may be issued where the contravention or possible contravention involves conduct relating to a failure to act.

3.100 The Treasurer's directions are designed to provide a quick and efficient response to the conduct of a person and to require the person to promptly remedy a breach of the FATA. The power supports early regulatory intervention in order to protect further or ongoing harm to the national interest.

Treasurer may give interim directions

3.101 The Treasurer may give an interim direction to a person if the Treasurer considers that a delay in giving an interim direction to address or prevent the relevant contravention would be contrary to the national interest. Similar to directions, interim directions can also be given in relation to one or more possible contraventions and the Treasurer must have reason to believe that a person has engaged, is engaging, or will engage in conduct that constitutes a contravention of a provision of the FATA. [Schedule 1, item 132, subsections 79V(1) and (2) of the FATA]

3.102 An interim direction will expire if a direction about the same contravention is given to the person. The interim direction ceases to have effect at the time the direction takes effect. The Treasurer may also revoke an interim direction prior to its expiration. [Schedule 1, item 132, sections 79X and 79Y of the FATA]

Scope of directions and interim directions

3.103 The Bill provides a non-exhaustive list of directions and interim directions that the Treasurer may give to a person. The list is indicative of the kinds of directions and interim directions that could be issued by the Treasurer. The list of directions can be extended by regulations. Any directions of a kind that are being regularly made by the Treasurer, but are not listed in the Bill, are expected to be prescribed in the regulations to provide transparency to investors. Any regulations made are subject to disallowance and parliamentary scrutiny. [Schedule 1, item 132, subsections 79R(5) and 79V(5) of the FATA]

3.104 Where the contravention, or possible contravention, relates to the composition of the group of senior officers and the Treasurer is satisfied that the composition of the group of senior officers of a corporation is contrary to the national interest, the Treasurer can give a direction to address or prevent this by ensuring that specified persons (including persons who are not Australian citizens, or who are foreign persons) cease to be, or do not become senior officers of the corporation. The Treasurer can give a direction to ensure a specified proportion of senior officers of a corporation are not specified kinds of person (such as persons who are not Australian citizens, or who are foreign persons). [Schedule 1, item 132, subsections 79R(6) and (7) of the FATA]

3.105 A direction or interim direction must be given to a person in writing, and must direct the person to engage in conduct to either address or prevent the suspected contravention that resulted in the direction or interim direction being issued, or prevent a similar or related contravention. The Treasurer can also give directions that direct the person to take ancillary steps required to address or prevent a suspected contravention. [Schedule 1, item 132, paragraphs 79R(5)(d), 79V(5)(d) and subsections 79R(3) and 79V(3) of the FATA]

Example 3.4 A foreign investor who holds a substantial interest in an Australian entity enters into an agreement that enables them to direct two non-independent board members. The foreign investor holds a no objection notification with conditions under the FATA for taking the significant action (that is, entering into the agreement).A year later, information is obtained showing that the foreign investor had been directing four non-independent board members. Furthermore, the board of the Australian entity had made some recent decisions about future decisions that favour the foreign investor.As a result, the Treasurer has reason to believe that the foreign investor has engaged in conduct that is inconsistent with the conditions attached to the no objection notification, which constitutes a contravention of the FATA. The Treasurer issues directions to the foreign person to immediately stop giving instructions to any non-independent board members of the Australian entity until further notice.Issuing directions is preferred in this instance to prevent the foreign investor from continuing to benefit from a contravention whilst an investigation is conducted and an opportunity for the investor to provide clarifying information afforded. The direction is aimed at preventing contraventions occurring as well as addressing a suspected contravention.

3.106 A direction or interim direction may specify a time during or by which compliance with a direction must be completed. Where a time is specified in a direction, a person must comply with the direction within that period, however described. The Treasurer may limit a direction so that a person must engage in specified conduct until a condition in a direction is met. [Schedule 1, item 132, subsections 79R(4) and 79V(4) of the FATA]

3.107 A direction or interim direction may also include a matter, detail or instruction contained in any instrument (legislative or not) or other writing such as guidance by referring to that material without recreating it in the direction or interim direction. [Schedule 1, item 132, subsections 79R(8) and subsection 79V(6) of the FATA]

3.108 The ability to incorporate material into a direction or interim direction, from time to time, is essential to ensure the effectiveness of directions and to minimise the compliance burden. There is a particular need for this in the context of foreign investment screening given the breadth of investments that may be involved, which may make it necessary to refer to documents that have been developed using the technical expertise of, for example, a specialist government agency. If the Treasurer gives a direction, it is possible that the Treasurer will need to refer to concepts and expectations that are already defined in existing guidance and other materials, such as national auditing standards. If this is the case, it is clearer to incorporate the source material that details these matters by reference rather than seeking to duplicate them in the direction.

3.109 Referring to external material can also help to avoid a direction becoming dated or out of step with industry practice. It is sometimes necessary to apply these documents as in force or existing from time to time due to the fact that reference to static documents may not provide responsive and up-to-date detail in the same manner and could also necessitate frequent variations being made to the directions. Referring to the latest standards is also expected to be simpler for investors whom are likely to have updated their processes in line with the latest standards and professional requirements. The Treasurer may also refer to external materials as in force at a particular point in time if that is more appropriate.

3.110 It is expected that any material incorporated by reference will be publicly accessible or could be provided to a person by the Treasurer.

3.111 A written direction or interim direction given by the Treasurer is not a legislative instrument within the meaning of section 8 of the Legislation Act 2003. [Schedule 1, item 132, subsections 79R(9) and 79V(7) of the FATA]

Procedure when giving a direction or interim direction

3.112 In order to comply with procedural fairness obligations, it is expected that the Treasurer will give a person an opportunity to make submissions on the matter before the Treasurer makes or varies a direction (other than an interim direction).

3.113 Generally, as soon as practicable after a direction is made, it must be published on a website maintained by the Treasury. An interim direction does not need to be published. The Treasurer can decide, in writing, not to publish a direction, if it is determined that it is sensitive information and the release of contents of the given direction would be contrary to the national interest. This will not make the direction invalid. [Schedule 1, item 132, section 79S of the FATA]

3.114 There are strong public interest grounds in requiring directions to be published on a website maintained by Treasury, as this serves to increase public confidence that appropriate steps have been taken to ensure compliance with the FATA. However, it is important that the amendments clarify that a failure to publish a direction will not invalidate the direction. Any failure to publish the direction will not disadvantage a person or affect the provision of procedural fairness to the person, as publication is required after the decision to issue a direction has already been made and regardless of whether the direction is published or not, the Treasurer is still required to provide the direction in writing to the person and any variations or revocations must also be notified in writing to a person.

3.115 A direction and an interim direction to a person takes effect from the later of the time when it is given to the person in respect of which it was made, or the time specified in the direction or interim direction. Compliance with the direction or the interim direction is required from that time. [Schedule 1, item 132, sections 79T and 79W of the FATA]

3.116 The Treasurer can delegate, in writing, a power to give directions in accordance with section 137 of the FATA. The delegation provisions allow the Treasurer to delegate the directions power to the Secretary, the Commissioner, or a person engaged under the Public Service Act 1999 who is employed in the Treasury or the ATO. However the Treasurer cannot delegate a function or power that a person has under the Regulatory Powers Act. [Schedule 2, item 46, subsection 137(8) of the FATA]

Treasurer may vary or revoke a direction

3.117 The Treasurer can vary a direction or an interim direction given to a person, by notice in writing, if the Treasurer considers that this is appropriate and not contrary to the national interest. [Schedule 1, item 132, subsections 79U(1) and 79Y(1) of the FATA]

3.118 The Treasurer can revoke a direction or an interim direction given to a person, by notice in writing, if the Treasurer considers that the direction or interim direction is no longer appropriate, and revoking the direction is not contrary to the national interest. [Schedule 1, item 132, subsections 79U(2) and 79Y(2) of the FATA]

3.119 The variation or revocation of the direction takes effect from the later of the time when it is given to the person in respect of which it was made, or the time specified in the direction or interim direction. [Schedule 1, item 132, subsections 79U(7) and 79Y(3) of the FATA]

3.120 Generally, as soon as practicable after varying or revoking a direction, the Treasurer must ensure that the variation or revocation is published on a website maintained by the Treasury. The Treasurer can decide not to publish a variation or revocation, if it is determined that it is sensitive information and the release of contents of the direction would be contrary to the national interest. As with a failure to publish the direction, failing to publish the variation or revocation does not make that varied direction or revocation invalid and this would not disadvantage a person or affect the provision of procedural fairness to the person. [Schedule 1, item 132, subsections 79U(3), (4), (5) and (6) of the FATA]

Penalties for contravention of a direction or interim direction

3.121 A contravention of a direction or interim direction is a criminal offence and is punishable by imprisonment for 10 years or 15,000 penalty units (or 150,000 penalty units if the person is a corporation), or both. [Schedule 1, item 158, section 88A of the FATA]

3.122 Providing criminal sanctions for contravening a direction or interim direction reflects the potential for the conduct involved in such contraventions to cause harm to Australia's national interests. Generally, the direction or interim direction will relate to preventing or addressing a contravention or possible contravention of the FATA. The additional penalties that can apply for contravening a direction or interim direction provides additional incentives for investors to ensure they are fully compliant with their other obligations under the FATA.

3.123 The penalties are subject to section 4D of the Crimes Act 1914, meaning that the specified amounts are the maximum penalties that can be imposed. Maximum penalties provide a court with guidance on how to punish criminal behaviour. They restrict the court's sentencing discretion as the court is unable to order a penalty in excess of the prescribed maximum penalty. The maximum penalty is generally reserved only for the most egregious cases.

3.124 The maximum penalty and maximum term of imprisonment reflect the seriousness of this offence and need to deter and punish such behaviour as appropriate.

3.125 A contravention of a direction or interim direction is a civil penalty provision, if the underlying provision to which the relevant contravention relates to is a civil penalty provision. A maximum civil penalty for contravening a direction or interim direction is 5,000 penalty units (or 50,000 penalty units if the person is a corporation). The Guide was considered in determining the applicable civil penalty amounts. [Schedule 2, item 16, section 98A of the FATA]

3.126 Directions given by the Treasurer are aimed at protecting Australia's national interest and preventing or addressing suspected breaches of the law. The potential for significant consequences to the national interest if a direction is not complied with makes it appropriate for such conduct to form the basis for a civil penalty. Liability for a civil penalty is also likely to significantly enhance the effectiveness of a direction as a regulatory tool to improve compliance with the FATA.

3.127 The maximum civil penalty is generally reserved only for the most egregious cases, and it is expected the court will exercise its discretion and consider a range of factors making it unlikely that the maximum penalty would be imposed in every instance. Factors typically considered by the court will include:

·
the nature and extent of the conduct which led to the contravention;
·
the relevant circumstances;
·
the size of the organisation involved, and
·
whether or not the contravention was deliberate.

Monitoring and Investigation Powers

3.128 Currently, the Treasurer relies on the general information gathering power under section 133 of the FATA to monitor and investigate non-compliance, while the Commissioner utilises powers under the TAA. Both also undertake open source surveillance and engage proactively with applicants.

3.129 While the information gathering powers under the FATA support desk-top and paper-based auditing and compliance monitoring, the powers do not establish a specific framework for site or site-based inspections or investigations. At times the existing information gathering power is insufficient to draw compliance conclusions with respect to certain conditions (for example, conditions requiring the installation or removal of surveillance and communications equipment).

3.130 The Bill triggers the Regulatory Powers Act, which provides a standard suite of provisions in relation to monitoring and investigation powers. ATO officers working under the delegation of the Treasurer would continue to access powers under the TAA.

Monitoring Powers

3.131 Part 2 of the Regulatory Powers Act creates a framework for monitoring whether the provisions of an enlivening Act or a legislative instrument have been, or are being complied with, and that information given in compliance with a provision of that Act or legislative instrument is correct. Part 2 of the Regulatory Powers Act includes powers of entry and inspection.

3.132 These amendments create a framework for monitoring compliance with the provisions of the FATA and whether correct information has been provided. Provisions of the FATA which are offences for the purposes of the Crimes Act 1914 or the Criminal Code are also subject to monitoring. [Schedule 2, item 40, subsections 101A(1) and (2) of the FATA]

3.133 The amendments include a note, which clarifies that some provisions of the FATA are taxation laws for the purposes of the TAA and that therefore the Commissioner's powers to obtain information and evidence under Division 353 in Schedule 1 to the TAA may be available. [Schedule 2, item 40, note 2, subsection 101A(1) of the FATA]

Investigation Powers

3.134 Part 3 of the Regulatory Powers Act creates a framework for gathering material that relates to the contravention of offence and civil penalty provisions of an Act or legislative instrument.

3.135 A provision under the FATA is subject to investigation under Part 3 of the Regulatory Powers Act if it is an offence against the FATA, or a civil penalty provision of the FATA, or an offence against the Crimes Act 1914 or the Criminal Code that relates to the FATA. [Schedule 2, item 40, subsection 101B(1) of the FATA]

Operation of Monitoring and Investigation Powers

3.136 For the purposes of Part 2 of the Regulatory Powers Act the operative provisions apply in relation to the provisions identified and information mentioned in the FATA. For the purpose of Part 3 of the Regulatory Powers Act the operative provisions apply in relation to evidential material that relates to a relevant provision in the FATA.

3.137 Related provisions for the purpose of monitoring and investigative powers under the FATA are offence provisions, or civil penalty provisions, of the TAA or the Corporations Act 2001 and provisions of Part 3 or 3B of the Agricultural Land and Water Register Act. If a thing is found in the course of executing a monitoring or investigation warrant that may be evidence of the contravention of a related provision, an authorised person is permitted to secure that thing in serious or urgent circumstances to prevent it from being concealed or destroyed. [Schedule 2, item 40, subsections 101A(3) and 101B(2) of the FATA]

3.138 With the exception of the Corporations Act 2001, the other listed legislation are also administered by the Treasury or the ATO. From an operational perspective, an authorised officer is likely to be an authorised person for multiple pieces of legislation. Therefore in the course of exercising their monitoring or investigative powers they may come across evidence that relates to compliance for a number of legislative obligations and by incorporating the related provisions, they can secure the evidence from concealment or destruction. Further, both agencies will work collaboratively with the Australian Securities and Investment Commission and in monitoring or investigating corporate compliance with the FATA, evidence may be gathered that is relevant to compliance with the Corporations Act 2001.

3.139 The Secretary of the Treasury and an authorised officer as defined in the FATA are both authorised applicants. This enables the Secretary or an authorised officer to apply to an issuing officer for a monitoring warrant or an investigation warrant in relation to premises. [Schedule 2, item 40, subsections 101A(4), 101B(3) of the FATA]

3.140 An authorised officer is an authorised person, allowing them to enter any premises and exercise monitoring powers for either the purpose of determining whether provisions subject to monitoring have been, or are being, complied with, or for the purpose of determining whether information subject to monitoring is correct. An authorised officer may also exercise investigation powers where they suspect on reasonable grounds that there may be material on the premises related to the contravention of a relevant provision identified in the FATA. However, an authorised person may not enter the premises unless the occupier has provided consent, or the authorised person is in possession of a monitoring or investigation warrant. [Schedule 2, item 40, subsections 101A(5) and 101B(4) of the FATA]

3.141 The Secretary may appoint a person as an authorised officer, for the purposes of Parts 2 and 3 of the Regulatory Powers Act. The person must be an APS employee performing the duties of an APS Level 6 position, or an equivalent or higher position, in the Treasury. The Secretary must be satisfied that the person has suitable training or experience to properly perform the functions, or exercise the powers, of an authorised officer. This is consistent with Australian Government policy and is appropriate given authorised officers will exercise coercive powers. An authorised officer must comply with the directions of the Secretary in relation to an authorised officer's exercise of powers or the performance of functions. The status of such a direction given by the Secretary is not a legislative instrument within the meaning of subsection 8(1) of the Legislation Act 2003, and is merely declaratory of the law and not intended as an exemption from that Act. [Schedule 2, items 1 and 40, sections 4 and 101E of the FATA]

3.142 An issuing officer can either be a magistrate, a Judge of a court of a State or Territory, a Judge of the Federal Circuit Court of Australia or a Judge of the Federal Court of Australia. A Judge of the Federal Circuit Court of Australia or of the Federal Court of Australia will only act as an issuing officer if the relevant Minister has nominated that Judge to be an issuing officer, and the Judge has consented and while that consent is still in force. Under Part 2 and Part 3 of the Regulatory Powers Act an issuing officer may issue a monitoring or an investigation warrant only when satisfied, by oath or affirmation, that there are reasonable grounds for monitoring premises for compliance with provisions of the FATA or suspecting that there is, or may be an evidential material on the premises. An issuing officer must not issue a warrant unless the issuing officer has been provided, either orally or by affidavit, with such further information as they require concerning the grounds on which the issue of the warrant is being sought. These constraints ensure adequate safeguards against arbitrary limitations on the right to privacy in the issuing of warrants. [Schedule 2, item 40, subsections 101A(6) and 101B(5) of the FATA]

3.143 The Secretary is the relevant chief executive. The Secretary may, in writing, delegate the Secretary's powers or functions to the Commissioner, or a SES employee, or acting SES employee, in the Treasury. If a power or function is delegated to the Commissioner, they may sub-delegate the power or function to an SES employee, or acting SES employee, in the ATO. The delegation is necessary to the senior members of the organisation and appropriate as these powers are coercive in nature and delegates are required to comply with any directions of the delegator and powers can only be delegated for specified matters. [Schedule 2, item 40, subsections 101A(7), 101B(6) and section 101F of the FATA]

3.144 The Federal Court of Australia, the Federal Circuit Court of Australia, and a court of a State or Territory that has jurisdiction in relation to matters arising under the FATA are relevant courts. This jurisdiction has been conferred widely to ensure that disputes can be resolved in the lowest level of court appropriate, and allow the resulting workload to be distributed between courts. [Schedule 2, item 40, subsections 101A(8) and 101B(7) of the FATA]

3.145 Under paragraph 23(1)(a) of the Regulatory Powers Act an authorised officer may be assisted by other persons in exercising powers or performing functions or duties, only where it is necessary and reasonable to do so. [Schedule 2, item 40, subsections 101A(9) and 101B(8) of the FATA]

3.146 Parts 2 and 3 of the Regulatory Powers Act, as they apply to the provisions identified and information mentioned in the FATA, extend to the external Territories. [Schedule 2, item 40, subsections 101A(10) and 101B(9) of the FATA]

Enforceable Undertakings

3.147 Currently, under the FATA, the Treasurer does not have the power to accept enforceable undertakings as a way of managing compliance with the FATA. The FATA is amended to provide for undertakings enforceable under the Regulatory Powers Act.

3.148 All provisions of the FATA are enforceable under Part 6 of the Regulatory Powers Act. This Part creates a framework for accepting and enforcing undertakings relating to compliance with provisions of the FATA. [Schedule 2, item 40, subsection 101C(1) of the FATA]

3.149 If an action by a foreign person places Australia's national interest at risk, enforceable undertakings will act as a credible and flexible element of an effective deterrence regime to restore investor compliance without recourse to the courts.

Example 3.5 A serious data breach reveals that the foreign investor failed to put in place data security measures as required under conditions. To remedy this breach, the foreign investor offers to conduct a full audit of its systems from the past five years to detect any other breaches, to advise (and possibly compensate) clients whose data was compromised, and to put in place the required security measures together with annual auditing of their effectiveness, which had not been required under the original conditions.The Treasurer accepts a written undertaking to this effect from the investor as a more flexible but effective alternative to imposing civil penalties.

3.150 The Treasurer is an authorised person in relation to the provisions subject to enforceable undertakings under the FATA, which enables the Treasurer to accept and enforce undertakings relating to compliance with the FATA. The Treasurer may, in writing, delegate the Treasurer's powers or functions to the Secretary, the Commissioner or an SES employee, or acting SES employee, in the Treasury. The Commissioner may in writing, sub-delegate the power or function to an SES employee, or acting SES employee, in the ATO. The delegation is necessary to the senior members of the organisation and appropriate as these powers are coercive in nature and delegate is required to comply with any directions of the delegator and powers can only be delegated for specified matters. [Schedule 2, item 40, subsections 101C(2), and section 101F of the FATA]

3.151 The Federal Court of Australia, the Federal Circuit Court of Australia, and any court of a State or Territory that has jurisdiction in relation to matters arising under the FATA, are relevant courts in relation to provisions of the FATA that are enforceable under Part 6 of the Regulatory Powers Act. Part 6 of the Regulatory Powers Act gives a relevant court the power to make orders where there is a breach of an enforceable undertaking. [Schedule 2, item 40, subsection 101C(3) of the FATA]

3.152 Part 6 of the Regulatory Powers Act, as it applies to the provisions in the FATA, extend to the external Territories. [Schedule 2, item 40, subsection 101C(4) of the FATA]

3.153 Generally, after an undertaking is accepted by the Treasurer, it must be published on a website maintained by the Treasury as soon as practicable after it is accepted. A failure to publish the undertaking does not affect the enforceability of the undertaking. The Treasurer can decide not to publish an undertaking if it is determined that it is sensitive information, and that the release of the contents of the accepted undertaking would be contrary to the national interest. [Schedule 2, item 40, subsection 101D of the FATA]

3.154 There are strong public interest grounds in requiring undertakings to be published on a website maintained by Treasury, as this serves to increase public confidence that appropriate steps have been taken to ensure compliance with the FATA. However, it is important that the amendments clarify that a failure to publish an undertaking will not affect its enforceability. Any failure to publish the undertaking will not disadvantage a person or affect the provision of procedural fairness to the person, as publication is required after the person has given the undertaking.

Powers of Commissioner as a result of delegation under monitoring, investigative and enforceable undertaking powers

3.155 If the Commissioner is delegated powers to monitor, investigate or accept an undertaking under the FATA, Schedule 2 to the Bill provides that the Commissioner has the general administration of this Act to the extent of administering the provision. However, where a power is delegated to the Commissioner to monitor, investigate or accept enforceable undertakings, the Commissioner will not automatically be able to exercise the special investigative powers given by sections 353-10 and 353-15 of Schedule 1 to the TAA. The title of this section has also been updated. [Schedule 2, item 48 and 47 subsections 138(3A) and (3B), and subsection 138(1) (heading) of the FATA]

3.156 Enabling the Commissioner to apply the Commissioner's existing access and information gathering powers will help to minimise costs for both regulated persons and the ATO. This is because in many situations where information is required for the administration of the FATA, that same information is also required to administer taxation laws. For example, if a foreign investor has acquired an interest in a property, in addition to questions about whether the person has complied with the FATA, there may also be questions as to whether that property has been used for income producing purposes and, if so, how that income has been treated for taxation purposes.

References to the Federal Circuit Court

3.157 These amendments update references to the 'Federal Circuit Court of Australia' to 'Federal Circuit and Family Court of Australia (Division 2)' reflecting the new nomenclature introduced by amendments in the Federal Circuit and Family Court of Australia Bill 2020. The amendments do not commence if the Federal Circuit and Family Court of Australia Bill 2020 never commences. [Commencement table and Schedule 2, items 58 to 62 , subparagraphs 101A(6)(a)(iii) and 101B(5)(a)(iii) and paragraphs 101A(8)(b), 101B(7)(b) and 101C(3)(b) of the FATA]

Application and transitional provisions

Expanding the availability of infringement notices under the FATA

3.158 The amendments relating to infringement notices will apply in relation to contraventions of the foreign investment rules that occur on or after 1 January 2021. [Schedule 2, item 52]

Updating the penalties for certain criminal offences and contravention of civil penalties under the FATA

3.159 The amendments relating to updating criminal and civil penalties and the amendments introducing valuation rules for the purposes of calculating civil penalties will apply in relation to contraventions that occur on or after 1 January 2021. [Schedule 2l, item 51]

Failing to give notice

The amendments relating to updating the civil penalties for failing to give notice of a notifiable action or a notifiable national security action apply to contraventions that occur on or after 1 January 2021. [Schedule 1, item 46]

Infringement notices and civil penalty for vacancy fee lodgements

3.160 The amendments will apply in relation to the vacancy fee returns given on or after 1 January 2021. [Schedule 2, item 53]

Remedy incorrect statements

3.161 The Treasurer can revoke a no objection notification or revoke or vary an exemption certificate where information or documents that were false or misleading were given in relation to the no objection notification or exemption certificate to the Treasurer before, on or after 1 January 2021. As the amendments apply in relation to information or documents given to the Treasurer before, on or after 1 January 2021, the amendments may apply for no objection notifications and exemption certificates issued before, on or after 1 January 2021. The amendments providing for the effect of revoking or varying an exemption certificate apply to revocations or variations made on or after 1 January 2021. [Schedule 1, items 166 and 243]

3.162 Civil penalties or infringement notices may apply for contraventions involving false or misleading information or documents given on or after 1 January 2021. A civil penalty or infringement notice will not apply for information or documents given before 1 January 2021. [Schedule 2, items 49 and 52]

Notification of actions

3.163 The notification requirements will apply in relation to no objection notices and exemption certificates given on or after 1 January 2021. [Schedule 2, item 50]

Direction Powers

3.164 The Treasurer can give directions and interim directions to a person where the relevant conditions for making a direction or interim direction were met on or after 1 January 2021. [Schedule 1, item 245]

3.165 The amendments which provide that a person is liable to a civil penalty for contravening a direction or interim direction will commence on 1 January 2021. [Commencement table]

Monitoring Powers

3.166 Amendments apply in relation to compliance with the provisions of the FATA and information given in compliance with a provision of the FATA before, on or after 1 January 2021. [Schedule 2, item 55]

Investigation Powers

3.167 Amendments apply in relation to contraventions or suspected contraventions of any offence provision or civil penalty provision of the FATA, or an offence against the Crimes Act or the Criminal Code that relates to the FATA that occurs before, on or after 1 January 2021. [Schedule 2, item 56]

Enforceable Undertakings

3.168 The Treasurer can accept and enforce undertakings relating to compliance with the FATA given on or after 1 January 2021. [Schedule 2, item 57]

Application of Regulatory Powers (Standard Provisions) Act 2014

3.169 In this Division the terms 'act', 'amended Act' and 'commencement time' have certain meanings. [Schedule 2, item 54]

Consequential amendments

3.170 As a result of the compliance changes above, a number of consequential amendments were made to the simplified outline of section 83 which details the offences and penalties under the FATA. [Schedule 2, item 2, section 83 of the FATA].

3.171 Due to the penalty provisions being updated, consequential amendments are made to update the section number reference for sections 89 and 92. [Schedule 2, items 8 and 11, sections 89 and 92 FATA]

3.172 As the variation of revocation of exemption certificate sections have been updated, the reference to 'subdivision' in subsection 62(3) is updated to refer to 'division'. [Schedule 1, item 78, Subsection 62(3) of the FATA]

3.173 A new term is also added to the FATA to assist to understand the application of the new compliance and enforcement provisions to certain actions. The term 'core Part 3 action' is included in the FATA to refer to a significant action, notifiable national security action that is not a significant action, an action where the Treasurer has given the person a notice that the action may pose a national security concern, or a reviewable national security action that is notified to the Treasurer. [Schedule 1, item 11, section 4 of the FATA]

Chapter 4 - A fairer and simpler framework for foreign investment fees

Outline of chapter

4.1 Schedule 1 to the Bill and the Imposition Bill establish a new fee framework for foreign investment in Australia.

Context of amendments

4.2 Under the FATA, fees are generally payable when a person applies for an exemption certificate, gives notice of a notifiable action, gives notice relating to an action that is not notifiable, and applies for a variation of a no objection notification or exemption certificate. Most commonly a fee is payable when a notifiable action or both a notifiable and significant action is being taken. Fees are also payable if a foreign person is liable for a vacancy fee for foreign acquisitions of residential land.

4.3 The FATA Fees Act and the Fee Regulation set out the specific fees and exemptions for the fees payable when giving notice under the FATA.

4.4 Fees are calculated based on the notification type, the value of the transaction or assets and the number of actions being taken. However, the fee may be higher or lower depending on the type of agreements in place, whether it is a variation, and whether any exemptions or lower fee rules apply.

4.5 All fees imposed are a tax.

Summary of new law

4.6 In comparison to the existing fee framework, the new fee framework is intended to be fairer and simpler, and will reduce the administrative burden of determining the fee that is payable.

4.7 The Imposition Bill establishes authority for the Fee Regulation to charge existing and new fees.

4.8 Fees remain payable when a person:

·
applies for an exemption certificate or a variation of an exemption certificate;
·
gives notice of a notifiable action;
·
gives a notice about a proposal to take a significant action that is not a notifiable action;
·
applies for a variation of a no objection notification; and
·
when a person has been given an order or has been provided a no objection notification without giving the Treasurer a notice relating to the action specified in the order or notification.

4.9 The amendments establish new fees for new actions. A fee is payable for a notifiable national security action, for a reviewable national security action that has been notified to the Treasurer or an action for which the Treasurer gave a person a notice because the action may pose a national security concern. Fees are also payable when a person applies to vary a notice imposing conditions that was given to them.

4.10 The amendments ensure that a fee is payable for notifiable actions, significant actions and notifiable national security actions that were retrospectively notified to the Treasurer. They also provide that only one person in a joint tenant agreement is required to lodge a vacancy fee form.

4.11 The Imposition Bill also establishes a maximum fee cap as all fee amounts will be prescribed in the Fee Regulation.

Comparison of key features of new law and current law

4.12 The following table provides a comparison of the key features of the new law and the current law.

New law Current law
FATA Fees Act
Fees are payable on applications and notices made under the FATA. All fee amounts are to be prescribed in the Fee Regulation.

The Fee Regulation can prescribe fee amounts including (but not limited to):

·
Specifying a fee amount or method;
·
Specifying different fee amounts or methods;
·
Specifying a nil amount or a method resulting in a nil amount;
·
Specifying a method for a fee if two or more fees are payable in relation to a single agreement;
·
Specifying a method for a fee if the action is covered by multiple actions; and
·
Specifying an initial amount, and then later determining a reduced amount or nil amount.

Fees are payable on applications and notices made under the FATA. Fee amounts are prescribed in the FATA Fees Act and Fee Regulation.
FATA
Fees are payable for a notifiable national security action. No equivalent
Fees are payable when the Treasurer issues a notice to a person that a reviewable national security action or significant action that has not been notified may pose a national security concern. No equivalent
Fees are also payable for reviewable national security actions that are voluntarily notified to the Treasurer. Fees are payable for actions notified to the Treasurer that are not notifiable.
Fees are payable for retrospective notifications for all notifiable, notifiable national security and significant actions. No equivalent
Fees are payable when a person applies to vary their no objection notification or notice imposing conditions. A fee is payable if a person applies to vary their no objection notification.
Fees are payable when a person gives notice of a retrospective action that was a notifiable action but not a significant action if the action was taken between 1 December 2015 and the commencement of the Bill. No equivalent
Only one person in a joint tenancy arrangement is required to submit the vacancy fee return, in order to determine the applicable vacancy fee liability. All joint tenants in a joint tenancy arrangement are required to submit the vacancy fee return.

Detailed explanation of new law

Changes to the FATA Fees Act

New regulation making power

4.13 Fees are payable under Part 6 of the FATA (for an action) and under Part 6A of the FATA (for a vacancy fee for foreign acquisitions of residential land). Fees are imposed as a tax. A fee is payable when a person:

·
applies for an exemption certificate;
·
applies for a variation of an exemption certificate;
·
gives notice of a notifiable action or a notifiable national security action;
·
receives a notice from the Treasurer that an action may pose a national security concern, being an action that is either:

-
a reviewable national security action; or
-
a significant action that is not a notifiable action or a notifiable national security action.

·
gives a notice of a proposal to take either a significant action that is not a notifiable action or notifiable national security action;
·
gives notice of a reviewable national security action;
·
has been given an order or has been provided a no objection notification without giving the Treasurer a notice relating to the action;
·
applies for a variation of a no objection notification; and
·
is liable for a vacancy fee for acquisitions of residential land.

[Schedule 1, item 7, section 5 of the FATA Fees Act]

4.14 The FATA Fees Act is amended to provide that the Fee Regulation will set the amounts of fees that can be charged.

4.15 Without limiting the regulation making power, subsection 6(2) of the FATA Fees Act provides that regulations may do one or more of the following:

·
specify a fee amount or a method for determining an amount;
·
specify different fee amounts or methods for different kinds of fees, or different kinds of persons liable to pay a kind of fee, or different circumstances giving rise to the liability to pay a kind of fee;
·
specify a nil amount or a method resulting in a nil amount;
·
specify a method for a fee if two or more fees are payable in relation to a single agreement;
·
specify a method for a fee if the action is covered by multiple provisions for which a fee is imposed; and
·
specify an initial amount, and then later determine a reduced amount or nil amount.

[Schedule 1, item 7, section 6 of the FATA Fees Act]

4.16 If necessary, fees can be paid by different kinds of persons. For example, for the most part, fees are borne by the foreign person making the acquisition. However, fees for a new dwelling exemption certificate are typically paid by the developer or the vendor, who can be either an Australian citizen or a foreign person. By providing that different amounts of fees can be payable by different persons, the amendments ensure that the right person is liable to pay the appropriate fee for actions taken under the FATA. [Schedule 1, item 7, paragraph 6(2)(b)(ii) of the FATA Fees Act]

4.17 The amount of a fee payable may differ for different kinds of circumstances that give rise to the liability to pay the fee. For example different fee amounts may be charged for different kinds of application variations, or for variations with differing complexity. [Schedule 1, item 7, paragraph 6(2)(b)(iii) of the FATA Fees Act]

4.18 The regulations can prescribe a nil amount if necessary. For example, some actions under the FATA may not attract a fee, because the amount prescribed is nil. [Schedule 1, item 7, paragraph 6(2)(c) of the FATA Fees Act]

4.19 The Fee Regulation may set a method to work out the fee in a scenario where two or more fees are payable for a single agreement, or when multiple actions are being covered. For example, the Fee Regulation could prescribe that if a single agreement covers the acquisition of multiple different actions, the fee is based on the aggregate consideration of the entire transaction. Previously the one agreement rule provided that where multiple actions were covered by a single agreement, the fee was the highest fee applicable. [Schedule 1, item 7, paragraphs 6(2)(d) and 6(2)(e) of the FATA Fees Act]

4.20 As all fee amounts are prescribed in the Fee Regulation, an overall cap which limits the fee amount is set in the FATA Fees Act. Fee amounts prescribed in the Fee Regulation must not exceed the maximum cap. The maximum cap for 2020-21 is $1 million. The amount of a fee prescribed in the Fee Regulation cannot exceed $1 million for 2020-21. [Schedule 1, item 7, subsection 6(3) of the FATA Fees Act]

Indexation of the maximum cap

4.21 The maximum cap is subject to indexation and will be indexed on the first day of each financial year starting on or after 1 July 2021. The cap will be indexed by multiplying it by the indexation factor. If after indexation the cap is not a multiple of $100, then the cap is to be rounded down to the nearest multiple of $100. If the indexed amount for the current year is less than the indexed amount for the previous financial year, the indexed amount for the current year should be equal to the indexed amount of the previous year. [Schedule 1, item 7, section 7 of the FATA Fees Act]

4.22 The indexation factor is:


The sum of the index numbers for the four quarters in the year ending on 31 March just before the start of the relevant financial year

Divided by:

The sum of the index number for the four quarters in the year ending on 31 March in the financial year before the financial year in which this section commences.

The indexation factor is calculated to three decimal places (rounding up if the fourth decimal place is five or more). [Schedule 1, item 7, section 8 of the FATA Fees Act]

4.23 The index number for a quarter comes from the Australian Bureau of Statistics. It is the All Groups Consumer Price Index Number first published by the Australian Statistician for the quarter. [Schedule 1, item 7, section 9 of the FATA Fees Act]

4.24 The definition of 'index number', 'indexation factor' and 'quarter' are all inserted in section 4 of the FATA Fees Act. [Schedule 1, items 2, 4 and 6, subsection 4(1), subsection 4(1) (definition of index number) and subsection 4(1) (definition of quarter) of the FATA Fees Act]

Changes to the FATA - national security fees

4.25 Schedule 1 to the Bill gives the Treasurer powers to address new and emerging national security risks. The acquisition of certain interests are defined as notifiable national security actions which must be notified to the Treasurer. Fees are payable where a person notifies of a notifiable national security action. [Schedule 1, item 182, item 3 of the table in subsection 113(1) of the FATA]

4.26 Under the new national security test, the Treasurer may review certain actions that are not otherwise notifiable under the FATA (reviewable national security actions) and actions that are significant but have not been notified, if the Treasurer considers that the action may pose a national security concern. If the Treasurer reviews such an action the Treasurer must give the person a notice of the review.

4.27 A fee is payable when the Treasurer notifies a person that an action that has been taken or that is proposed to be taken has been reviewed as the Treasurer considers the action will pose a national security concern. The fee is payable before the end of the 30 days after the Treasurer gives the notice. A fee is also payable if the person voluntarily notifies the Treasurer of a reviewable national security action. The fee is payable when the person notifies the Treasurer. [Schedule 1, items 183 and 184, item 4 in the table in subsection 113(1) and item 4A in the table in subsection 113(1)of the FATA]

4.28 Because fees are payable as part of the new national security test, the simplified outline of section 112 is amended to reflect that a fee is payable for the following actions:

·
for giving a notice relating to a notifiable national security action;
·
an action where the Treasurer provides a notice that the action may pose a national security concern; and
·
a reviewable national security action, where the person voluntarily notifies the Treasurer of the action. [Schedule 1, item 180, section 112 of the FATA]

4.29 Section 114 of the FATA is amended to clarify that fees are required to be paid before the exercise of any of the Treasurer's powers. A fee is payable under section 113 when an application is made or a notice is given by the person. [Schedule 1, item 188, section 114 of the FATA]

Changes to the FATA - significant actions

4.30 Current table item 4 of subsection 113 of the FATA provides that a fee is payable when a person gives a notice to the Treasurer of a proposed action that is not a notifiable action. Table item 4 of subsection 113 of the FATA is amended to clarify that a fee is payable when a person gives a notice to the Treasurer of either: a proposed significant action that is not a notifiable action or a notifiable national security action; or a reviewable national security action. [Schedule 1, item 183, item 4 in the table in subsection 113(1) of the FATA]

4.31 Consequential amendments are made to clarify that a notice under table item 4 of subsection 113 of the FATA includes certain notices. [Schedule 1, item 218, paragraph 135(3)(c) of the FATA]

Changes to the FATA - retrospective notifications

4.32 Section 46 of the FATA is amended to clarify that a notifiable action does not have to be a proposed action. The change works in conjunction with other amendments to the FATA to clarify that a fee can be charged for retrospective notifications of significant actions, notifiable actions and for notifiable national security actions. [Schedule 1, item 60, section 46 of the FATA]

4.33 Fees are payable for retrospective notifications of all notifiable, notifiable national security, and significant actions. A fee is payable if a person is given an order or decision by the Treasurer and the person did not give a notice of the action to the Treasurer. This applies regardless of whether the action was a notifiable action, a notifiable national security action or a significant action. [Schedule 1, item 185, item 5 in the table subsection 113(1) ) of the FATA]

Changes to the FATA - transitional provision

4.34 Schedule 1 to the Bill inserts a transitional provision to ensure a fee is payable for retrospective notifications that are notifiable but not significant actions that were taken prior to 1 January 2021. A retrospective notification occurs where the person notifies the Treasurer after the action has been taken. The transitional provision applies to actions taken between 1 December 2015 and the commencement of the Bill. This ensures a fee is payable for any actions taken, but not notified, during this period. [Schedule 1, item 247, Transitional- notice of action that is notifiable but not significant]

Changes to the FATA - variation fee

4.35 Under the last resort power, the Treasurer may give a notice imposing conditions to a person where the person was not given a no objection notification at the time the person originally applied to the Treasurer for approval. Under section 79Q a person may apply to the Treasurer to have the notice varied in the same way as a person can apply to have a no objection notification varied. Fees are payable when a person applies to have a notice imposing conditions varied. The fee is payable when the application to vary the notice is made. [Schedule 1, item 186, item 7 in the table in subsection 113(1) of the FATA]

4.36 The simplified outline is amended to reflect that a fee is payable where a person applies to have a notice imposing conditions varied. [Schedule 1, item 180, section 112 of the FATA]

Changes to the FATA and FATA Fees Act - Vacancy fee changes

4.37 Only one person in a joint tenancy arrangement is required to submit the vacancy fee return, in order to determine the applicable vacancy fee liability. As long as one person in the joint tenant arrangement submits the vacancy fee return, that is sufficient for the Commissioner to determine the liability for persons involved in a joint tenant arrangement. If the Commissioner finds the person liable for a vacancy fee, then the persons in the joint tenant arrangement are jointly and severally liable for the vacancy fee. The change applies to vacancy years ending on or after 31 December 2020. [Schedule 1, items 192 and 248, subsection 115D(4) of the FATA and Application - vacancy fee returns where persons jointly hold interest in land]

4.38 Paragraph 6(2)(f) of the FATA Fees Act ensures that for vacancy fees for joint tenants, the regulations can provide a method that first determines the amount payable and can also later determines a lower amount of fees, including a nil amount. As joint tenants are jointly and severally liable for the vacancy fee, it may be the case that in joint tenant arrangements only one person is required to pay the vacancy fee. [Schedule 1, item 7, paragraph 6(2)(f) of the FATA Fees Act]

Consequential amendments

Changes to the FATA Fees Act

4.39 As all fee amounts are prescribed in the Fee Regulation, consequential amendments are made to the FATA Fees Act to repeal definitions that were previously used in the FATA Fees Act which are no longer relevant. [Schedule 1, items 1, 3, and 5, subsection 4(1), subsection 4(1) (definition of indexed amount), and subsection 4(1) definition of internal reorganisation of the FATA Fees Act]

Changes to the FATA

4.40 As all fee amounts are prescribed in the Fee Regulation, a number of consequential amendments are made to the FATA to clarify that all fee amounts are made under the FATA Fees Act and found in the Fee Regulation. [Schedule 1, items 181, 187, 190 and 191, section 112, subsection 113(1) (note), section 115A, and subsection 115C(1) note, of the FATA]

Application and transitional provisions

Changes to the FATA Fees Act

4.41 The new fees commence from the later of:

·
the day after Royal Assent; and
·
the day the amendments to the FATA commence.

4.42 However, if the main amendments to the FATA do not commence then the new fees will not apply. This ensures that all related legislation is enacted before the new fees apply. [Commencement table of the FATA Fees Act]

4.43 The new fees apply to fees that become payable on or after 1 January 2021. [Schedule 1, item 8, application of amendments to the FATA Fees Act]

Chapter 5 - Register of Foreign Owned Australian Assets

Outline of chapter

5.1 Schedule 3 to the Bill creates a Register of Foreign Ownership of Australian Assets. The Register will incorporate the existing Register of Foreign Ownership of Water Entitlements and Register of Foreign Ownership of Agricultural Land, and create additional obligations to notify the Registrar of a broader range of interests.

5.2 The Register will mirror aspects of the Modernising Business Registers Program by streamlining and simplifying the process of registering, and maintaining flexible administration of the Register.

Context of amendments

5.3 Currently, the Commissioner administers the Register of Foreign Ownership of Water Entitlements and the Register of Foreign Ownership of Agricultural Land. A foreign person who has a registrable interest in water or in agricultural land is required to register that interest. The Commissioner also maintains a register of foreign owned residential property, based on reporting conditions imposed on foreign persons who acquire residential property.

5.4 The Australian Communications and Media Authority maintains a Register of Foreign Owners of Media Assets and the Department of Home Affairs maintains a Register of Critical Infrastructure Assets.

5.5 Under these current arrangements, the Government has limited visibility over transactions by foreign investors in certain sectors of the economy and, in particular, whether or not investments actually occur following foreign investment approval. The establishment of the new Register will increase the Government's visibility of foreign ownership in Australia, including visibility of interests held by foreign persons in all types of Australian land and in water.

5.6 The new Register will provide Government with a broad data set to aid future policy consideration and assist with efficient case processing by making more information available to decision makers on foreign ownership of specific assets in Australia.

Summary of new law

5.7 Schedule 3 to the Bill imposes obligations upon foreign persons to notify the Registrar of actions that occur about interests in Australian land, water, entities, businesses and other Australian assets.

5.8 Interests registered on the Register will generally only include legal interests, with a notable exception being equitable interests in leases or licences that arise for agricultural land (consistent with the current registration obligations for this type of land).

5.9 When interests are acquired and notified to the Registrar, this will generally create a 'registered circumstance' about the action. While a registered circumstance exists, there are ongoing obligations to notify the Registrar about certain changes to that circumstance (including when it ceases, such as when an interest in land is disposed of). A foreign person is also required to keep records for 5 years after a notice is given to the Registrar.

5.10 A civil penalty will apply for a failure to notify the Registrar where a registrable event occurs.

Comparison of key features of new law and current law

5.11 The following table provides a comparison of the key features of the new law and the current law.

New law Current law
Information about foreign ownership of certain Australian assets is notified to, and recorded on, a register held by a Registrar that is appointed by the Treasurer. There is a legislated register of foreign ownership of agricultural land and water. The Commissioner also separately maintains a register of foreign ownership of residential land.
The information is subject to rules that are broadly consistent with the treatment of other information relating to foreign investment in Australia under the FATA. The use of the information on the agricultural land and water register is governed by the TAA.
The Government will maintain and have access to a single register of foreign ownership of specified Australian assets.

Registers of foreign ownership of media assets and critical infrastructure assets will continue to be maintained by other Commonwealth bodies.

There is no single register of foreign ownership of Australian assets.

Various registers are in place, including those described above maintained by the Commissioner and registers of foreign ownership of media assets and critical infrastructure assets maintained by other Commonwealth bodies.

Detailed explanation of new law

5.12 Schedule 3 to the Bill inserts a new Part 7A into the FATA, establishing the Register of Foreign Ownership of Australian Assets. This Part provides that a Registrar must be appointed by the Treasurer to administer the Register of Foreign Ownership of Australian Assets. Appointment will be made by legislative instrument. The Registrar must be a public service agency, or a body established for a public purpose, or a person appointed, by or under a law of the Commonwealth. [Schedule 3, items 2 and 8, definition of 'eligible Registrar appointee' in section 4 of the FATA, and sections 130R and 130S of the FATA]

5.13 A foreign person is required to notify the Registrar (known as giving a 'register notice') of certain prescribed events, or where there is a change to the registered circumstance arising from a previous register notice. [Schedule 3, items 2 and 8, definition of 'register notice' in section 4 of the FATA, and section 130W and Division 3 of Part 7A of the FATA].

5.14 For example, a foreign person who acquires an interest in Australian land must give a register notice relating to the acquisition. Upon giving the notice, a 'registered circumstance' arises, which will exist while the foreign person holds the interest in Australian land. When the person ceases to hold the interest in Australian land, the registered circumstance ceases and the foreign person must give another register notice relating to that cessation. Alternatively, if the person ceases to be a foreign person while the registered circumstance exists, the person must also give a register notice.

5.15 The Register must contain all the information obtained by the Registrar as a result of the register notice given to the Registrar, as well as any other relevant information obtained by the Registrar apart from information obtained under those notices. The Register will also contain all of the information given to the Registrar as part of the transitional arrangements, which is expected to include the Register of Foreign Ownership of Water Entitlements, the Register of Foreign Ownership of Agricultural Land, and the register of foreign owned residential property which is maintained by the Commissioner. [Schedule 3, item 8, sections 130T and 130U of the FATA]

5.16 Information on the Register will be able to be used, recorded or disclosed for any purpose that protected information can be used for under Division 3 of Part 7 of the FATA. In particular, the Register will be made available to specified persons, for the purposes of the administration of the FATA (this does not limit other purposes authorised by Division 3 of Part 7 of the FATA). [Schedule 3, items 7 and 8, sections 126A and 130V of the FATA]

Giving notice to the Registrar

5.17 A register notice given to the Registrar must be given in the manner and form prescribed by the data standards, and be given within 30 days of the applicable registrable event day. [ Schedule 3, item 8, section 130W of the FATA]

5.18 The registrable event day is different for each kind of register notice, and is the day specified by the provision requiring the register notice be given. [Schedule 3, item 2, definition of 'registrable event day' in section 4 of the FATA]

5.19 In general, the registrable event day for a register notice is the day on which the foreign person takes the action that triggers the requirement to give a register notice. For example, where a foreign person acquires an interest in Australian land, the registrable event day is the day on which the interest is acquired. However, for registrable water interests, the registrable event day for a notice is generally the last day of the financial year. This means that water events will be reported on an annual net basis, consistent with the notification timeframes in the current Register of Foreign Ownership of Water Entitlements. [Schedule 3, item 8, sections 130ZA and 130ZE of the FATA]

5.20 Regulations may extend the time after the registrable event day when a register notice must be given to the Registrar. Extensions may be granted generally or if specified conditions are met. Extensions may also be granted by a legislative instrument, or an administrative decision, made by the Treasurer under the regulations. [Schedule 3, item 8, section 130Z of the FATA]

5.21 The powers to grant extensions are expressed broadly, given the variety of transactions and circumstances that require a register notice be given to the Registrar.

5.22 The registrable event day disregards certain rules in the FATA which deem when certain interests are acquired, including section 15 and paragraphs 19A(1)(b) and 20(1)(b) of the FATA, so that the Register reflects the actual holding of interests. [Schedule 3, item 8, section 130X of the FATA]

5.23 The manner and form prescribed by the data standards for giving notices will be used to determine the information or documents that are required to be given to the Registrar as part of giving a register notice. Information given to the Registrar will be included on the Register. [Schedule 3, item 8, sections 130T and 130ZZ of the FATA]

5.24 As the data standards will prescribe the manner of giving register notices, the standard rules in the FATA for the manner of giving notices will not apply. [Schedule 3, item 10, subsection 135(4) of the FATA]

5.25 Failure to give a register notice within the time period and in the prescribed form is subject to a civil penalty provision of 250 penalty units. [Schedule 3, item 8, section 130ZV]

5.26 The obligation to comply with the registration requirement will continue until the requirement has been fulfilled. A foreign person who fails to comply with a registration requirement will commit a separate contravention in respect of that requirement in respect of each day during which the contravention occurs up to the time where the requirement is fulfilled (see section 93 of the Regulatory Act).

5.27 This civil penalty amount operates as an appropriate deterrent and is proportionate to the impact of non-compliance with registration requirements. This level of penalty also reflects the relative importance of registration in the context of the foreign investment review process. This penalty is consistent with penalty amounts in the FATA for comparable contraventions.

5.28 Where a person gives a register notice to the Registrar, this will generally give rise to a 'registered circumstance'. The cases when the registered circumstance ceases (meaning a further register notice to the Registrar is required) are predominantly set out in the provision that requires the initial register notice to be given. [Schedule 3, item 2, definition of 'registered circumstance' in section 4 of the FATA]

Events requiring notification to the Registrar

5.29 Only actions taken by foreign persons require a register notice be given to the Registrar. For instance, if a significant action in relation to an entity is taken by a person that is not a foreign person that action is not required to be notified to the Registrar.

5.30 These events may overlap, meaning multiple register notices may be required. However, the data standards may provide for these notices to be combined into a single notice. [Schedule 3, item 8, subsection 130W(5) and paragraph 130ZZ(2)(j) of the FATA]

5.31 If, after the registrable event day but before a register notice is given, the person ceases to be a foreign person or the registered circumstance that would have arisen upon notification had already ceased to exist, a register notice is required to be given to the Registrar but no registered circumstance will arise. [Schedule 3, item 8, subsections 130W(3) and (4) of the FATA]

Notification of events relating to Australian land or exploration tenements

5.32 For an interest in Australian land or an exploration tenement, a foreign person is required to give a register notice where any of the following events occur:

·
the foreign person acquires an interest in Australian land [Schedule 3, item 8, section 130ZA of the FATA];
·
the foreign person acquires an interest in an exploration tenement [Schedule 3, item 8, section 130ZB of the FATA]; or
·
the person became a foreign person while holding interests in Australian land or an exploration tenement [Schedule 3, item 8, section 130ZC of the FATA];

5.33 A 'registered circumstance' will exist in relation to these events while the foreign person holds the interest in Australian land or the exploration tenement. [Schedule 3, item 8, subsections 130ZA(2) and (3), 130ZB(2) and (3) and 130ZC(2) and (3) of the FATA]

5.34 The 'registrable event day' is the day the person acquired the interest or became a foreign person. [Schedule 3, item 8, subsections 130ZA(4), 130ZB(4) and 130ZC(4) of the FATA]

5.35 Where a foreign person has a registered circumstance being the holding of an interest in Australian land or exploration tenement, and the foreign person is aware or ought reasonably to have been aware that the interest has changed to become an interest in a different kind of Australian land or exploration tenement, the person is required to give a register notice about the change. The 'registrable event day' is the day the person became aware, or ought to have become aware, of the change. [Schedule 3, item 8, section 130ZD of the FATA]

5.36 Schedule 3 to the Bill does not require register notices to be given about equitable interests, other than equitable interests that may arise for leases or licenses in agricultural land, referred to in paragraph 12(1)(c) of the FATA.

5.37 Australian land has the meaning provided under section 4 of the FATA, and an interest in Australian land has the meaning provided under section 12 of the FATA (see also other provisions of the FATA, such as sections 13 and 14).

5.38 An exploration tenement is defined under section 4 of the FATA. For the purposes of giving a register notice, an interest in an exploration tenement has the same meaning as an interest in Australian land, and includes anything else about the tenement prescribed by the regulations. [Schedule 3, items 2 and 8, definition of 'exploration tenement' in section 4 of the FATA, and subsection 130ZB(5) of the FATA]

Notification of events relating to registrable water interests

5.39 For a registrable water interest, a foreign person is required to give a register notice where either of the following events occur:

·
the foreign person acquires a registrable water interest [Schedule 3, item 8, section 130ZE of the FATA]; or
·
the person became a foreign person while holding a registrable water interest [Schedule 3, item 8, section 130ZF of the FATA].

5.40 A registered circumstance for these events exists while the foreign person holds the registrable water interest. [Schedule 3, item 8, subsections 130ZE(2) and (3) and 130ZF(2) and (3) of the FATA]

5.41 As noted above, these events are required to be notified annually on a net basis (that is, a register notice only needs to be given if the person is still a foreign person and holds the registrable water interest at the end of the financial year). This means the registrable event day for these events is the last day of the financial year. [Schedule 3, item 8, subsections 130ZE(4) and 130ZF(4)]

5.42 Where a foreign person has a registered circumstance about holding a registrable water interest, and on any day or days in a financial year the volume of water or share of a water resource referred to in the interest changes, and the person still holds the interest at the end of the financial year, the person is required to give a register notice to the Registrar about that change. The registrable event day is the last day of the financial year. [Schedule 3, item 8, section 130ZG]

5.43 A registrable water interest means a registrable water entitlement or a contractual water right under a contract or deed whose term, including any extension or renewal, exceeds 5 years. [Schedule 3, item 2, definition of 'registrable water interest' in section 4 of the FATA]

5.44 A registrable water entitlement means an irrigation right (within the meaning of the Water Act 2007) or a right (including an Australian water access entitlement) conferred by or under a State or Territory law to hold or take water from a water resource in Australia. [Schedule 3, items 2 and 3, definition of 'registrable water entitlement' in sections 4 and 26A of the FATA]

5.45 A contractual water right means a right under a contract or deed to all or part of another person's registrable water entitlement, water allocation or a right of a kind specified in the regulations. [Schedule 3, item 2, definitions of 'contractual water right', section 4 of the FATA]

5.46 Each of these expressions, and the definitions of Australian water access entitlement, water allocation and water resource are defined on an equivalent basis to the definitions in the Agricultural Land and Water Register Act. [Schedule 3, item 2, definitions of 'Australian water access entitlement', 'water allocation' and 'water resource' in section 4 of the FATA]

Notification of events relating to entities and businesses

5.47 For entities and businesses, a foreign person is required to give a register notice where any of the following events occur:

·
the foreign person takes an action that is a significant action under section 40 or 41 of the FATA:

-
that was taken when covered by a no objection notification or a notice imposing conditions;
-
that was notified to the Treasurer before being taken (this includes where no decision was made by the Treasurer during the relevant decision period);
-
that was reviewed by the Treasurer under the national security call-in powers, and for which the Treasurer has given a notice under those powers; or
-
for which a no objection notification or a notice imposing conditions was given after the action was taken;

[Schedule 3, item 8, sections 130ZH and 130ZI of the FATA]
·
a foreign person takes an action that is a notifiable action relating to an entity or business; [Schedule 3, item 8, section 130ZJ of the FATA]
·
a foreign person takes a notifiable national security action about an entity or business; [Schedule 3, item 8, section 130ZK of the FATA]
·
a foreign person takes reviewable national security action in relation to an entity or business:

-
that was taken when covered by a no objection notification or a notice imposing conditions;
-
that was notified to the Treasurer before being taken;
-
that was reviewed by the Treasurer under the national security call-in powers, and for which the Treasurer has given a notice under those powers; or
-
for which a no objection notification or a notice imposing conditions was given after the action was taken;

[Schedule 3, item 8, sections 130ZL and 130ZM of the FATA]
·
a person becomes a foreign person while holding an interest in an entity or business, where the action taken to acquire that interest would have constituted a notifiable action or a notifiable national security action if taken immediately after becoming a foreign person. [Schedule 3, item 8, sections 130ZO and 130ZP of the FATA]

5.48 A registered circumstance generally arises for the action taken. Where the action is about a foreign person acquiring an interest of a particular percentage in an entity or business, the registered circumstance generally exists while the person holds an interest of any percentage in the entity or business. This is notwithstanding the initial threshold requiring registration. The effect of this is that while the initial register notice is given when the interest meets the prescribed threshold (for example, where a substantial interest, or 20 per cent, is acquired), the registered circumstance will remain on the Register at any percentage, unless the interest held by the foreign person ceases to exist (that is, drops to 0 per cent).

5.49 The registrable event day will generally be when the person took the action or became a foreign person.

5.50 Where a registered circumstance relates to an interest of a particular percentage in an entity or business, and the foreign person is aware or ought reasonably to have been aware that the interest has differed by five percentage points or more, the person is required to give a register notice to the Registrar about the change. The registrable event day is the day the person became aware, or ought to have become aware, of the change. [Schedule 3, item 8, section 130ZN of the FATA]

5.51 The events relating to entities and businesses requiring a register notice to be given, and the associated registered circumstance, are set out in more detail below.

5.52 A foreign person is required to give a register notice when the following significant actions are taken about an entity or business, with a registered circumstance existing while the following conditions are met:

Table 5.1

Significant action by foreign person requiring a register notice Registered circumstance exists while...
acquiring a direct interest in an Australian entity that is an agribusiness the foreign person holds an interest (other than an equitable interest) of any percentage in the Australian entity
acquiring interests in securities in an entity the foreign person holds an interest (other than an equitable interest) of any percentage in the entity
issuing securities in an entity the securities remain on issue
entering into an agreement relating to the affairs of an entity under which senior officer(s) of the entity act on the directions etc. of a foreign person with a substantial interest the foreign person is a party to the agreement, the agreement has that effect, and the entity exists
altering constituent documents of an entity as a result of which senior officer(s) of the entity act on the directions etc. of a foreign person with a substantial interest the constituent document continues in force, it has that effect, and the entity exists
acquiring a direct interest in an Australian business that is an agribusiness the foreign person holds an interest (other than an equitable interest) of any percentage in the Australian business
acquiring an interest in assets of an Australian business the foreign person holds an interest (other than an equitable interest) of any percentage in the Australian business
entering or terminating a significant agreement with an Australian business the foreign person is a party to the agreement, the agreement has that effect, and the Australian business is being carried on

(Note: a registered circumstance does not arise if the action is the termination of a significant agreement).

[Schedule 3, item 8, sections 130ZH and 130ZI of the FATA]

5.53 A foreign person is required to give a register notice when the following notifiable actions are taken about an entity or business (including before the person became a foreign person), with a registered circumstance existing while the following conditions are met.

Table 5.2

Notifiable action requiring a register notice Registered circumstance exists while...
acquiring a direct interest in an Australian entity that is an agribusiness the foreign person holds an interest (other than an equitable interest) of any percentage in the Australian entity
acquiring a direct interest in an Australian business that is an agribusiness the foreign person holds an interest (other than an equitable interest) of any percentage in the Australian business
acquiring a substantial interest in an Australian entity the foreign person holds an interest (other than an equitable interest) of any percentage in the Australian entity

[Schedule 3, item 8, sections 130ZJ and 130ZO of the FATA]

5.54 A foreign person is required to give a register notice when the following notifiable national security actions are taken in relation to an entity or business (including before the person became a foreign person), with a registered circumstance existing while the following conditions are met.

Table 5.3

Notifiable national security action requiring a register notice Registered circumstance exists while...
starting a national security business the foreign person carries on the business, and the business is a national security business or an Australian business
acquiring a direct interest in a national security business the foreign person holds an interest (other than an equitable interest) of any percentage in the business, and the business is a national security business or Australian business
acquiring a direct interest in an entity that carries on a national security business the foreign person holds an interest (other than an equitable interest) of any percentage in the entity, and the entity is carrying on the business, and the business is either a national security business or Australian business

[Schedule 3, item 8, sections 130ZK and 130ZP of the FATA]

5.55 A foreign person is required to give a register notice when the following reviewable national security actions are taken in relation to an entity or business, with a registered circumstance existing while the following conditions are met.

Table 5.4

Reviewable national security action by foreign person requiring a register notice Registered circumstance exists while...
acquiring an interest in an entity the foreign person holds an interest (other than an equitable interest) of any percentage in the entity
issuing securities in an entity the securities remain on issue
entering into an agreement relating to the affairs of an entity under which senior officer(s) of the entity act on the directions etc. of a foreign person with a direct interest the foreign person is a party to the agreement, the agreement has that effect, and the entity exists
altering constituent documents of an entity as a result of which senior officer(s) of the entity act on the directions etc. of a foreign person with a direct interest the constituent document continues in force, it has that effect, and the entity exists
acquiring an interest in an Australian business the foreign person holds an interest (other than an equitable interest) of any percentage in the Australian business
acquiring an interest in assets of an Australian business the foreign person holds an interest (other than an equitable interest) of any percentage in the Australian business
entering or terminating a significant agreement with an Australian business the foreign person is a party to the agreement, the agreement has that effect, and the Australian business is being carried on

(Note: a registered circumstance does not arise if the action is the termination of a significant agreement).

starting an Australian business the Australian business is carried on by the foreign person

[Schedule 3, item 8, sections 130ZL and 130ZM of the FATA]

Events requiring notification under the regulations

5.56 Regulations may prescribe further circumstances that require a register notice to be given to the Registrar. The regulations may prescribe any registered circumstance created when the register notice is given (to determine if there are ongoing notification requirements to give register notices), when the registered circumstance ceases, and the registrable event day for the notice (to determine when the register notice must be given). [Schedule 3, item 8, section 130ZU of the FATA]

5.57 This power is likely to be used to require notification of events that occur relating to other provisions in the regulations (such as provisions of the regulations that prescribe further notifiable actions). The regulation-making power is required because these registration requirements will need to be tailored to match those other provisions of the regulations.

Notification of cessation of registered circumstances and ceasing to be a foreign person

5.58 Where a registered circumstance relates to a foreign person, the person is required to give a register notice where either of the following events occur:

·
where the foreign person is aware, or ought reasonably to have been aware, that the registered circumstance has ceased [Schedule 3, item 8, section 130ZQ of the FATA]; or
·
where the foreign person ceases to be a foreign person [Schedule 3, item 8, section 130ZR of the FATA].

5.59 Where a person ceases to be a foreign person and a register notice is provided in accordance with section 130ZR, the registered circumstances relating to the person will cease but no register notice is required under section 130ZQ. [Schedule 3, item 8, subsection 130ZR(2)]

5.60 The data standards will be able to provide for a foreign person to have access to information on the Register about the registered circumstances about that person, to assist them to comply with these subsequent requirements to give register notices. [Schedule 3, item 8, paragraph 130ZZ(2)(f) of the FATA]

5.61 In a case where the foreign person dies, or is a corporation that is wound up, the register notice under section 130ZR is instead required to be given by an executor, administrator or liquidator (see below).

Register notices given by agents and requirements relating to persons who die or corporations that are wound up

5.62 An agent of a foreign person is able to give a register notice on the foreign person's behalf; however, the obligation remains with the foreign person to ensure the Registrar is notified. [Schedule 3, item 8, section 130Y of the FATA].

5.63 Where an agent gives a register notice to the Registrar on behalf of a person, the person on whose behalf the notice was given is the person required to keep records about the notice. [Schedule 3, item 5, paragraph 117(1)(e) of the FATA]

5.64 Where one or more registered circumstances exists in relation to a foreign person:

·
if that person is an individual and the person dies, the executor or administrator of the person's estate must give a register notice to the Registrar (the registrable event day is the day the executor or administrator is appointed) [Schedule 3, item 8, subsections 130ZR(4) and (5) of the FATA]; or
·
if that person is corporation and is wound up, the liquidator of the corporation must give a register notice to the Registrar (the registrable event day is the day the corporation is wound up) [Schedule 3, item 8, subsections 130ZR(6) and (7) of the FATA].

5.65 Where a person was required to give a register notice to the Registrar but dies before giving the notice, the executor or administrator of the estate is required to give a register notice to the Registrar in relation to that event. The registrable event day for such a notice is the day the executor or administrator is appointed, despite the registrable event day that would otherwise apply for that notice. [Schedule 3, item 8, section 130ZS of the FATA]

5.66 Where a corporation was required to give a register notice to the Registrar of an event but is wound up before giving the notice, the liquidator of the corporation is required to give a register notice to the Registrar about that event, despite the registrable event day that would otherwise apply for that notice. The registrable event day for such a notice is the day the corporation is wound up, despite the registrable event day that would otherwise apply for that notice. [Schedule 3, item 8, section 130ZT of the FATA]

5.67 The data standards will be able to provide for an executor or administrator of the estate of a person being wound up, or a liquidator of a company being wound up, to have access to information on the Register about the registered circumstances relating to that person, to assist them to comply with these requirements to give register notices. [Schedule 3, item 8, paragraph 130ZZ(2)(g) of the FATA]

Record keeping requirements

5.68 A person who is required to give a register notice to the Registrar must keep records for five years after the notice is given to the Registrar. Section 119 of the FATA makes it a criminal offence of strict liability to fail to keep records as required by the FATA. [Schedule 3, items 5 and 6, paragraphs 117(1)(e) and 118(d) of the FATA]

Information-gathering powers

5.69 The Treasurer currently has the power to require persons to provide information or produce documents relevant to the exercise of the Treasurer's powers under the FATA. This power will be expanded to enable the Treasurer to require persons to provide information or produce documents about information on the Register, or that may be on the Register, or relating to circumstances in which a person is required to give a register notice to the Registrar. [Schedule 3, item 9, subsection 133(1) of the FATA]

5.70 The Treasurer will be able to delegate these expanded information-gathering powers to the Registrar, in addition to the existing powers of delegation. [Schedule 3, item 13, subsection 137(2A) of the FATA]

Administrative provisions

5.71 The Registrar is empowered to make data standards, which are disallowable legislative instruments. The data standards relate to how information is collected, authenticated, stored, corrected, updated and may be provided to persons about whom the information relates. They may also prescribe internal processes and procedures to be followed by the Registrar and their delegates. For example, the data standards may prescribe the information required when giving a register notice to the Registrar, including details of the foreign person, the nature and details of the interest, and whether the interest was acquired under the national security test, as well as documents that must accompany the notice. These examples are not exhaustive. The data standards may not override any legislative requirement in relation to the Register. [Schedule 3, item 8, section 130ZZ of the FATA]

5.72 The Treasurer may give general directions to the Registrar about the administration of the Register, including about data standards to be made by the Registrar. The Registrar must comply with a direction given by the Treasurer. [Schedule 3, item 8, section 130ZW of the FATA]

5.73 The Registrar is able to delegate its powers and functions to a person that it may delegate powers to under another law of the Commonwealth, or to a person prescribed by the regulations. Additionally, where the Registrar has been delegated powers by the Treasurer, the Registrar may sub-delegate those powers to any of those persons. However, a power to make a legislative instrument may not be delegated or sub-delegated by the Registrar (such as to make data standards, or to make a legislative instrument under the regulations to extend the period for giving a register notice). A delegate or sub-delegate of the Registrar must comply with any written directions issued by the Registrar. [Schedule 3, items 8 and 13, section 130ZX and subsection 137(2A) of the FATA]

5.74 The Treasurer's power to appoint the Registrar, and to give directions to the Registrar, will not be able to be delegated. The power to extend the period for giving a register notice will be able to be delegated to the Secretary of the Treasury, the Commissioner or an SES employee, or acting SES employee, in the Department of the Treasury or the Commissioner (in addition to being delegable to the Registrar). [Schedule 3, items 11 and 12, subsections 137(1) and (2) of the FATA]

5.75 Information on the Register is able to be used, recorded or disclosed for any purpose that protected information can be used for under Division 3 of Part 7 of the FATA. In particular, the Register can be made available to specified persons, for the purposes of the administration of the FATA (this does not limit other purposes authorised by Division 3 of Part 7 of the FATA). [Schedule 3, items 7 and 8, sections 126A and 130V of the FATA]

5.76 Consistent with the existing practices for similar registers, the information on the Register will not be publicly available and will not be able to be inspected by the public.

5.77 The Registrar is required to give the Treasurer an annual report to be tabled in Parliament, using de-identified statistical information from the Register. The Commissioner must give the report to the Treasurer as soon as practicable after 30 June each year. [Schedule 3, item 8, section 130ZY of the FATA]

Consequential amendments

5.78 Consequential amendments enable the Registrar to seek civil penalty orders, and to issue infringement notices, about a person failing to give a register notice to the Registrar. [Schedule 2, items 18, 19, 20, 25, 26, 27, 28, 29, 30, 36 and 38, sections 99, 100 and 101 of the FATA]

5.79 The Agricultural Land and Water Register Act will be repealed. This repeal will take place when the new Register of Foreign Ownership of Australian Assets starts to operate. At this time, the existing Register of Foreign Ownership of Water Entitlements and Register of Foreign Ownership of Agricultural Land will be incorporated into the new Register. [Schedule 3, item 14, Register of Foreign Ownership of Water or Agricultural Land Act 2015]

5.80 For continuity of reporting obligations, as well as to ensure the transfer of information from one Register to another, it would not be desirable to repeal the Agricultural Land and Water Register Act any time prior to the new Register being established.

5.81 Following the repeal of the Agricultural Land and Water Register Act, consequential amendments will be made to repeal various provisions in the FATA about that Act. [Schedule 3, items 15 to 18, subsections 101A(3) and 101B(2) of the FATA]

5.82 Consequential amendments will also be made to the simplified outlines in the FATA to refer to the Register. [Schedule 3, items 1 and 4, sections 3 and 116 of the FATA]

Application and transitional provisions

5.83 The Register and associated amendments apply on a day declared by the Treasurer by legislative instrument, or four years after commencement, whichever is earlier. [Schedule 3, item 8, section 130Q of the FATA]

5.84 The timeframe of up to 4 years before the commencement of the new Register is required to ensure all necessary arrangements are made prior to the Registrar being appointed to establish the new Register. In particular, systems will need to be established to enable the new Register to be established, and to ensure continuity of the existing Registers as they are transitioned to the new Register.

5.85 When the Agricultural Land and Water Register Act is repealed, all information on the Register of Foreign Ownership of Water Entitlements and the Register of Foreign Ownership of Agricultural Land will be incorporated into the new Register of Foreign Ownership of Australian Assets established by Part 7A of the FATA. [Schedule 3, item 24]

5.86 Transitional provisions will ensure the continuity of the requirements to give notices about events about agricultural land and water as that information is moved to the new Register. [Schedule 3, items 19 to 23]

5.87 In particular:

·
if, at the time the new Register commences, a foreign person holds an agricultural land or water interest notified to the Commissioner for an outgoing Register, then the person will be taken to have a registered circumstance for the new Register about that agricultural land or water interest (with the ongoing register notice obligations applying to that registered circumstance) [Schedule 3, subitems 20(1) and (2) and 21(1) and (2)]
·
if a person was a foreign person that held an agricultural land or water interest previously notified to the Commissioner for an outgoing Register, but the person ceases to be a foreign person or ceases to hold the interest before the new Register commences and the person has not already notified the Commissioner of the cessation, then:

-
the person will not have a registered circumstance on the Register; but
-
the person will be required to give a register notice to the new Registrar about the cessation.

[Schedule 3, subitems 20(1) and (3) and 21(1) and (3)]

5.88 If a foreign person holds an agricultural land or water interest for which the person was required to notify the Commissioner for an outgoing Register, but the person has not already notified the Commissioner, then the person will be required to give a register notice to the new Registrar about the interest. [Schedule 3, items 22 and 23]

5.89 The Treasurer may, by legislative instrument, make transitional rules relating to the Register. [Schedule 3, item 24]

5.90 These transitional rules may provide for arrangements to facilitate transfer information to the new Register from the Register of Foreign Ownership of Water Entitlements and the Register of Foreign Ownership of Agricultural Land. These rules may otherwise make transitional provision relating to the repeal of the Agricultural Land and Water Register Act.

5.91 These rules will also be able to provide for the transfer of other information collected for the purposes of the FATA into the new Register, such as the register of foreign ownership of residential land maintained by the Commissioner. This power will be sufficiently broad to enable the Treasurer to facilitate the transfer of all relevant information onto the new Register.

5.92 The transitional rules will also be able to create transitional registered circumstances about information transitioned onto the new Register, including providing for when those registered circumstances cease. This is necessary to enable ongoing Register obligations to apply about information transitioned onto the Register, for example where a person then ceases to hold the relevant interest. Transitional registered circumstances must arise no later than 12 months after the Register commencement day.

5.93 Transitional rules may be made or amended up to 12 months after the Register commencement day. After that period, the Treasurer will only have the ability to revoke the transitional rules.

5.94 The Commissioner will be required to give a final report for the Parliament under section 34 of the Agricultural Land and Water Register Act, following the repeal of that Act. [Schedule 3, item 25]

Chapter 6 - Regulation impact statement

Description of the problem

6.1 Foreign investment is vital to Australia's economic growth and prosperity. By supplementing domestic savings, foreign investment facilitates a greater level of investment in the economy than would otherwise be sustainable.

6.2 Foreign investment promotes healthy competition among businesses, leading to greater innovation and productivity. It also facilitates the transfer of international skills and knowledge to Australian businesses, improves access to overseas markets, and supports Australian jobs (Australian firms with foreign direct investment support one in ten jobs in Australia, and one in five jobs that are trade-related[3]).

6.3 Australia is one of the world's most attractive destinations for foreign investment, with that attractiveness founded on a range of factors: our stable democracy; our strong rule of law; a highly-skilled and highly-educated workforce; our proximity to dynamic and fast-growing markets; our abundant natural resources and world-class industry capabilities; and a strong and well managed economy. Over recent years, foreign investors have submitted approximately 9,900 applications for investment approval to the Government each year, worth around $200 billion in direct investment to the Australian economy.

6.4 However, the Productivity Commission identified[4] that ambiguous and unforeseen risks can arise suddenly. Risks, from foreign investment to Australia's national interest, particularly national security, have increased recently due to a confluence of developments - as identified by the Organisation for Economic Co-operation and Development (OECD) in a 2019 research paper[5]. The paper noted that many countries are now reconsidering their foreign investment policies in light of increasing risks - and heightened awareness - from foreign ownership, including:

·
technological developments and digitalisation that have turned personal data - and companies that possess such data - into sensitive assets that may be subject to misuse or malicious manipulation;
·
a shift in global economic weights (i.e. the rising share of global economic activity from developing economies, relative to the established economies of Europe and North America) that has created new dependencies, interests and threats;
·
heightened sensitivity over the control of assets that constitute critical infrastructure; and
·
new and more widely shared concerns, in addition to espionage and sabotage, about diversity of suppliers and access to advanced technology, today and in the future.

6.5 The OECD research found that in the two years from 2017 to 2019, nine out of the world's largest ten economies modified or introduced new, comprehensive policies to manage acquisition or ownership related risks from foreign investment[6].

6.6 The Australian Security Intelligence Organisation's (ASIO) 2018-19 Annual Report identified the benefits of foreign investment but also the risks, particularly insofar as Australia continues to be a target for espionage and foreign interference. "Foreign intelligence services seek to exploit Australia's businesses for intelligence purposes," the report stated. "That threat will persist across critical infrastructure, industries that hold large amounts of personal data, and emerging sectors with unique intellectual property that could provide an economic or strategic edge".

6.7 As the Productivity Commission recently noted[7], national security risks linked to foreign investment generally reflect the nature of the risk, their prominence, and the specific circumstances at the time. For example, consideration may be given to the:

·
dependency on foreign-controlled suppliers, creating opportunities for the supplier to delay, deny, or place conditions on the provision of crucial goods or services;
·
transfer or leakage of sensitive national security technology or expertise to a foreign-controlled entity; and/or
·
creation of an additional channel for infiltration, espionage or sabotage by a foreign power.

6.8 Consistent with this, the Government considers all proposed foreign investment applications on a case-by-case basis, taking into account the particular facts and circumstances of each case. Examples of foreign investment proposals that have raised national security concerns include:

·
A 2009 bid to acquire certain assets of OZ Minerals, including the Prominent Hill mine in South Australia, which raised national security concerns over the mine's proximity to the Australian Defence Force's Woomera Prohibited Area weapons testing range; and
·
A 2016 proposal to acquire interests in the NSW electricity distribution network, Ausgrid, which raised national security concerns regarding the critical power and communications services that Ausgrid provides to businesses and governments.

6.9 While there are a range of Commonwealth and state and territory laws that regulate certain elements of foreign business behaviour in Australia (as well as domestic business behaviour) - such as competition laws, environmental regulations and industry policy - these laws are not able to adequately mitigate all of the risks that can arise from foreign ownership. As such, the foreign investment review framework remains an important mechanism.

6.10 Australia's current foreign investment review framework, however, is insufficiently equipped to capture and manage many of the risks that foreign ownership can pose. Most notably, our framework has a 'screening gap', whereby low-value private foreign investments can proceed into Australia without any government oversight, even where they may pose significant national security risks.

6.11 Under the current framework, foreign persons are only required to seek government approval for investments above certain monetary and percentage thresholds that are dependent on the target sector and country of investor. While foreign government investors face a zero dollar threshold, for most private investors this threshold is $275 million (or up to $1,192 million for investors from certain Free Trade Agreement countries). The presence of such thresholds means that low-value investments, even into our most sensitive sectors, can occur without any government screening. These sectors are particularly vulnerable as their specialised expertise often means they are comprised of a large number of new and/or smaller firms, with valuations that are frequently well below existing screening thresholds.

6.12 Having the capability to screen these acquisitions will ensure that the Government has a greater ability to identify and address national security risks that may arise, including risks to critical Defence and intelligence capabilities, supply chains, and data.

6.13 In order to ensure that the foreign investment review framework can effectively address current and future risks, the Government must also have a credible monitoring and enforcement capability to ensure that foreign investors comply with the foreign investment rules, including the legislation and the Government's stated policies.

6.14 However, the Government's current compliance monitoring and enforcement tools are limited, and do not act as an effective deterrent to non-compliance. For example, current penalty amounts are low, and the Government lacks sufficient monitoring and investigative powers to be able to draw reliable compliance conclusions in some situations. The Government also cannot currently respond proportionately to issues of identified non-compliance, and would be forced to take court action to enforce conditions, for example, even if the breach of condition was only minor.

6.15 Conditions are an important tool that assist the Government mitigate risks, while still allowing the investment to proceed. Over recent years, as the risks from foreign ownership have increased, so too has the use of conditions. In 2018-19, 80 per cent of approved cases by value had conditions attached to them, compared to just 35 per cent in 2015-16.

6.16 FIRB and Treasury draw on advice from a range of agencies to ensure that any conditions recommended to the Government are proportionate to the identified risks of the individual case. Common types of conditions that have been used in recent years include: tax conditions, that require the investor to provide additional reporting where its financing or capital arrangements may create a risk to tax revenues; management and control conditions, such as prohibiting the investor from seeking a board seat; and data security conditions, to ensure that a change of ownership does not create an unmanaged risk of unauthorised access to personal, government or sensitive operational data.

6.17 This increased use of conditions has, and will continue to, require a greater focus from the Government on compliance and enforcement efforts. Strengthening the Treasury and ATO's ability to monitor and enforce compliance with conditions will build confidence in the foreign investment framework, alongside ensuring that any investors who do not follow the rules are appropriately penalised.

6.18 The Government's ability to identify and assess national interest risks in foreign investment, and to monitor investor compliance with the rules, hinges on the quality, accuracy and currency of its foreign investment data. However, the availability and accessibility of such data can at times be limited. For example, while the Government collects data on proposed investments through applications, it does not collect data on actual investments made into certain sectors of the economy, including many Australian businesses. This makes it difficult to enforce conditions that only take effect upon the action occurring, as the Government has no visibility over if and when the investment actually occurs.

6.19 Even the data the Government does hold is spread out across different government regulators and is underpinned by different legislation. This makes it difficult to form a cohesive picture, identify trends, and properly assess the benefits and risks of foreign investment. The lack of data on what foreign investors actually own in Australia also risks undermining the Government's ability to provide robust and evidence-based information to the community, including, for example, in response to Parliamentary questions and inquiries and in annual reports.

6.20 As the Productivity Commission recently noted, foreign investment stirs strong community reactions. In its 2020 research paper, the Productivity Commission noted that "while Australians are generally supportive of globalisation and free trade, many members of the community express reservations about Australia's openness to foreign investment. In polls of community attitudes, large majorities of respondents consistently state that foreign investment is a threat to Australian interests, and agree that there should be more restrictions on foreign ownership" [8].

6.21 The changes proposed in this reform package will strengthen the foreign investment review framework to ensure it continues to be fit-for-purpose and meets community expectations. The improvements will strengthen the integrity of the framework, and ensure that the Government has greater oversight of foreign investment that raises national security concerns, which, in turn, should positively contribute to maintaining the community's support for, and confidence in, the foreign investment regime.

6.22 Maintaining an effective foreign investment review framework that is fit-for-purpose is crucial for Australia to be able to continue to attract the beneficial foreign investment needed in our economy. Equally, it is important that the framework meets community expectations regarding the acquisitions that fall within the framework. For example, the effects of certain capital reductions (i.e. a company undertaking a strategy of share buybacks) present a potential gap in the Government's ability to address national interest risks with respect to previously approved foreign investors increasing their percentage. Another example is the inconsistent application of the tracing rules[9]. The current tracing provisions only apply to interests in trusts and companies; they cannot be applied to unincorporated limited partnerships. This limits the Government's ability to effectively address national interest and security risks, particularly where limited partnerships are used as a vehicle for investment in critical infrastructure and other sensitive sectors. Feedback from stakeholders over recent years, including through this consultation process, has consistently called for these issues to be clarified to give investors greater confidence in the framework.

6.23 While Australia is one of the world's most attractive investment destinations, some stakeholders have stated over recent years that the current framework can be burdensome and complex to navigate, particularly for lower risk investments, such as those made by large privately controlled and managed investment funds which are regularly screened under foreign government investor screening rules due to the presence of foreign government investors in their funds. Delays in case processing times have also been consistently raised by some stakeholders as an ongoing source of concern - with the indicative median processing time for Treasury cases in 2018-19 being 45 days, relative to the statutory deadline that sets an initial case processing timeframe of 30 days. These shortcomings have been some of the most frequently raised concerns during the consultation process for these reforms. They frustrate investors (both lower risk investors, and those whose applications take longer than 30 days to process), and risk impeding valuable foreign investment into Australia.

6.24 It is important for the Government to get the balance right. While some extra regulation is warranted to better protect the national interest in high risk situations, there may be scope in other situations to reduce red tape, improve the investor experience, and streamline the handling of some less-sensitive cases.

6.25 In 2015, the Government introduced foreign investment application fees to ensure that the cost of administering the foreign investment framework was borne by foreign investors, not Australian taxpayers[10]. This policy is now well understood by investors. However, the fee framework has evolved over time to become quite complex and difficult to navigate. For example, fees are spread across both the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 and the Foreign Acquisitions and Takeovers Fees Imposition Regulation 2015, making it difficult and time consuming for applicants and their advisers to determine the appropriate fee. The complexity of the framework can impose uncertainty on both investors and government in determining the correct application fee, and would benefit from review and simplification.

Why is Government action needed?

6.26 The regulation of foreign investment is a long-standing function of the Government. The legal framework is set out in the FATA, along with its supporting regulations, fees framework and data collection Acts.

6.27 The regulation of foreign investment, and the problems that this reform package aims to address, both involve consideration of highly sensitive issues - including risks to the national interest (particularly national security), the assessment and monitoring of investor's commercial information and activities, and balancing Australia's economic interests. The need to ensure that risks to national security are properly assessed with full access to all of the necessary information, and the concurrent need to keep investors commercially sensitive information confidential, means the Government is the only appropriate body to perform this function.

6.28 These reforms include measures to strengthen the existing framework with: enhanced national security review of sensitive acquisitions; extra powers and resources to ensure foreign investors comply with the terms of their approval; and amendments to streamline investment in non-sensitive areas.

6.29 In particular, the national security reforms will enable the Government to better address emerging national security risks that arise from foreign ownership, such as powers to screen certain foreign investment on national security grounds regardless of value. There are also measures to reduce the regulatory burden for certain investments that do not pose national security risks, and provide greater clarity on the scope and application of the FATA.

6.30 The reforms are not expected to significantly impact on foreign capital inflows to Australia. While it is estimated that the reforms will likely impose some additional regulatory burden on investors (discussed further in sections 4 and 6), this is not expected to be a significant deterrent to foreign investment in Australia. Foreign investor survey data consistently reinforces that market factors play the most significant role in a firms' foreign investment decisions.

6.31 The reforms are also expected to improve case processing times, in part, due to an improved IT case management system, better data collection, better reporting of foreign investments realised in Australia from the new Register and additional staff resourcing which will be welcomed by investors.

6.32 Importantly, the reforms preserve the core principle underpinning Australia's foreign investment system: that Australia welcomes foreign investment for the significant economic benefits it provides. Under the reforms, the Government will continue to review individual investments on a case-by-case basis to ensure they are not contrary to the national interest. This is critical to both protecting Australia's national interest and maintaining the Australian public's confidence in the foreign investment regime.

6.33 Australia is not alone in recognising and responding to the rising national security challenges posed by foreign ownership. Many other countries - including Canada, China, the European Union, Japan, New Zealand, the United Kingdom and the United States - have also recently updated their foreign investment rules for similar reasons.

6.34 This package of measures will build on the reforms to the foreign investment review framework that the Government introduced in 2015. Those reforms modernised the FATA by: bringing all foreign investment into the legislative framework rather than relying on policy statements; strengthening the Government's oversight and enforcement of the residential real estate sector; providing greater scrutiny and transparency around agricultural investments; and introducing fees so that the cost of administering the foreign investment regime is borne by foreign investors and not Australian taxpayers.

6.35 The proposed reforms will ensure that the foreign investment framework continues to balance:

·
maintaining Australia as an attractive place for foreign investment, with a framework that promotes business certainty and delivers timely decisions;
·
maintaining public confidence in the integrity of the framework, including compliance; and
·
protecting Australia's national interest, including national security.

What options have been considered to address the identified problems?

6.36 The Treasury, in consultation with its stakeholders, has considered three broad options to address the identified problems:

·
Option 1: Maintaining the existing arrangements without amendment.
·
Option 2: A balanced option that provides for adequate protection of the national interest, particularly national security, while still facilitating and attracting foreign investment into Australia.
·
Option 3: An option that significantly increases (or decreases) the protection of Australia's assets, depending on the relevant policy objective.

Protecting Australia's national security

6.37 As noted above, the risks from foreign investment to Australia's national interest, particularly national security, have increased recently as a result of a confluence of developments, including rapid technological change and changes in the international security environment.

Option 1 - status quo

6.38 Under this option, the Government will continue to screen only those foreign investments that meet certain criteria, such as monetary or percentage thresholds that are dependent on the nature of the investment, the target sector, and the country of the investor.

6.39 This means that investments below the existing screening thresholds, or otherwise outside of the FATA notification parameters, will continue to proceed without Government oversight. While foreign government investors face a zero dollar screening threshold, most private business investments under $275 million (or $1,192 million for our Free Trade Agreement partners) are not screened.

6.40 The presence of such monetary thresholds means that investments in some of our most sensitive sectors are not screened, even where those investments raise national security concerns. These sectors are particularly vulnerable as their specialised expertise often means they are comprised of a large number of new and/or smaller firms, with valuations that are frequently well below existing screening thresholds.

6.41 Under this option, the Government will continue to have limited ability to manage foreign involvement in sensitive sectors, including in situations where point-in-time approvals (including conditions to protect our national security) are made redundant due to rapid technological change, or where the nature of the security risks change subsequent to approval.

Option 2 - a balanced approach

6.42 Under this option, the Government will expand the foreign investment regime to enable the review of proposed actions categorised as notifiable national security actions or reviewable national security actions. In general, these actions fall below the existing monetary or percentage screening thresholds, but in some way raise national security concerns, such as being close to a Defence premises. These actions will be assessed as to whether they are contrary to national security.

6.43 Under this test, a foreign person acquiring a direct interest (generally at least 10 per cent, or a position of control) in a 'national security business', starting to carry on the activities of such a business, or acquiring an interest in Australian land or a tenement that is 'national security land', will need to notify and obtain foreign investment approval prior to making the investment. This will ensure foreign investment that raises national security concerns is screened irrespective of the value of the investment or the investor's nationality, or whether the acquirer is a private investor or a foreign government investor.

6.44 'National security land' is generally a defence premises or land that is of interest to an intelligence agency and that interest is publicly known or confirmable.

6.45 In brief, a 'national security business' can be any of the following:

·
'Responsible entities' and 'direct interest holders' of critical infrastructure assets, within the meaning of the Security of Critical Infrastructure Act 2018 (SOCI), and 'carriers' and 'carriage service providers' to which the Telecommunications Act 1997 applies;
·
Businesses that develop, manufacture or supply critical goods, technologies or services that will be used (or are intended for use) by defence and intelligence personnel, or the defence force of another country, in activities that may affect Australia's national security; and
·
Businesses that own, store, collect or maintain classified data, or personal data relating to Australia's defence and intelligence personnel that, if disclosed or accessed, could compromise Australia's national security.

6.46 The overwhelming majority of stakeholders during the exposure draft consultation periods were supportive of the Government's proposed 'national security business' definition and did not raise substantive issues. However, some stakeholders did express concerns that in the case of a hostile takeover (for example), the target may not provide the required information for the acquirer to be able to determine whether it falls within the definition. Similarly, the acquirer may not be able to ascertain such information, or more broadly, what constitutes 'defence land' from public information. To address this concern, a reasonableness test will be included in the proposed measure to take into account instances where investors may not have notified the Government because they (reasonably) did not know the target fell into the definition of a national security business.

6.47 The Government intends to provide guidance material on the definition of 'national security business' and 'national security land' to clarify the application of the definition and to support investors in navigating the reforms more broadly.

6.48 In addition, certain investment not otherwise notified under the existing national interest or new national security mandatory pre-investment notification processes will be able to be 'called in' before, during or after the investment, on a case-by-case basis if the Treasurer considers the investment raises national security concerns. Once called in, an investment will be reviewed under the national security test to determine if it raises national security concerns, consistent with the same process as those investors who notify on a mandatory basis.

6.49 The use of the 'call in' power will be time-limited and public guidance will be provided on the type of investments where the 'call in' power is most likely to be used. This is consistent with existing practice, where guidance material is provided on the FIRB website.

Example 6.1: Use of the call-in power The Treasurer becomes aware through media reports that a foreign person is proposing to acquire a private company that provides after-hours maintenance services to state and territory government offices. The target company is estimated to be worth around $90 million.While this investment is not a significant or notifiable action, it does meet the criteria of being a reviewable national security action.Given perceived sensitivities, the Treasurer decides to use the call-in power to review the action on national security grounds.

6.50 For greater regulatory certainty, investors will have the opportunity to voluntarily notify (on a per-investment basis), including pre-acquisition, to avoid the possibility of being called in for review on national security grounds at a later stage.

Example 6.2: Voluntary notification A foreign person has recently acquired a direct interest in an entity whose core business is manufacturing textiles for the fashion industry, while also researching and developing experimental textiles. This action did not require mandatory foreign investment approval as it was not a significant or notifiable action, nor was it a notifiable national security action.Upon acquiring the company, the foreign person recognises the potential to sell one of the experimental textiles for use in a national security context. The foreign person decides to voluntarily notify in order to remove the possibility that this investment is called-in at a later date.

6.51 Investors will also be able to apply for a time-limited, investor-specific exemption certificate which will enable them to make eligible acquisitions without the need for case-by-case screening. This investor-specific exemption certificate is additional to the existing exemption certificates available for acquisitions of businesses, land and land entities, and mining and exploration tenements. Exemption certificates may range in length and value, and will be subject to conditions, including reporting conditions where necessary.

6.52 Finally, under this option, the Government will also introduce a national security last resort review power to reassess approved foreign investments where subsequent national security risks emerge. The last resort review power will allow the Treasurer to impose conditions, vary existing conditions or, as a last resort, require the divestment of foreign interests in a business, entity or land. The last resort review power will not be retrospective and will only be applicable to any future foreign investment that is reviewed under the FATA.

Example 6.3: Example of the use of the last resort power A foreign person, was approved to acquire a controlling stake in an online gambling company operating in Australia. At the time of the application, the foreign person failed to declare the connection of several directors to terrorist financing. This omission was material and misleading. The Treasurer may review this action under the last resort power.

6.53 The purpose of the last resort review power is to address a gap in Australia's approach to managing foreign involvement in sensitive sectors, where point-in-time approvals, including conditions to protect our national security, are made redundant due to rapid technological change, or where the nature of the security risks posed change subsequent to approval.

6.54 Recognising the significant implications for investors, and the need for transparency and investor certainty, this power will be subject to significant safeguards, including the availability of merits review, and requirements that the Treasurer be satisfied that:

·
reasonable steps have been taken to negotiate in good faith with the foreign investor to achieve an outcome of eliminating or reducing the risk without action under the FATA;
·
requiring the investor to comply with an order is reasonably necessary to eliminate or reduce the national security risk; and
·
there are no other regulatory mechanisms outside the FATA that can be used to adequately address the identified risk.

Option 3 - significant increase in the protection of Australia's assets

6.55 This option will permanently lower the monetary screening thresholds for all investments subject to the FATA to zero dollars, consistent with current temporary arrangements that were introduced in March 2020 in response to the coronavirus outbreak.

6.56 Notwithstanding these temporary coronavirus measures, under existing arrangements private investors face monetary thresholds which, dependent on a number of factors, can be as high as $1,192 million. All foreign government investors face a zero dollar screening threshold.

6.57 This option will significantly tighten the screening arrangements of the FATA for private investors, and require more investments (for example, low-value investments that are ordinarily out of scope of screening) to be notified to the Government for pre-acquisition screening.

Improving the integrity of the foreign investment review framework

6.58 As noted above, the foreign investment framework currently has a number of shortcomings that detract from the integrity of the framework. These shortcomings create investor uncertainty and inhibit the Government's ability to effectively administer the foreign investment framework.

Option 1 - status quo

6.59 Under this option, the foreign investment framework will continue to have various shortcomings that detract from its integrity and raise uncertainties about its application in a range of situations. Investors will continue to be able to exploit the gaps and loopholes in the legislation, should they choose, and the Government will have limited ability to screen or prohibit these investments. Even where they sought to do the right thing, in certain circumstances investors will continue to be unsure about their obligations. For example:

·
The effects of share buyback programs and other forms of capital reductions present a potential gap in the Government's ability to address national interest risks with respect to foreign investment. Where a foreign person's percentage holding in an Australian entity increases as a result of not participating in a share buyback, the Government may have no recourse even where the investment raises national interest concerns, because the foreign person has not acquired any additional securities and so is not considered to be taking an action under the FATA.
·
Certain investors may be able to increase their holdings above 20 per cent in target companies incrementally over time, and unless the acquisitions result in a change in control, the Government may be unable to impose conditions or prohibit these further acquisitions under the FATA even where the investment raises national interest concerns.
·
Section 27 of the Foreign Acquisitions and Takeovers Regulation 2015 exempts for all purposes, the acquisition of an interest in securities, assets, a trust, Australian land or a tenement if the interest is held solely by way of security for the purposes of a moneylending agreement. The exemption applies even in cases where sensitive assets are being acquired. While lenders are required to make a genuine attempt to dispose of the interest, this requirement applies only to foreign government lenders rather than foreign lenders more broadly.
·
The FATA provides for substantial interests in a corporation or trust to be traced back through the ownership of relevant entities. These tracing rules, however, do not apply to unincorporated limited partnership. This limits the Government's ability to effectively address national interest and security risks, particularly where limited partnerships are used as a vehicle for investment in critical infrastructure and other sensitive sectors.

6.60 Maintaining the status quo will also mean that the Government will continue to face legislative and administrative barriers to sharing and using its foreign investment data. This will continue to inhibit its ability to effectively administer the foreign investment framework.

Option 2 - a balanced approach

6.61 Under this option, the Government will clarify that foreign persons may require further foreign investment approval for increases in actual or proportional holdings above what has been previously approved, including as a result of creep acquisitions and proportional increases through share buybacks and selective capital reductions.

6.62 Currently, not all increases in shareholdings of an Australian business or entity are significant actions if the acquisition does not result in a change of control as provided under section 54 of the FATA. This means that private investors may be able to increase their holdings in a target Australian business or entity over time, and the Treasurer's powers under the FATA are not enlivened. The amendments will provide that in some circumstances, the 'change of control' test will no longer be a factor in determining that an action is a significant action once a foreign person controls an entity or business - thereby clarifying a current source of uncertainty under the law.

6.63 In addition, the Government will narrow the scope of the moneylending exemption so that it does not apply where foreign money lenders are obtaining interests in a sensitive national security business or land under a moneylending agreement.

6.64 The types of government assets that will be subject to scrutiny under the FATA will also be expanded (from critical infrastructure asset sales) to include acquisitions of sensitive national security businesses or land, including where they involve the privatisation of government functions or services in those areas. This will ensure that national security factors are considered in the context of such sales, consistent with the new national security test under the FATA.

6.65 Further amendments will ensure that the tracing rules can be applied to unincorporated limited partnerships, as they are to corporations and trusts, so that beneficial interests can be traced. Currently, under the tracing rules, a person is taken to hold interests in securities in companies or trusts which are lower in the corporate structure where certain requirements are met. These tracing rules cannot be applied to unincorporated limited partnerships, limiting the Government's ability to impose conditions where an unincorporated limited partnership is used in a business structure. Extending the tracing rules to apply to unincorporated limited partnerships will enable the Government to impose conditions on the higher entities in the organisational structure where required to manage national interest risks. Depending on the type of acquisitions and the risks being mitigated, conditions may vary from tax conditions, conditions relating to the proximity of an asset from a Defence establishment, or conditions relating to the management of data.

6.66 Furthermore, under this option, the FATA will also be amended to enable greater information sharing among government agencies in particular circumstances, as well as with foreign governments, for the purpose of enhancing compliance and better addressing national security risks.

Option 3 - significant increase in the protection of Australia's assets

6.67 This option proposes a more stringent approach to the screening of foreign investment proposals than under Option 2. For example, under this option, the 'change of control' requirement within the FATA will be removed completely, which will be likely to result in more foreign investment proposals being subject to the Treasurer's powers.

6.68 In relation to foreign investors whose proportional holdings increase, for example as a result of a company share buyback, this option will require affected investors to notify any increase, rather than only notifying when they start to hold more than 20 per cent in the company (for foreign persons) or more than 10 per cent (for foreign government investors or foreign persons investing in an agribusiness).

6.69 The information sharing provisions of the FATA will also be significantly expanded under this option, on a broad principles-based approach, to allow the regulator to share protected information with any government agencies where it is in the national interest to do so.

Stronger compliance and enforcement powers

6.70 Compliance activities are fundamental to the integrity of the foreign investment review framework. They provide assurance that foreign persons are meeting their obligations while minimising the regulatory burden and ensuring a level playing field for all investors.

6.71 However, as noted above, there is a need to expand the Government's compliance monitoring and enforcement powers, as the current tool-kit is not an effective deterrent to non-compliance.

Option 1 - status quo

6.72 Under this option, the Government's compliance and enforcement powers will remain quite limited. The FATA currently does not include monitoring powers and investigative powers are limited to requests for information and documents under section 133. Monitoring compliance will continue to be facilitated through reporting requirements on conditions attached to approvals, while investigations will remain largely desk-top and paper based by searching existing government and public databases. Other than for residential real estate, enforcement powers will remain reliant on the courts.

6.73 The Government will continue to have no directions powers under the FATA, leaving it without a tool to pursue early and effective action to remedy a breach of conditions. Penalty amounts will also remain low, usually at 250 penalty units, and an ineffective deterrent to non-compliance.

6.74 The Government will continue to have limited ability to respond proportionally to issues of non-compliance, with no ability to use infringement notices for minor offences.

Option 2 - a balanced approach

6.75 Under this option, the Government will have the resources, powers and penalties to effectively monitor, investigate and prosecute breaches of foreign investment laws.

6.76 The Government will have standard monitoring and investigative powers (in line with those of other business regulators) by enlivening the relevant provisions in the Regulatory Powers (Standard Provisions) Act 2014. This will enable authorised officers to access premises with consent or by warrant, gather documents, information or equipment, and interview people for relevant information. Investors will also be required to notify the Government where certain events occur in relation to actions taken (e.g. where an asset is sold), consistent with the requirements of the new foreign ownership Register. This measure will improve regulators' capability to monitor investor compliance and/or investigate potential non-compliance.

6.77 The power to issue directions will give the Government flexibility on how best to address actual or likely non-compliance. The directions power will be triggered where the Government has a reason to suspect that an investor has, is, or will, engage in conduct that breaches a condition of their approval or breaches a foreign investment law. The requirement to have a 'reason to suspect' is an objective test based on the facts and circumstances of each case, and is consistent with the standard applied in other regulatory spheres such as in the Australian Securities and Investment Commission Act 2001 and the National Consumer Credit Protection Act 2009.

6.78 Directions could be used to respond to a range of circumstances including to:

·
ensure compliance with the FATA or the associated regulations;
·
take action or refrain from a particular action required to prevent further or ongoing harm to the national interest; and/or
·
take action or refrain from a particular action to remedy any breaches of the terms of an exemption certificate or no objection certificate.

6.79 As such, directions will vary depending on the circumstances, but may include removal of persons from corporate boards, providing audited financial statements to verify funding sources, or ceasing certain activities. The directions may require the conduct to be completed within a set timeframe or until a specified condition is met.

6.80 An investor must comply with a direction. Failure to comply with a direction will expose the person to enforcement mechanisms.

6.81 Civil and criminal penalties under the FATA will also be increased to ensure they act as an effective deterrent. These amounts will be maximums to enable Treasury to make submissions to the court to impose penalties appropriate to the circumstances of the contravention and relevant action.

6.82 In general, civil penalties will be the greater of the 5,000 units or 75 per cent of the value of the investment to a maximum monetary value of 250,000 penalty units. Criminal penalties will increase to 15,000 penalty units for individuals and 150,000 penalty units for corporations. A key exception is a failure to notify, where the civil and criminal penalty will be capped at 250 penalty units.

Option 3 - significant increase in the protection of Australia's assets

6.83 Under this option a more stringent penalty regime will be implemented, with fewer (and less scalable) enforcement mechanisms available. Matters could only be enforced with court proceedings, which is a resource and cost intensive approach for both Treasury and the investor.

6.84 In this scenario, infringement notices could be issued for any civil penalty provision in the FATA, but will not be tiered. Rather, the infringement notices will be set at tier 3 under Option 2. That is, infringement notices for individuals will be 300 penalty units and 1,500 penalty units for corporations.

6.85 The investigative and monitoring powers will be the same as proposed under Option 2, but will be coupled with increased reporting obligations on various events that occur across the lifetime of the action. The type of events to be reported depends on the type of action taken, but would include instances where an investor has a no objection notification but ultimately does not take the action, consistent with Option 3 of the new foreign ownership Register; any changes in interests in securities; changes of senior officers; or changes in supply of services, goods or technology to defence personnel.

6.86 There will be no option for enforceable undertaking or directions under this option. Matters will only be enforced through civil penalty proceedings or criminal prosecutions, which is resource intensive and costly. Penalty amounts will also be increased to be the same as Option 2 to ensure they act as an effective deterrent and proportionate penalty.

Streamlining less sensitive investments

6.87 As noted above, some stakeholders have stated that the foreign investment framework can be complex and burdensome in some situations. This is particularly relevant for privately controlled and managed institutional investors that are regularly screened under the foreign government investor screening rules due to large investments by foreign government investors in their funds.

Option 1 - status quo

6.88 Under this option, investment funds in which a foreign government investor holds at least a 20 per cent interest, or where multiple foreign government investors hold at least a 40 per cent interest, will continue to be classified as a foreign government investor themselves.

6.89 These funds will continue to be subject to the foreign government investor screening requirements of the FATA, such as a zero dollar screening threshold for all investments, which require them to notify the Government of a range of actions that are not otherwise required to be notified by private investors.

Option 2 - a balanced approach

6.90 Under this option, the Government will no longer treat certain entities (that is, some investment funds) as foreign government investors under the broader national interest test where their foreign government investors are passive - meaning they have no influence or control over the investment or operational decisions of the entity or any of its underlying assets. This measure will be given effect in two ways:

·
Entities which have more than 40 per cent foreign government ownership in aggregate (without influence or control) but less than 20 per cent from any single foreign government will no longer be deemed foreign government investors.
·
Entities which have a single foreign government investor with at least 20 per cent ownership (without influence or control) will still be deemed foreign government investors, however they will be able to apply for a broad exemption certificate on a case-by-case basis that could exempt non-sensitive acquisitions below the private investor thresholds.

-
These exemption certificates may be granted for a specified time period (such as five or ten years, or up to the life of the entity), and may include conditions, such as conditions regarding the passivity and control of foreign governments over the investment fund and target entities.
-
If granted, the investor will effectively be in the same position as if the foreign government investor met the amended definition of aggregate substantial interest, in addition to being exempted from the notification requirements relating to an acquisition of a substantial interest on its own.

6.91 These entities will still be considered as 'foreign persons' for the purpose of foreign investment screening, and will be subject to the usual screening thresholds for private foreign investors.

6.92 In the case where a limited partnership investment fund may seek an exemption certificate, the entity will need to demonstrate the absence of foreign government investor influence or control. As part of the exemption certificate application, the fund will be required to show that their foreign government investors:

·
do not have management rights in the investment;
·
typically do not know which and when particular investments will be made (but may know the broad nature of the investment strategy); and
·
do not have influence or control, directly or indirectly, and could not be perceived to have any influence or control, over the investment entity or strategy (including decisions to increase holdings or divest holdings in a sector or industry) of the investment fund.

6.93 The fund may also need to commit to the passivity of foreign government control through the use of conditions on the exemption certificate.

Option 3 - significant decrease in the protection of Australia's assets

6.94 This option will remove the zero dollar screening threshold that applies to all foreign government investor investments under the FATA. Investments made by foreign government investors into Australia will be subject to the same monetary screening thresholds as private investors.

6.95 While foreign government investors currently face a zero dollar screening threshold for all investments, private investors can be subject to a range of higher thresholds, sometimes up to $1,192 million.

6.96 By removing the specific zero dollar foreign government investor threshold, and applying the higher thresholds to all investors, many foreign government investor investments will no longer need to be notified to the Government - including investments in Australian businesses worth less than $275 million.

Register of foreign ownership of Australian assets

6.97 As noted above, the Government does not currently collect data on all foreign investments made into Australia. This limits the Government's ability to assess cases, monitor compliance with conditions imposed on investments, and draw on a robust data set to inform policy development.

Option 1 - status quo

6.98 Under this option, the Government will continue to collect only that foreign investment data that is captured on the small number of existing sector-specific registers. These five existing registers only collect information about realised foreign investments made into certain sectors of the economy - being residential land, agricultural land, water interests, media businesses and critical infrastructure.

6.99 In other sectors of the economy, such as commercial land or Australian retail businesses (for example), the Government will continue to have limited visibility of the foreign investments that are actually made into these sectors after an application is approved.

Option 2 - a balanced approach

6.100 Under this option, a new Register of Foreign Ownership of Australian Assets will be established to provide greater visibility of foreign investments in Australia. Investors will be required to record on this Register all acquisitions they make of Australian land, and all significant actions they take following the receipt of a no objection notification or exemption certificate. Investors will be required to record their level of interest in the asset (e.g. their percentage of ownership), the means by which they acquired the asset (e.g. freehold or leasehold interests in land), and their contact (or agent's) details and nationality. Investors will be required to register their investments and provide this information within 30 days following the action.

6.101 The new Register will amalgamate the existing agricultural, residential and water registers, to provide a streamlined user experience. This proposal will not amalgamate or affect the existing critical infrastructure or water registers, as the characteristics of those registers do not easily align with the design of this new Register. For example, while the data on the media register is publicly available, this new Register will not be searchable by the public due to commercial sensitivities and privacy considerations. However, to provide a degree of public transparency on foreign investment in Australia, an annual report of aggregate de-identified data from the Register will be made available each year.

6.102 Stakeholder feedback during the consultation processes led to the refinement of certain elements of this proposal (for both Options 2 and 3). Most notably, following feedback that the draft definition of 'registrable land' was too broad, that definition was narrowed to be more consistent with the existing definitions already contained in the FATA.

Option 3 - significant increase in the protection of Australia's assets

6.103 Under this option, a new Register of Foreign Ownership will be established to provide the Government with greater visibility of foreign investments being made in Australia, similar to Option 2. However, investors will be required to record on this Register a broader range of actions than under Option 2, including: all acquisitions of Australian land; all non-land acquisitions that would be significant actions, irrespective of their monetary value (i.e. assuming a zero dollar threshold applies); and all instances where an investor may hold a no objection notification or exemption certificate but not take any action. Investors will be required to record their level of interest in the asset (e.g. their percentage of ownership), the means by which they acquired the asset (e.g. freehold or leasehold interests in land), and their contact (or agent's) details and nationality.

6.104 Investors will be required to register their actions within 30 days following the action, or at the expiry of their no objection notification or exemption certificate.

6.105 Similar to Option 2, the new Register will amalgamate the existing agricultural land, residential land and water entitlement registers, to provide a streamlined user experience. The new Register will not be searchable by the public due to commercial sensitivities and privacy considerations. However, to provide a degree of public transparency on foreign investment in Australia, an annual report of aggregate de-identified data from the Register will be made available each year.

A fairer and simpler framework for foreign investment fees

6.106 It is the Government's policy that the cost of administering the foreign investment review framework be borne by foreign investors, not Australian tax payers. This position is widely accepted by investors. However, some stakeholders have still expressed concern that the structure of the fee framework is overly complex and costly to navigate.

6.107 With other measures in this reform package also expanding the Government's functions within the foreign investment framework - in particular, the introduction of a new national security test and compliance powers - the fees framework will also require updating if it is to continue to cover the cost of administering the new system.

Option 1 - status quo

6.108 Under this option, the fee framework will remain relatively complex. This will continue to impose a degree of uncertainty on investors which involves an expenditure of their time and resources to navigate.

6.109 For example, fees and fee rules are currently spread across both the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 and the Foreign Acquisitions and Takeovers Fees Imposition Regulation 2015, making it difficult and time consuming for applicants and their advisers to determine the appropriate fee. Given the requirement for fees to be paid before the Treasurer exercises powers, any uncertainty in establishing and paying the correct fee has the potential to cause unnecessary delays to the foreign investment review process - meaning foreign investors may have to wait longer for a decision. If the other proposed measures of this broader reform package are implemented, under this option, the fee framework will no longer be reflective of the entire costs of the foreign investment regime and not meet the Government's stated objectives.

Option 2 - a balanced approach

6.110 Under this proposal, the fee schedule will be updated to reflect the enlarged roles and responsibilities of foreign investment activities across government, including aspects related to national security and compliance measures. It will also take into account the growing complexity of cases, as well as the administrative cost of the review process over recent years. The updated fee schedule will focus on delivering a structure that is fairer and simpler. In particular, it will reduce the complexity of the framework to minimise the compliance and administrative costs for investors in establishing and paying the correct fee.

6.111 It will also remove the size of the gaps between existing thresholds for consideration value, which can have a distortionary impact on investment decisions. For example, fees for non-residential land currently only have three thresholds, which means fees rise by around 1,200 per cent between the first and second tier, and by more than 300 per cent between the second and third tier. A smoother, more graduated scale of fees will ensure investors are not incentivised at the margin to restructure transactions around fee tiers, and more generally will lead to more equal treatment of investors across consideration values.

6.112 On this basis, individual fees will continue to vary according to the type and value of the investment, with residential land applications continuing to pay the highest fees as a proportion of consideration, followed by agricultural land. Commercial land and business acquisitions will pay the least as a proportion of consideration. Depending on the consideration value, fees for residential land, agricultural land and commercial land and business acquisitions will generally range from $6,600 to $500,000.

6.113 There will be concessional fees available for exemption certificates and for actions which are reviewable, but not mandatorily notifiable, under the new national security test. Lower fees for called-in applications and voluntary notifications will help mitigate some of the additional regulatory impost and also encourage voluntary notifications where there may be doubt as to whether an application may present national security concerns.

6.114 While fees will increase, they will still represent a relatively small proportion of overall consideration for all application types. In addition, previous consultations have indicated that investors are more concerned about timeliness of FIRB decision-making than the level of fees.

6.115 Investors acquiring businesses between $10 million and $150 million will benefit from this new model, as will investors acquiring agricultural land between $2 million and $6 million. The maximum fee for a commercial transaction over $150 million will not be higher than 0.03 per cent of the consideration, or 0.66 per cent for agricultural land (above $6 million). Some fees for small acquisitions may be higher under the new framework; however the existing arrangements enabling fee relief on a case-by-case basis can be applied to ensure fees paid are appropriate for the nature of the transaction.

6.116 Recognising the importance of non-sensitive foreign direct investment to the Australian economy, investors will continue to be able to apply for exemption certificates for up-front approval of a program of acquisitions. Rather than the current flat fee, the fee structure for exemption certificates will generally depend on the type of target investments (e.g. businesses, agricultural land or commercial land), and the proposed value of the investments. The fees for these exemption certificates will be 75 per cent of the applicable fee for a single transaction of the same value.

Option 3 - significant increase in the protection of Australia's assets

6.117 Under this option, the structure of the fee framework will remain unchanged, and relatively complex.

6.118 However, under this option, the size of each of the individual fees will be increased to ensure that they cover the additional expected costs of the new post-reform system.

Modernising Australia's foreign investment ICT platform for better case management, compliance enforcement and data use

6.119 As noted above, the Government's ability to identify and assess national interest and national security risks in foreign investment hinges on a fit-for-purpose case and compliance management system, and the quality, accuracy and currency of data. Treasury's current IT system has not kept pace with evolving operational demands and is not a functional case management system, nor does it effectively support compliance activity. The accessibility and useability of data can at times be limited.

Option 1 - status quo

6.120 Under this option, Treasury will continue to use its current IT case management system (known as FIMS3) to administer the foreign investment review framework. This system, however, is no longer fit for current purposes, or expected future purposes.

6.121 FIMS3 is not a fully functional case management system, and it is not designed to support compliance management. For example, it does not enable case officers to verify an investor's identity, or to search other data sources to identify national interest risks. It also provides very limited reporting of case flows, and has no compliance reporting functionality.

6.122 Maintaining the status quo will mean that Treasury officers will continue to undertake a significant amount of work in an inefficient manual manner, as the current IT capability will not support the existing or new functions.

Option 2 - a considered investment approach

6.123 Under this option, a new case management system will be implemented to enable end-to-end case management, including compliance monitoring, and some process automation. It will enable all of Treasury's work to administer the FATA (including case assessments and compliance monitoring) to be completed in the one system.

6.124 The system will include a single public front door to channel investors to either the ATO online services portal (for residential and non-sensitive commercial applications) or the Treasury service delivery point (for all other applications), leveraging MyGovID for authentication. This will make it easier for investors to interact with government services.

6.125 This option will also include advanced analytics including machine learning, natural language processing, and entity relationship mapping. These technologies will assist case management and compliance officers by identifying potential areas of risk through the accumulation and searching of multifaceted market data sources.

6.126 The new system will also be linked to the new Register of Foreign Ownership of Australian Assets to provide case officers with more timely and accurate information on what investors already own in Australia when assessing a case.

6.127 This proposed IT system will deliver improved government services through an improved investor portal with enhanced validation to minimise the likelihood that investors will be required to provide additional information after the initial submission. In particular, this option has the greatest impact on improving Treasury's ability to perform its regulatory role, and increases productivity in administering the foreign investment review framework with reduced processing times and costs for government and investors.

Option 3 - a lower investment approach

6.128 Under this option, a new case management system will be implemented (as in Option 2) to enable end-to-end case management, with all of Treasury's work administering the FATA to be carried out in the one system. Consistent with Option 2, the system will also include a single public front door to channel investors to either the ATO online services portal or the Treasury service delivery point, and be linked to the new Register of Foreign Ownership of Australian Assets.

6.129 Option 3 will not, however incorporate the further advanced data analytics across large public and non-public data sets of Option 2. This option will therefore not assist case management and compliance officers in identifying potential areas of risk in the same manner as in Option 2. Therefore the key regulator impacts compared to Option 2 are reduced processing times and greater manual effort (although an overall reduction compared to Option 1), with less efficient consultation processes across government in identifying national interest and national security risks.

What is the likely net benefit of the considered options?

6.130 Australia remains one of the world's most attractive destinations for foreign investment, with that attractiveness founded on a range of factors: our stable democracy; our strong rule of law; a highly-skilled and highly-educated workforce; our proximity to dynamic and fast-growing markets; our abundant natural resources and world-class industry capabilities; and a strong and well managed economy.

6.131 Australia's attractiveness as a destination for foreign investment is reflected in foreign direct investment (FDI) inflows, which in the three years to 2019 averaged 3.3 per cent of GDP - compared with 1.7 per cent of GDP for the OECD and 1.5 per cent of GDP for the G20 economies[11].

6.132 In general, foreign investors face two sources of regulatory burden from the foreign investment review framework. Prior to making an investment, an investor is required to submit an application to the Government for pre-acquisition screening. For investments in certain specified sectors, investors are also required to register their investment on a Government register once the investment is realised (the registers are discussed further in sections 3.5 and 4.5).

6.133 Over recent years, foreign investors have submitted, on average, around, 9,900 applications to the Government for pre-acquisition screening each year (worth around $200 billion in investment to the Australian economy), and in addition have made on average around 13,500 post-investment registrations each year - incurring a total annual average regulatory cost of approximately $332 million from the foreign investment framework.

6.134 While there is no fee charged for making a registration, investors do pay fees for submitting a pre-acquisition application for screening. This ensures that it is foreign investors, not Australian taxpayers, that bear the financial cost of administering the foreign investment regime (fees are discussed further in sections 3.6 and 4.6). In 2018-19, the total fees paid by foreign investors was $94 million[12].

6.135 Australia's continued attractiveness as a foreign investment destination suggests that the current regulatory costs and fees of the foreign investment review framework are not a significant deterrent to foreign investment in Australia.

Protecting Australia's national security

Option 1 - status quo

6.136 Maintaining the status quo will provide stability for both investors and government. It will not impose any additional regulatory burden on investors, or have any additional financial costs for the Government.

6.137 However, without reform, this option will continue to leave Australia exposed to the increasing risks, particularly risks to our national security, posed from foreign ownership in transactions outside of the FATA's existing screening thresholds. It will provide Australia with no additional protection from the national security risks that may arise in some low-valued foreign investments.

Option 2 - a balanced approach

6.138 This option will ensure that potentially sensitive investments outside of the FATA's existing thresholds are assessed for national security concerns. This will provide the Government with a greater ability to protect Australia against any national security risks that may arise from a foreign investment proposal.

6.139 The key concepts that are proposed to inform the definition of a national security business and national security land are deliberately narrow in recognition of the fact that, outside of those identified national security businesses and national security land, the majority of investments into Australia are not likely to raise national security concerns.

6.140 For most investors who undertake investments in non-sensitive sectors of the economy, the introduction of this national security test will not affect how they interact with the foreign investment review framework.

6.141 While the 'call in' power may create additional uncertainty for investors, as to whether their investment will be called-in or not, there are a range of safeguards proposed in the design of this option that will mitigate these concerns. For example, the use of the 'call in' power will be time-limited, investors will be able to voluntarily notify to extinguish the ability to be called-in, and public guidance will be issued on the types of investments that may be 'called-in'. While the overwhelming majority of investments are not expected to be called in, investors could still seek regulatory certainty, if they choose, by voluntarily notifying. The use of a call-in power will also avoid investors facing the certain regulatory burden of having to notify, if instead the action was mandatorily (instead of voluntarily) notifiable under the legislation.

6.142 Assessing exemption certificates on a case-by-case, non-discriminatory basis under this option will also provide the Government with the greatest flexibility to reduce investor burden while continuing to attract investment that is not contrary to Australia's national security interests.

6.143 The introduction of a national security test under this option is expected to increase the number of foreign investment applications submitted to the Government for screening each year. It is estimated that, on average, an additional 161 applications will be made by investors each year, resulting in an additional aggregate regulatory burden on investors of approximately $5.4 million per annum.

6.144 In order to have the resources and capacity to screen these additional applications, government agencies will also require additional resourcing from the Government of approximately $3.4 million per annum. These costs can however be recovered from investors through reform to the application fee framework (see sections 3.6 and 4.6).

Option 3 - significant increase in the protection of Australia's assets

6.145 This option will provide the Government with greater oversight of proposed foreign investments in Australia by requiring notification of all actions captured by the legislation. It will provide the Government with greater power to review more investments, and could impose conditions on, or prohibit, those investments that may be contrary to the national interest.

6.146 This option will also simplify the administration of the foreign investment framework, by removing the many different thresholds that currently exist, and replacing them with just one zero dollar threshold for all investors and all investments.

6.147 A zero dollar threshold, will however, significantly tighten the screening arrangements of the FATA for private investors. It will require more investments to be notified to the Government for pre-acquisition screening, and may run counter to other government objectives, such as the liberalisation of screening thresholds under Australia's Free Trade Agreements. In total, it is estimated that this option will result in investors submitting an additional 1,100 applications each year, which will increase the regulatory burden on investors by an average of approximately $36.9 million per annum.

6.148 This option will also require a substantial uplift in resources across Government to adequately screen the additional caseload (including over thirty consult partners who form part of the case review process). In the absence of greater resources, the average time taken to review foreign investment applications will likely increase significantly and will negatively impact Australia's reputation for attracting foreign investment.

Table 6.1 Summary of regulatory costs of options

Average additional annual regulatory costs, from business as usual ($million)
Business Community organisations Individuals Total change in cost
Option 1 $0 $0 $0 $0
Option 2 $5.4 $0 $0 $5.4
Option 3 $36.9 $0 $0 $36.9

Improving the integrity of the foreign investment review framework

Option 1 - status quo

6.149 Maintaining the status quo will provide stability to both investors and government. It will not impose any additional regulatory burden on investors, or have any additional financial costs for the Government.

6.150 However, this option will also continue to leave shortcomings in the legislation that will continue to expose investors to regulatory uncertainty. These shortcomings may also undermine the public's confidence in the foreign investment framework.

6.151 The restrictive information sharing arrangements will also mean that the Government will remain hampered by its own inability to share data to effectively assess cases and develop informed policy.

Option 2 - a balanced approach

6.152 This option will provide a suite of measures to tighten the integrity of the foreign investment framework. It will provide greater clarity and certainty to both investors and government as to whether or not a foreign investment application should be made in certain situations.

6.153 A notable benefit associated with this option is it expands the range of actions which the Treasurer has powers over without necessarily requiring foreign persons to notify the Treasurer before undertaking those actions. As such, this option strengthens the Treasurer's ability to manage national interest risks where they arise without significantly increasing the regulatory burden on investors.

6.154 Under this option, it is estimated that the total number of applications that investors will submit to the Government each year for screening will be broadly unchanged. However, by providing greater clarity, readability and certainty in the legislation, this option will lower the regulatory burden investors face in navigating the foreign investment framework. In total, it is estimated that this option will reduce the aggregate regulatory burden faced by investors under the foreign investment framework by approximately $775,000 per annum.

6.155 Under this option, government agencies will also be enabled to share data and information with one another more easily, which will increase the efficiency of the administration of the framework, particularly with regards to the assessment of case applications. This outcome furthers the Government's commitment to deliver a timely and efficient foreign investment regime which recognises commercial deadlines and does not unnecessarily impede the operation of foreign investors or markets.

Option 3 - significant increase in the protection of Australia's assets

6.156 This option will result in increased regulation of foreign investment, compared to either Option 1 or Option 2, with more foreign investment proposals subject to Government screening.

6.157 This option may however result in outcomes that ill reflect the relative risk of some of those proposed investments. For example, the removal of the 'change of control' requirement may lead to situations where passive investors in a company will be subject to the same level of Government scrutiny as those investors who are in control of the company. The burden of such regulation will significantly and unnecessarily hold back economic activity.

6.158 Under this option it is estimated that investors will likely submit an additional 18 foreign investment applications each year. The total increase in the aggregate regulatory burden on investors under this option will be approximately $500,000 per annum.

6.159 While this option will also allow for greater administrative flexibility and discretion by government agencies in the use of foreign investment data, it will significantly broaden the circumstances in which the disclosure of protected information is permitted, and may raise investor concerns over the reduced confidentiality of their information.

Table 6.2 Summary of regulatory costs of options

Average additional annual regulatory costs, from business as usual ($million)
Business Community organisations Individuals Total change in cost
Option 1 $0 $0 $0 $0
Option 2 ($0.1) $0 ($0.6) ($0.8)
Option 3 $0.5 $0 $0.0 $0.5

Stronger compliance and enforcement powers

Option 1 - status quo

6.160 Maintaining the status quo will provide stability for both investors and government. It will not impose any additional regulatory burden on investors, or have any additional financial costs for the Government.

6.161 However, this option will continue to leave the Government with an ineffective tool-kit to effectively deter non-compliance. It risks compromising the integrity of the foreign investment framework, and with it, the public's confidence in the Government's ability to administer the framework.

Option 2 - a balanced approach

6.162 By enhancing the Government's ability to monitor compliance and address non-compliance, this option will be expected to result in an overall improvement in investor compliance. It will also bring the Government's compliance regime under the FATA into closer alignment with overseas counterparts and other domestic market regulators, providing greater streamlining and consistency for both investors and the Government.

6.163 By expanding the infringement notice regime and introducing enforceable undertakings, this option will provide the Government with greater options to pursue an enforcement mechanism proportional to the contravention.

6.164 To ensure these greater compliance and enforcement powers can be effectively implemented by the Treasury and ATO, this option will require increased resourcing for these agencies, at a cost to the Government of approximately $9.3 million per annum, on average, over the next ten years. These costs can however be recovered from investors through reform to the application fee framework (see sections 3.6 and 4.6).

6.165 The additional powers to monitor compliance and address non-compliance will be increased functions for the Treasurer, Treasury and ATO, and will not impose any additional regulatory burden on investors that comply with the rules.

Option 3 - significant increase in the protection of Australia's assets

6.166 The benefit of this approach, over Option 1 or Option 2, is that it will broaden the existing compliance regime by increasing the investigative and monitoring powers and expanding the use of infringement notices for all civil penalty provisions, as well as improving visibility of the regulated population.

6.167 The harsher penalties combined with increased investigative and monitoring powers may also be a more effective deterrent to non-compliance.

6.168 However, the negatives from this option are a lack of flexibility to impose a proportionate response to non-compliance, particularly where an investor may self-report and is willing to take active steps to rectify the issue. This may turn out to be a more expensive option for the Government in the long-term, due to the cost and resource intensive nature of pursuing court proceedings.

6.169 This option will also leave Treasury out of step with the range of powers available to other Commonwealth regulators, potentially leading to a lack of consistency between government regulators. That is, where an event results in multiple contraventions, another regulator may impose an enforceable undertaking, but our options would be limited to doing nothing, imposing an infringement notice or pursuing costly court proceedings. The expanded reporting obligations under this option will also increase the regulatory burden on investors (consistent with information presented in Option 3 of the new foreign ownership Register).

Streamlining less sensitive investments

Option 1 - status quo

6.170 This option will provide stability for both investors and government. It will not impose any additional regulatory burden on investors, or have any additional financial costs for the Government. It will also ensure that the Government continued to have extensive oversight of investments made into Australia by these particular funds.

6.171 However, this option will continue to impose a regulatory burden on these funds that may be disproportionate to the national interest risks that they pose. As operational and strategic control of these funds is generally held by a private non-government general partner, there are generally sufficient barriers to foreign government influence in these funds, which make them a lower risk investor than a typical foreign government investor. By maintaining the status quo, however, these funds will continue to be subject to the same higher regulatory screening requirements of foreign government investors.

Option 2 - a balanced approach

6.172 This option will streamline the handling of non-sensitive cases and reduce red tape for investors. It will allow these particular entities that are currently screened under the tighter foreign government investor requirements of the FATA, to make investments in Australia under the lighter touch regulatory requirements of private investors.

6.173 It is estimated that this measure will result in 60 fewer foreign investment applications being submitted by investors each year, which will reduce the aggregate regulatory burden on investors by approximately $1.9 million per annum.

6.174 While there will be less visibility of investments made into Australia by these types of foreign investors under this option, the experience in screening proposals of this nature indicate that they typically do not give rise to national interest concerns. Operational and strategic control over fund investments and fund investment decisions is generally undertaken entirely by the general partners of the funds (which are typically private, non-government entities), and it is common for there to be sufficient barriers against foreign government influence to make them lower-risk or otherwise unlikely to raise national interest concerns.

6.175 In addition, investors who rely on this exception will need to sufficiently acquit themselves of any responsibilities under the FATA.

Option 3 - significant decrease in the protection of Australia's assets

6.176 This option will significantly liberalise the foreign investment review framework for foreign government investors. Many foreign government investor investments - including where a foreign government investor invests in an Australian business worth less than $275 million - will no longer need to be notified to the Government. It is estimated that this option will reduce the number of foreign investment applications that foreign government investors submit to the Government each year by 565 applications, resulting in a decreased aggregate regulatory burden on foreign government investors of approximately $18.5 million per annum.

6.177 While this option will streamline the foreign investment review framework for foreign government investors and reduce their regulatory burden, it may also expose Australia to greater risks due to the reduced rate of screening. The tighter screening thresholds that foreign government investors currently face reflect a long-standing presumption that, on average, foreign government investors can pose a greater risk to Australia's national interest than private investors. By liberalising the screening requirements for foreign government investors, as proposed under this option, this will reduce the Government's oversight of these investments, and increase the risk that an investment that is contrary to Australia's interests may proceed unmitigated.

Table 6.3 Summary of regulatory costs of options

Average additional annual regulatory costs, from business as usual ($million)
Business Community organisations Individuals Total change in cost
Option 1 $0 $0 $0 $0
Option 2 ($1.9) $0 $0 ($1.9)
Option 3 ($18.5) $0 $0 ($18.5)

Register of foreign ownership of Australian assets

Option 1 - status quo

6.178 Maintaining the status quo will provide stability for both investors and government. It will not impose any additional regulatory burden on investors, or have any additional financial cost for the Government.

6.179 However, under this option, the Government will continue to have little data on what foreign investors actually own in large parts of the Australian economy. Government data will remain constrained to just residential, agricultural, water, media and critical infrastructure.

6.180 The lack of comprehensive data will continue to inhibit case assessments, make it difficult to monitor investor's compliance with conditions as there will be limited visibility of when an investment actually occurs, and may undermine the public's confidence in the foreign investment framework.

Option 2 - a balanced approach

6.181 The new Register proposed under this option will provide greater visibility of foreign investments in Australia. This greater visibility will provide a number of benefits to the Government across the foreign investment framework.

6.182 It will assist with case processing, as the Government will now know what an investor already owns in Australia, which will enable easier identification of systemic trends. It will also likely reduce case processing times as the Government will now have this information on-hand, and will no longer need to expend time and effort searching third party sources.

6.183 The new Register will also assist compliance monitoring of any conditions imposed on a proposed investment, as the Government will now know when that investment has been made, and thus when the conditions take effect.

6.184 Over time, the data on the Register will also provide the Government with a more robust data set of foreign ownership in Australia, which will help inform any future policy considerations and development.

6.185 The IT build and delivery of the new Register requires additional Government funding. As part of the 2020-21 Budget, the Government provided $86.3 million over four years to implement a new ICT platform to support more effective and efficient foreign investment application processing and compliance activities across Government and a new consolidated Register of Foreign Ownership of Australian Assets. These costs can however be recovered from investors through reform to the application fee framework (see sections 3.6 and 4.6).

6.186 It is not expected that there will be significant costs to investors from this Register. For most investors, the establishment of the new Register will not impose an additional burden over their existing registration obligations. For example, investors already have to register when acquiring or disposing of interests in agricultural land, residential land, water entitlements, media companies, and/or critical infrastructure. In fact, by amalgamating the existing agricultural, water and residential registers, this new Register will even streamline the user experience for investors with interests across these sectors.

6.187 It is estimated that under this option there will be an additional 1,800 events registered by foreign investors each year, in addition to the approximately 13,500 events already being registered each year under existing obligations. The registration of these additional 1,800 events will impose an additional aggregate regulatory burden on investors of approximately $65,000 per annum. This is in addition to the approximately $500,000 per annum of regulatory burden from the existing registration obligations.

Option 3 - significant increase in protection of Australia's assets

6.188 In addition to all of the benefits outlined in Option 2, this option will provide the Government with an even greater amount of data on foreign investment, and foreign investor's activities, in Australia. The expanded data set will better assist the Government with case processing and compliance monitoring, and will provide a more comprehensive evidence base to support future policy development than under Option 2.

6.189 The IT build and delivery of the new Register requires additional Government funding, similar to Option 2.

6.190 While this more comprehensive data collection option will provide greater benefits to the Government, it will also impose a higher regulatory burden on investors, with a greater number of events needing to be registered. It is estimated that under this option an additional 5,300 events will be registered on average each year, in addition to the approximately 13,500 events already being registered each year under existing obligations. This will impose an additional aggregate regulatory burden on investors of approximately $200,000 per annum. This is in addition to the approximately $500,000 per annum of regulatory cost from the existing registration obligations.

Table 6.4 Summary of regulatory costs of options

Average additional annual regulatory costs, from business as usual ($million)
Business Community organisations Individuals Total change in cost
Option 1 $0 $0 $0 $0
Option 2 $0.1 $0 $0 $0.1
Option 3 $0.1 $0 $0.1 $0.2

A fairer and simpler framework for foreign investment fees

Option 1 - status quo

6.191 Maintaining the status quo will provide stability to investors, and will not impose any additional regulatory burden on them. However, this option will also continue to expose them to a degree of uncertainty in determining and paying the correct application fee. This will continue to impose a time and resource cost on investors.

6.192 Without reform, the fee framework will also be unlikely to satisfy the Government's objective of ensuring that foreign investors bear the entire costs of the foreign investment framework into the future once the other reform measures are adopted. This option will impose additional financial costs on the Government to cover the new capabilities and functions of the other reform measures (these costs are outlined under each of the relevant measures).

Option 2 - a balanced approach

6.193 This option will reduce the complexity of the fee framework and minimise the compliance and administrative costs for investors in establishing and paying the applicable fee. It is estimated that the reform under this option will reduce the aggregate regulatory costs on investors of making an application by approximately $650,000 per annum.

6.194 While investors may face higher fees under this option, it will ensure foreign investors continue to bear the costs of administering the foreign investment regime into the future, in accordance with the Government's stated policy.

6.195 While fees will increase, they will still represent a relatively small proportion of overall consideration for all application types. Previous consultations have indicated that investors are more concerned about timeliness of FIRB decision-making than the level of fees. Some stakeholders have noted that the revised fee framework may affect the timing of a foreign investment application, whereby an investor may delay paying a fee until an acquisition is nearly finalised. This is supported by evidence from the introduction of foreign investment fees in 2015, where the subsequent decline in applications (particularly in residential real estate) was partly attributed to a reduction in speculative applications.

Option 3 - significant increase in the protection of Australia's assets

6.196 By maintaining the current fee structure but increasing the size of individual fees, this option will ensure that the fee framework will continue to cover the costs of administering the foreign investment regime into the future under the new system, in accordance with the Government's stated policy. In addition, maintaining the current fee structure will provide stability to investors and the Government, and will not impose any additional regulatory burden on investors.

6.197 However, it will mean that investors continue to face a relatively complex framework that is time-consuming and expensive to navigate. It will also increase existing inequities between fee tiers.

Table 6.5 Summary of regulatory costs of options

Average additional annual regulatory costs, from business as usual ($million)
Business Community organisations Individuals Total change in cost
Option 1 $0 $0 $0 $0
Option 2 ($0.1) $0 ($0.6) ($0.7)
Option 3 $0 $0 $0 $0

Modernising Australia's foreign investment ICT platform for better case management, compliance enforcement and data use

Option 1 - status quo

6.198 Maintaining the existing IT system will provide stability for investors and government. It will not impose any additional regulatory burden on investors, or have any additional financial cost to the Government.

6.199 However, the maintenance of an inadequate IT system will continue to hamper the efficient and timely administration of the foreign investment framework. Case assessments will continue to involve significant manual work, meaning that cases are handled more slowly than otherwise could be. This will continue to be an ongoing source of frustration for investors.

6.200 Maintaining the current system will also mean that there is no analytical support to underpin the detection of non-notified transactions, and will increase the likelihood that a foreign investment that risks our national interest or national security will be erroneously approved.

Option 2 - a considered investment approach

6.201 The improved IT system under this option will enable cases to be handled more quickly and more efficiently. It will automate workflows, reduce data quality issues, especially at the application stage, and enable real time collaboration with consult partners (which currently occurs through inefficient bilateral emails). It will also enable the increasing volume of compliance activities to be more effectively managed, providing greater levels of assurance over foreign investments.

6.202 The implementation of this option will help Treasury become a modern, efficient and world class regulator, and in doing so, improve Treasury's ability to perform its regulatory role in a more productive manner. This new system will also enable the Treasury to provide the Government with greater flexibility in its foreign investment reporting, as the Treasurer and Government have previously requested.

6.203 The new IT system proposed under this option will make it easier for investors to submit their foreign investment applications and provide the necessary information in an efficient manner. It will provide a faster and more user-friendly experience for investors seeking approval to invest in Australia. It is estimated that this proposed new system will reduce the aggregate regulatory burden on investors from making applications by approximately $650,000 per annum.

6.204 The IT build and delivery requires additional Government funding. As part of the 2020-21 Budget, the Government provided $86.3 million over four years to implement a new ICT platform to support more effective and efficient foreign investment application processing and compliance activities across Government and a new consolidated Register of Foreign Ownership of Australian Assets. These costs can be recovered from investors through reform to the application fee framework (see sections 3.6 and 4.6) in line with the Government's policy that the costs of administering the foreign investment regime should continue to be borne by foreign investors, not Australian tax payers.

6.205 These benefits will also be provided by the case management system outlined under Option 3. However, in addition to these, Option 2 will deliver greatly advanced data analytics and will therefore also provide enhanced capability to identify risk and support improved decision making and compliance activities.

6.206 These advanced data analytics will support the verification, validation, and certification of core data assets used by the Treasury in undertaking assessment and compliance activities. This capability will significantly reduce the likelihood that national interest and national security risks in foreign investment are not identified or acted upon.

6.207 Overall, effective management of Australia's foreign investment regulatory environment is a core responsibility and priority for Treasury as it safeguards Australia's national interest and national security, while also facilitating timely and effective decision-making in support of foreign investment which is consistent with our national interest. Option 2 provides the greatest direct impact and benefit in support of this function.

Option 3 - a lower investment approach

6.208 As with Option 2, the improved IT system under this option will enable cases to be handled more quickly and more efficiently. It will automate workflows, reduce data quality issues, and enable real time collaboration with consult partners (which currently occurs through inefficient bilateral manual processes). It will also enable the increasing volume of compliance activities to be more effectively managed, and reduce the aggregate regulatory burden on investors by approximately $650,000 per annum.

6.209 Option 3 will not, however, deliver the greatly advanced data analytics delivered under Option 2, and will therefore not provide the enhanced capability to identify risk and support improved decision making. The reduced capabilities of this option will therefore not improve case processing times as much as Option 2, and will continue to leave investors facing a higher regulatory burden than under Option 2.

6.210 The IT build and delivery requires additional Government funding (but less than under Option 2). These costs can however be recovered from investors through reform to the application fee framework (see sections 3.6 and 4.6), in line with the Government's policy that the costs of administering the foreign investment regime should continue to be borne by foreign investors, not Australian tax payers.

Table 6.6 Summary of regulatory costs of options

Average additional annual regulatory costs, from business as usual ($million)
Business Community organisations Individuals Total change in cost
Option 1 $0 $0 $0 $0
Option 2 ($0.1) $0 ($0.6) ($0.7)
Option 3 ($0.1) $0 ($0.6) ($0.7)

Consultation process

6.211 The Treasury has engaged extensively with a range of key stakeholders in developing this reform package. Consultation has occurred across three broad phases, and has involved consultation with legal practitioners, foreign governments, institutional investors, domestic industry owners and operators, business councils and peak bodies, relevant government agencies, and the community.

6.212 In the first phase, Treasury worked closely with relevant government agencies and departments (for example, the Department of Prime Minister and Cabinet, the national intelligence community, the Department of Defence, the Department of Home Affairs, the Australian Taxation Office and the Australian Competition and Consumer Commission) to build a sound understanding of the identified problems, and to develop draft policy options for further consideration. This engagement involved extensive officer-level briefings, SES roundtables, and Deputy Secretary and Secretary committee meetings.

6.213 The Treasury also engaged closely with the Department of Foreign Affairs and Trade and the Attorney General's Department (including the Office of International Law) to ensure that the reforms were carefully considered in light of Australia's international trade and investment obligations.

6.214 On 5 June 2020, the Government publicly announced that it was considering major reforms to the foreign investment review framework, and released a summary booklet of its draft proposals. This commenced the second phase of stakeholder engagement.

6.215 During this phase, the Treasury undertook approximately 40 engagements across its stakeholder network, with over 1,000 stakeholders attending these sessions from across industry, Australian and foreign governments, peak bodies, multilateral institutions, investors and advisory groups.

6.216 The Treasury also participated in targeted foreign government and foreign investor engagements facilitated by the Department of Foreign Affairs and Trade and Austrade. This included a number of engagements involving the chair of the Foreign Investment Review Board, Mr David Irvine AO.

6.217 These engagement opportunities provided a clear picture of the key stakeholders in the reform process and informed the development of the exposure draft legislation consultation process, particularly with those who expressed a keen interest to be involved in the ongoing work.

6.218 On 31 July 2020, the Government released an exposure draft Bill of its proposed reforms. This commenced the third phase of stakeholder engagement, with the draft legislation available for public comment for a period of just over four weeks to 31 August 2020.

6.219 The first part of the exposure draft Regulations - outlining a proposed definition of a sensitive 'national security business' - were publicly released for consultation alongside the draft Bill. Further exposure draft Regulations - outlining the time limit for the proposed national security call-in power, streamlining measures, and other technical amendments -were released for public consultation on 18 September 2020.

6.220 During this consultation phase, Treasury hosted both targeted stakeholder engagement sessions and public information sessions on the proposed reforms. Treasury led proactive and dedicated discussion sessions with key stakeholders identified through previous engagements. All interested stakeholders were also welcome to attend the public sessions, ensuring the consultation process was transparent, genuine and comprehensive.

6.221 Treasury hosted 19 targeted stakeholder sessions in this consultation period, reaching close to 200 organisations including legal and financial advisers, state and territory governments, domestic industry owners, operators and vendors, industry groups, and business councils and peak bodies. Treasury also engaged with offshore investors and advocates facilitated by the Department of Foreign Affairs and Trade and Austrade.

6.222 Two public information sessions were also held to raise awareness of the proposed reforms, and to engage any other affected organisations or individuals that missed the targeted engagements. Over 120 stakeholders registered for these two sessions.

6.223 In addition to these engagements, the Treasury invited stakeholders to make written submissions on the exposure drafts. In total, fifty-five submissions were received, with fourteen of these submitted being confidential. The non-confidential submissions can be viewed on the Treasury website at: https://treasury.gov.au/consultation/c2020-99761 . The main theme raised in the submissions was the need for the Government to balance the necessary regulatory capture of the national security business definition, with Australia's reputation as an open and attractive foreign investment destination.

6.224 Other commonly raised concerns centred on the need for a timely application process, ensuring due process, and compliance with Australia's international obligations. Some stakeholders raised issues with the new treatment of share buy backs and the need to distinguish between active and passive investors. Others raised concerns that the registration obligations associated with the new Register of Foreign Ownership of Australian Assets may be onerous and increase compliance costs.

6.225 These targeted consultation processes complemented the extensive and ongoing engagements that the Treasury already maintains with its stakeholders. For example, in 2018-19, the Treasury convened over 300 events with a broad range of stakeholders, including investors and their advisers. These engagements provide the Treasury with a deeper understanding of the global business environment and commercial drivers of mergers and acquisitions. They also allow Treasury to explain Australia's foreign investment framework, hear the views of stakeholders, and answer any questions that stakeholders may have.

6.226 Throughout all of these consultation phases, the Treasury worked closely with the Foreign Investment Review Board, including its chair, Mr David Irvine AO, to seek its input and advice on the policy problems and proposed reforms. The Foreign Investment Review Board fully supports the proposed reforms.

6.227 Interim versions of this Regulation Impact Statement (not assessed by OBPR) were provided to the Government at certain points during the development of these reforms.

What is the recommended policy approach?

6.228 Based on an analysis of the considered options, and the feedback harnessed from our stakeholders, the Treasury recommends that the Government adopt Option 2 in each of the policy packages outlined above (and summarised in the tables below).

6.229 This comprehensive suite of reforms will strengthen the foreign investment framework to ensure that it keeps pace in a fast-changing world where national interest risks, especially national security risks, from foreign ownership have increased.

Table 6.7

Protecting Australia's national security
Benefits Costs
Option 1 - status quo No additional regulatory burden

No financial cost to Government

No regulatory oversight of actions that may be contrary to national security
Option 2 - a balanced approach Enables Government oversight of actions that could be contrary to national security New notification requirements for actions that could be contrary to national security

Increased workload to process new actions

Option 3 - significant increase in protection Prohibitive regulatory oversight to ensure investments are not contrary to national security Significant reporting burden on investors

Decrease in foreign investment in Australia

Table 6.8

Improving the integrity of the foreign investment framework
Benefits Costs
Option 1 - status quo No additional regulatory burden

No financial cost to Government

Investor's will continue to face regulatory uncertainty

Case assessments and policy development will remain hampered by lack of information

Option 2 - a balanced approach Expands the range of actions the Government will have powers over, without increasing regulatory burden

More efficient and more informed case assessments

Information flows will remain limited to certain purposes
Option 3 - significant increase in protection Greater administrative flexibility and discretion Increased regulatory burden

Reduced confidentiality of investor information

Table 6.9

Stronger compliance and enforcement tools
Benefits Costs
Option 1 - status quo No additional regulatory burden

No financial cost to Government

Limited monitoring and investigative powers to ascertain compliance

Limited enforcement options where non-compliance detected

Option 2 - a balanced approach Additional monitoring, investigative and enforcement powers consistent with other regulators

Increased penalty amounts for proportionate penalties

Increased staffing to implement the monitoring, investigative and enforcement powers. Associated increased training requirements
Option 3 - significant increase in protection Detailed oversight of activities by investors Significant reporting obligations on investors

Greater resources required in pursuing court proceedings due to lack of alternative enforcement mechanisms

Table 6.10

Streamlining less sensitive investments
Benefits Costs
Option 1 - status quo No additional regulatory burden

Maintain detailed oversight of activities by investors

Significant reporting obligations for lower risk investments
Option 2 - a balanced approach Fewer reporting obligations for lower risk investments Decrease in regulatory oversight of actions that may be contrary to national interest
Option 3 - significant decrease in protection Significant reduction in reporting burden for foreign government investors Substantial decrease in regulatory oversight of actions that may be contrary to national interest

Table 6.11

Register of foreign ownership of Australian assets
Benefits Costs
Option 1 - status quo No additional regulatory burden

No financial cost to Government

Visibility of realised foreign investment remains low
Option 2 - a balanced approach Faster and more robust case processing, with improved compliance monitoring

Better data set to aid future policy considerations

Additional regulatory burden

Financial cost to Government for IT build

Option 3 - significant increase in protection Faster and more robust case processing, with improved compliance monitoring

Larger data set to aid future policy considerations

Significant increase in additional regulatory burden

Financial cost to Government for IT build

Table 6.12

A fairer and simpler framework for foreign investment fees
Benefits Costs
Option 1 - status quo No additional regulatory burden

No financial cost to foreign investors

Financial cost to Australian taxpayers to fund reforms

Investor's will continue to face regulatory uncertainty

Option 2 - a balanced approach No financial cost to Australian taxpayers

Fairer and simpler fee framework

Some foreign investors will pay more
Option 3 - significant increase in protection No additional regulatory burden

No financial cost to Australian taxpayers

Investor's will continue to face regulatory uncertainty

Increased inequities between fee tiers

Table 6.13

Modernising Australia's foreign investment ICT platform for better case management, compliance enforcement and data use
Benefits Costs
Option 1 - status quo No additional regulatory burden

No financial cost to Government

Case assessments will continue to take longer than otherwise necessary with greater delays over time

No analytical support for detection of non-notified transactions

Option 2 - a considered investment Cases handled more quickly and more efficiently, with compliance activities more effectively managed

Greatest reduction in regulatory burden

IT build and delivery will require additional Government funding
Option 3 - lower level of investment Cases handled quicker than Option 1, but less timely than Option 2

Reduced regulatory burden

IT build and delivery will require additional Government funding

6.230 These reforms include measures to strengthen the existing framework with: enhanced national security review of sensitive acquisitions; extra powers and resources to ensure foreign investors comply with the terms of their approval; and amendments to streamline investment in non-sensitive areas.

6.231 In particular, the national security reforms will enable the Government to better address emerging national security risks that arise from foreign ownership, such as powers to screen certain investments on national security grounds regardless of value. There are also measures to reduce the regulatory burden for certain investments that do not pose national security risks, and provide greater clarity on the scope and application of the FATA.

6.232 These recommended reforms are not expected to significantly impact on foreign capital inflows to Australia. While it is estimated that the reforms will likely result in investors making around 100 additional applications and 1,800 additional registrations each year - incurring an estimated $1.5 million of additional annual regulatory burden - this is not expected to be a significant deterrent to foreign investment in Australia, particularly with the steps proposed to streamline the investment application process.

Table 6.14

Average additional annual regulatory costs, from business as usual ($million)
Business Community organisations Individuals Total change in cost
Total, by sector $3.3 $0 ($1.8) $1.5

6.233 Foreign investor survey data consistently reinforces that market factors play the most significant role in firms' foreign investment decisions. For example, firms surveyed in the 2019 AT Kearney Foreign Direct Investment Confidence Index listed the most important factors for increasing foreign direct investment to be: the availability of quality targets; the macroeconomic environment; and the availability of funds.

6.234 In 2018-19, the Australian Investment Council, Australia's peak body representing private equity and venture capital firms, made 25 submissions to Parliament. None of those submissions mentioned access to foreign capital as an impediment to industry growth.

6.235 There is also consistently more capital available for low value investments in Australia than there are investment opportunities. In 2018, the Australian Investment Council reported 'dry powder' (committed but unspent money) in Australia's private equity and venture capital sectors totalled $11 billion[13].

How will the policies be implemented and evaluated?

6.236 The reforms will be implemented through legislative amendments to the FATA and its associated regulations and supporting frameworks. The Government has indicated that, subject to Parliamentary passage, the majority of the reforms will commence on 1 January 2021. The requirements under the new Register of Foreign Ownership of Australian Assets will however commence at a later date, to be set by proclamation, once the necessary IT infrastructure within government has been established. Stakeholders will be provided with sufficient notice before these provisions commence.

6.237 On 29 March 2020, in response to the coronavirus outbreak in Australia, the Government introduced a temporary zero dollar screening threshold for all investments to ensure that it had appropriate oversight of foreign investment into Australia during this period. The intention is for a smooth transition from the current temporary arrangements to the new reformed system. Under the new system, mandatory screening of investments in sensitive national security businesses will continue at the current zero dollar monetary threshold. For other investments, the temporary screening thresholds will not continue beyond the commencement of the new system (subject to any adverse developments with the coronavirus).

6.238 To support investors in understanding and complying with the new reforms, the Treasury will engage in an extensive information and education program. In line with current practice, and building off the relationships generated during the consultation on the reforms, we will hold dedicated information and engagement sessions with key stakeholders, provide additional written guidance on the FIRB website, and utilise Treasury's social media channels to raise awareness of the changes. We will also leverage existing whole-of-government networks - such as the Department of Foreign Affairs and Trade and Austrade's international engagement programs - to ensure as many stakeholders as possible are directly informed of the changes.

6.239 In addition, investors will also be able to directly contact the Treasury to ask additional questions, or seek additional clarity, on any matters they wish, through the dedicated FIRB phone hotline and enquiries inbox.

6.240 Treasury will monitor and evaluate the operation and performance of these reforms on an ongoing basis, including in light of the impact of COVID-19 on the domestic and global economies. We will closely monitor the feedback we receive from our stakeholders, including through our established stakeholder engagement programs (which involve, for example, monthly senior level Strategic Foreign Investment Issues meetings), as well as the feedback we receive through our dedicated FIRB hotline and inbox. We will also closely monitor the number of applications we receive from investors to ensure that the reforms are not impacting foreign investment into Australia.

6.241 In addition, the Treasury will undertake a post implementation review of the reforms by 2025 in light of the importance of foreign investment to the Australian economy. We will consult with affected stakeholders, collect and analyse relevant data (including investment values and application numbers), and evaluate how the reforms are performing in effectively and efficiently meeting the Government's objectives.

Appendix A: Regulatory cost estimates

6.242 The costs estimates in this appendix are accompanied by brief summaries of the proposed measures. The appendix should be read in conjunction with the main text of the Regulatory Impact Statement for the Foreign Investment Reform Package 2020.

Protecting Australia's national security

Mandatory pre acquisition screening

6.243 A foreign investment application that is screened under the mandatory pre acquisition notification requirement will impose a regulatory burden on investors that is likely, on average, to be equal to an application screened under the existing regime.

6.244 While these applications will only be screened against national security risks, as opposed to the broader national interest test, analysis of past foreign investment applications reveals that 'sensitive businesses' screened under the current regime have national security conditions imposed at about the same rate as national interest conditions over all applications. Therefore, applicants will likely bear a similar regulatory burden under the existing national interest screening and the new national security screening.

6.245 Stakeholder feedback has indicated that in preparing an application, investors spend approximately one hour consulting Treasury and the FIRB website, 20 hours gathering documents to assist the application, one hour paying the correct fee, and 10 hours conducting ongoing compliance with conditions.

6.246 Similar to applicant hours, on average, the legal hours required for an investment screened under the existing national interest test and the new national security test are likely to be the same. Lawyers are estimated to spend: four hours providing preliminary legal advice; 20 hours developing and submitting an application; two hours determining the correct fee; 10 hours corresponding with a case officer during the case screening; and two hours administering ongoing compliance with conditions and/or reporting.

6.247 The regulatory cost per hour of an applicant's time is the default OBPR rate of $73.05 per hour. Stakeholder feedback indicated that the average cost of legal counsel, and therefore regulatory burden, is $800 per hour.

6.248 Therefore, for each application, the regulatory burden is estimated at $2,338 for an applicant's time and $30,400 for legal counsel. This results in a total estimated regulatory burden of $32,738 for each proposed investment screened due to the mandatory pre-acquisition notification of a sensitive national security business.

6.249 It is difficult to estimate the number of investments that will require mandatory notification under the national security test. This difficulty is due to the lack of foreign investment transaction data below existing thresholds and the imperfect alignment between sensitive businesses and industry codes. Using a combination of international experience, foreign investment application data, public databases and transaction data provided by Dealogic, we estimate that annually, 90 additional applications will be screened as a result of the mandatory notification requirement.

'Call in' power

6.250 Any investment not otherwise notified, will be able to be called in before, during or after the investment, on a case-by-case basis, if the Treasurer considers it raises national security concerns.

6.251 In view of the types of businesses that will be captured under the national security test (e.g. critical infrastructure, telecommunications and defence related industries), and the opportunity for investors to voluntarily notify, it is expected that the call in power will be used sparingly (currently estimated at one investment per year). Evidence from other jurisdictions with similar powers indicates that a combination of public guidance and sparing use of the call in power will result in the investment community forming an understanding of the types of acquisitions which should be voluntarily notified.

6.252 Feedback from consultation indicates that cases being 'called in' will likely experience a significant increase in legal correspondence during case assessment. We estimate that the total regulatory burden imposed when an investment is 'called in' will be approximately three times that which is subject to mandatory screening (that is, $98,213).

Investor certainty: Voluntary notification

6.253 For investor certainty, investors will have the opportunity to voluntarily notify (on a per-acquisition basis), including pre-acquisition, to avoid the possibility of being 'called in' for review on national security grounds.

6.254 When determining whether to notify, investors will likely be primarily influenced by guidance material and outreach provided by the Government and the nature and level of risk surrounding an investment.

6.255 It is difficult to estimate the number of investments that will be voluntarily notified under the national security test. This difficulty is due to the lack of foreign investment transaction data below existing thresholds and the imperfect alignment between sensitive businesses and industry codes. Using a combination of international experience, foreign investment application data, public databases and transaction data provided by Dealogic, we estimate that annually, 60 additional applications will be screened as a result of voluntary notifications, though this number may be higher early on as investors familiarise themselves with the new system. The regulatory burden for investors who voluntarily notify will likely be identical to those who have a mandatory requirement to notify. Accordingly, each investor who voluntarily notifies will be expected to experience a regulatory burden cost of $32,738.

Investor certainty: Investor-specific exemption certificate

6.256 Investors will also be able to apply for a time-limited investor-specific exemption certificate which will enable them to make eligible acquisitions without case-by-case screening.

6.257 The structure and cost of seeking an investor exemption will likely mean that only sophisticated investors will consider applying. In particular, the investors who will likely apply are those who repeatedly invest in sensitive businesses or undertake regular voluntarily notification. Analysis of foreign investment applications since 2016 and ABS data indicate that approximately 10 investors will likely apply for an investor exemption annually.

6.258 Each investor seeking the 'investor exemption' will likely incur a regulatory cost equal to that of a current business or land exemption certificate application ($43,614). This equivalence is due to similarities in application, assessment and reporting requirements for all types of exemption certificates.

Last resort review power

6.259 The Government will also introduce a national security last resort review power to reassess approved foreign investments where subsequent national security risks emerge. The last resort review power will allow the Treasurer to impose conditions, vary existing conditions, or, as a last resort, require the divestment of foreign interests in a business, entity or land.

6.260 This power will only be applicable to investments made, or approvals granted, after the proposal comes into effect. Given this power is not retrospective and will only be used as a last resort, it is not expected this power will be used, or used very rarely.

Table 6.15

Average additional annual regulatory costs, from business as usual ($million)
Business Community organisations Individuals Total change in cost
Mandatory notification $2.9 $0 $0 $2.9
Call-in $0.1 $0 $0 $0.1
Investor certainty: Voluntary notification $1.9 $0 $0 $1.9
Investor certainty: Investor-specific exemption certificates $0.4 $0 $0 $0.4
Last resort review power $0 $0 $0 $0

Improving the integrity of the foreign investment review framework

6.261 A number of measures designed to improve the integrity of the foreign investment review framework are proposed in the package. These include:

·
clarifying that foreign persons may require further foreign investment approval for increases in actual or proportional holdings above what has been previously approved, including as a result of creep acquisitions and proportional increases through share buybacks;
·
narrowing the scope of the moneylending exemption so that it will not apply where foreign money lenders are obtaining interests in a sensitive national security business or land under a moneylending agreement; and
·
expanding the types of government assets that will be subject to scrutiny under the FATA.

6.262 These measures are expected to have a modest impact on the number of applications submitted to the Government each year. The estimated impacts are shown in the table below, based on the assumed cost per application of $32,738.

Table 6.16

Average additional annual regulatory costs, from business as usual
Measure Estimated change in number of applications Total change on costs from changed number of applications
Changed treatment of small increases in interests 3 $98,213
Narrowing scope of moneylending exemption 2 $65,475
Ensuring state and territory businesses meet the definition of an Australian business 0.5 $16,369
Tracing rules extended to unincorporated limited partnerships 0 $0.00
Exempting certain royalty streams of mining and production tenements (4) ($130,950)
Exempting exploration tenements acquired by private investors (3) ($98,213)
Updating the definition of Australian media businesses 1 $32,738

6.263 These integrity improvements are also assumed to reduce the time investors will spend on an application by an average of five minutes. In aggregate, this will save individual investors approximately $585,000, and business investors approximately $80,000, across the approximate 9,900 applications made per year.

Stronger compliance and enforcement measures

6.264 Stronger compliance and enforcement measures are designed to ensure Treasury and the ATO will have the resources, powers and penalties to effectively monitor, investigate and prosecute breaches of foreign investment laws. The additional powers will be increased functions for the Treasurer, Treasury and ATO, and will not impose any additional regulatory burden on investors that comply with the rules. Any additional regulatory burden is limited to reporting obligations on the actions, as per the proposed foreign ownership Register.

Streamlining less sensitive investments

6.265 The proposal to no longer treat certain investment funds as foreign government investors where their foreign government investors have no influence or control over the investment or operational decisions of the entity or any of its underlying assets is estimated to decrease the number of applications by 70 per year, resulting in reduced regulatory costs to investors of approximately $2.2 million. Offsetting this somewhat, it is estimated that eight investment funds will likely apply for a broad exemption certificate, at a total regulatory cost of approximately $350,000.

Table 6.17

Average additional annual regulatory costs, from business as usual ($million)
Business Community organisations Individuals Total change in cost
Entities exempted from being considered foreign government investors ($2.2) $0 $0 ($2.2)
Entities applying for ECs $0.3 $0 $0 $0.3

Register of foreign ownership of Australian assets

Residential land

6.266 All foreign purchases of residential real estate in Australia require approval under Australia's foreign investment review regime. If the acquisition is approved, the approval is conditional on the foreign investor notifying the ATO of the acquisition and disposal of the property. As such, the introduction of the proposed foreign ownership Register will impose no additional regulatory impact on foreign owners of residential real estate.

Agricultural land and water entitlements

6.267 The Register of Foreign Ownership of Water or Agricultural Land already requires foreign owners of these assets to register their interests with the ATO within 30 days of the action occurring or the end of the financial year. The introduction of the proposed foreign ownership register will therefore impose no additional regulatory burden on foreign owners of either agricultural land or water entitlements.

Commercial land

6.268 Every proposed foreign acquisition of vacant commercial land is currently screened. Across 2017-18 and 2018-19 there were on average 198 applications a year. Based upon the number of residential real estate investments that proceed (80 per cent), we estimate that 158 of these proposals will proceed and be required to register. In addition, 35 exemption certificates for vacant commercial land were approved on average per annum across 2017-18 and 2018-19. On average, exemption certificates cover five acquisitions, and therefore five registrable actions, each.

6.269 With regards to developed commercial land, market analysis from CBRE estimates that there are 983 acquisitions of Australian commercial property (of over $5 million) annually. Research from the RBA also indicates that in Australia, upwards of 40 per cent (by value) of commercial property purchases are being conducted by foreign investors. Assuming that this ratio holds true for the number of acquisitions, the Register will receive approximately 393 notifications per annum for the acquisition of developed commercial land.

6.270 Therefore, a total of 726 notifications will likely to be made per annum to the proposed foreign ownership Register that relate to commercial property.

6.271 The amount of information that an investor will be required to supply to the Register will likely be similar to that of the existing Register of Foreign Ownership of Water or Agricultural Land. Estimates for this Register suggest that each registration will impose a regulatory burden of approximately 30 minutes of an applicant's time, valued at $36.53.

Exploration and mining tenements

6.272 All foreign investment applications for mining tenements are currently screened, except for those from private investors from certain Free Trade Agreement partners. Across 2017-18 and 2018-19 there were, on average, 111 applications for mining tenements screened per annum. In addition, there were a further seven applications, on average per annum, for mining tenement exemption certificates. Assuming that Free Trade Agreement partners will contribute an additional 10 per cent to this number if screened, that 80 per cent of applications proceed to acquisition, and that each exemption certificate will cover five registrable actions each, it is estimated that there will be a total of 136 additional registrable mining tenement actions each year.

6.273 Most investors are likely to acquire an exploration tenement to investigate the commercial viability of a project before proceeding to acquire a mining tenement. As such, we have assumed that the number of exploration tenements will be at least as many as the number of mining tenements. Typically, a number of those exploration tenement investigations do not proceed to actual mining. Therefore we have factored into our modelling an assumption that the number of registrable exploration tenement actions will be 110 per cent of the number of mining tenement actions, or in total, 149 additional registrable actions.

Business acquisitions

6.274 Following the implementation of the proposed reforms, we expect that there will be 441 non-land (that is, business) applications screened under Australia's foreign investment review regime, on average, each year. This estimate includes investments that are already screened, in addition to the expected additional applications from the reforms, including the new national security tests. All businesses acquisitions that proceed will be required to notify to the proposed foreign ownership Register.

6.275 The only estimate as to the proportion of foreign investment applications that proceed is from residential real estate. Residential real estate approval data suggests that 80 per cent of all approvals proceed. Assuming this rate of realised investment is consistent for business acquisitions, 353 business acquisitions will be added to the Register each year.

6.276 In addition, we anticipate that a further 45 non-land (that is, business) exemption certificate applications will also be screened, on average, each year. Assuming that each exemption certificate leads to five applications, and therefore registrable actions, it is estimated that there will be a further 225 non-land registrations on the Register.

Sales

6.277 In addition to the expected acquisitions outlined above that will be registered on the new Register, investors will also be required to notify of the sales and divestments of those assets.

6.278 Across 2018-19 and 2019-20, the number of sales events on the existing agricultural, water, and residential registers were approximately 12.5 per cent of the number of total purchases. Applying that same ratio to the additional acquisitions outlined above that will be registered, suggests that approximately 199 sales events will also be registered each year.

Table 6.18

Average additional annual regulatory costs, from business as usual
Business Community organisations Individuals Total change in cost
Residential land $0 $0 $0 $0
Agricultural land and water $0 $0 $0 $0
Commercial land $26,517 $0 $0 $26,517
Mining and exploration tenements $10,431 $0 $0 $10,431
Business (non-land) $21,096 $0 $0 $21,096
Sales $7,255 $0 $0 $7,255

A fairer and simpler framework for foreign investment fees

6.279 It is estimated that by reducing the complexity of the fee framework, this will lower the compliance and administrative costs on investors in establishing and paying the applicable fee.

6.280 Over the past two years, investors have submitted, on average, approximately 9,900 applications to the Government for screening each year. Stakeholder feedback suggests that legal counsel currently spend approximately two hours in determining the correct fee for a no objection notification application. It is assumed that the proposed new fee structure will reduce this time burden by approximately five minutes per application on average.

Table 6.19

Average additional annual regulatory costs, from business as usual ($million)
Business Community organisations Individuals Total change in cost
Simpler and fairer fee framework ($0.1) $0 ($0.6) ($0.7)

An improved IT capability for better information collection and case assessment

6.281 An improved IT system will make it easier for investors to submit their foreign investment applications and provide the necessary information in an efficient manner.

6.282 Over the past two years, investors have submitted, on average, approximately 9,900 applications to the Government for screening each year. Stakeholder feedback suggests that legal counsel currently spend approximately 20 hours in developing and submitting an application. It is assumed that the proposed new IT system will reduce this time burden by an average of approximately five minutes per application.

Table 6.20

Average additional annual regulatory costs, from business as usual ($million)
Business Community organisations Individuals Total change in cost
Improved IT ($0.1) $0 ($0.6) ($0.7)

Total costs of package

6.283 The estimated net cost of the proposed reform package to investors is approximately $1.5 million per year. Individual investors will have their costs reduced by about $1.8 million in aggregate, while aggregate regulatory costs to business will increase by approximately $3.3 million.

Table 6.21

Average additional annual regulatory costs, from business as usual ($million)
Business Community organisations Individuals Total change in cost
Total $3.3 $0 ($1.8) $1.5

Chapter 7 - Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Foreign Investment Reform (Protecting Australia's National Security) Bill 2020 and Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020

7.1 These Bills include a package of reforms to ensure Australia's foreign investment screening framework keeps pace with emerging risks and global developments while remaining a welcoming destination for foreign investment.

7.2 The Bill improves and updates the operation of the framework across national security, compliance monitoring and enforcement, and integrity as well as streamlining requirements and making technical changes to improve the operation of the law.

7.3 The Imposition Bill simplifies the existing fee arrangements.

7.4 The Bill:

·
introduces a new national security review and gives the Treasurer as a last resort, the ability circumstance to issue a divestment order where there is no other remedy for a national security risk;
·
strengthens the Treasurer and Commissioner's enforcement powers through increased penalties, directions powers and new monitoring and investigative powers;
·
improves the integrity of the framework by closing potential gaps in the screening regime;
·
expands the information sharing arrangements to assist with the Treasurer and Commissioner's compliance activities and address national security risks;
·
establishes a new Register of foreign owned assets to record all foreign interests acquired in Australian land; water entitlements and contractual water rights; and business acquisitions that require foreign investment approval; and
·
provides that fees are payable for the new actions included in the FATA.

Overview

National Security Review and Last Resort Power

7.5 Schedule 1 to the Bill establishes a framework to review investments against a national security test. The national security test:

·
requires mandatory notification of any proposed direct investment in a sensitive national security business (including starting such a business), proposed investment in Australian land where the location or use of the land could prejudice Australia's national security ('national security land') or an interest in an exploration tenement which is over national security land;
·
allows a significant action that has not been notified and certain actions not otherwise captured under the FATA to be 'called-in' for screening on national security grounds;
·
allows investors to voluntarily notify of an action that could otherwise be called-in, to obtain certainty about the particular investment and prevent being called-in on national security grounds; and
·
allows the Treasurer, in exceptional circumstances, to impose conditions, vary existing conditions, or, as a last resort, force the divestment of any realised investment which was subject to the FATA where national security concerns are identified.

Improving the integrity of the framework

7.6 Schedule 1 to the Bill improves the integrity of the framework by closing potential gaps in the screening regime to:

·
provide that some actions may be significant actions without requiring the change in control test to be met where the foreign person already controls the relevant entity or business;
·
provide that increases in actual or proportional holdings of securities, including through company share buybacks or unit trust redemptions, may be notifiable actions or significant actions, or both;
·
amend the definition of Australian business to include State and Territory business functions;
·
expand the tracing rules to unincorporated limited partnerships;
·
give the Treasurer the power to extend or further extend the decision period in section 77 of the FATA by up to 90 days;
·
ensure the Treasurer can make an order prohibiting a proposal where an earlier purported order is found to be invalid and the decision period has expired; and
·
allow for greater information sharing domestically with relevant government agencies and internationally with foreign counterparts.

7.7 Schedule 1 to the Bill also makes a number of minor amendments which clarify the meaning of 'notifiable actions'; the application of fee waivers; and when an agreement is entered into for the purposes of the FATA.

Improving compliance and additional enforcement tools

7.8 Schedule 2 to the Bill provides the Treasurer and the Commissioner with appropriate powers to administer the FATA. Specifically, Schedule 2 to the Bill amends the FATA to:

·
expand the infringement notices regime to cover all types of foreign investments and introduce a third tier to allow for a more graduated and proportional approach to enforcement;
·
increase the civil and criminal penalties that can be sought for a breach of the FATA to ensure these penalties act as an effective deterrent;
·
remedy situations where foreign persons are given a no objection notification or an exemption certificate based on a foreign investment application that makes an incorrect statement or omits an important piece of information;
·
require foreign persons who have been issued a no objection notification for a proposed action or an exemption certificate, to notify the Government of certain events, including that the action has occurred;
·
provide the Treasurer with the power to give directions to investors in order to prevent or address suspected breaches of conditions or of the foreign investment laws;
·
provide the Treasurer with the standard monitoring and investigative powers (in line with those of other business regulators), including access to premises with consent or by warrant to gather information, to improve regulators' capability to monitor investor compliance and/or investigate potential non-compliance; and
·
provide the Treasurer with the power to accept enforceable undertakings from foreign persons to manage compliance.

A fairer and simpler framework for foreign investment fees

7.9 Schedule 1 to the Bill and the Imposition Bill establish a new fee framework for foreign investment in Australia.

7.10 The Imposition Bill establishes authority for the Fee Regulation to charge existing and new fees.

7.11 Fees are payable when a person:

·
applies for an exemption certificate or a variation of an exemption certificate;
·
gives notice of a notifiable action;
·
gives a notice about a proposal to take a significant action that is not a notifiable action;
·
applies for a variation of a no objection notification; and
·
when a person has been given an order or has been provided a no objection notification without giving the Treasurer a notice relating to the action specified in the order or notification.

7.12 Schedule 1 to the Bill provides that new fees are payable for new actions included in the FATA. A fee is payable for a notifiable national security action, for a reviewable national security action that has been notified to the Treasurer or an action that may pose a national security concern. Fees are also payable when a person applies to vary a notice that was given to them imposing conditions.

Register of foreign owned Australian assets

7.13 Schedule 3 to the Bill establishes a new Register of Foreign Ownership of Australian Assets to record all 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 national security test.

Human rights implications

National Security Review and Last Resort Power

7.14 Schedule 1 to the Bill and the establishment of the new national security review and last resort powers engage the following human rights:

·
the right to justice under Article 14 of the ICCPR;
·
the right to freely dispose of natural wealth under Article 1 of the ICCPR; and
·
the right to protection from arbitrary or unlawful interference with privacy under Article 17 of the ICCPR.

7.15 The Treasurer's making of orders and the exercise of other last resort powers is constrained under sections 79C and 79F by the requirement to take reasonable steps to negotiate in good faith with the relevant person to reduce the national security risk without giving the order or exercising the powers.

7.16 This obligation provides an important safeguard that embodies the principles that will apply in the wide variety of possible situations where the orders and powers may be considered by the Treasurer. It is sufficiently flexible to accommodate particular circumstances of each national security risk that may be difficult to foresee but remains connected to a well understood common law principle that applies to commercial agreements.

7.17 The incorporation of the common law concept of good faith avoids the creation of a difference between the common law and an alternative concept in legislation that could potentially grow wider as the common law concept is refined by the courts. However, if it becomes necessary to address recurring trends in negotiations with applicants, the application of the concept to particular categories of situations could be clarified by the Treasurer through additional guidance for applicants.

7.18 The good faith concept is frequently used in Commonwealth legislation to impose obligations or standards on persons. This standard will be familiar to the types of entities expected to be affected by these amendments to the FATA. While the negotiations are intended to promote a mutually agreed resolution and forestall any legal proceedings, the good faith obligation is consistent with the Commonwealth's model litigant obligations in the Legal Services Directions 2017.

Right not to be compelled to testify against oneself or to confess guilt

7.19 Paragraph 3(g) of Article 14 of the ICCPR guarantees the right of an individual not to be compelled to testify against oneself or to confess guilt. The privilege against self-incrimination is recognised by the common law and applies unless it is expressly abrogated.

7.20 This right is engaged by the amendments to sections 133 and 135 of the FATA because they expand the circumstances in which the Treasurer may give a person a written notice that requires the person to give information or documents to the Treasurer or a specified person acting on the Treasurer's behalf. An individual is not excused from giving information or producing a document on the ground that to do so might tend to incriminate him or her.

7.21 However, this right is not limited by these amendments because:

·
the right applies in relation to criminal proceedings while the request for information by the Treasurer through the giving of the notice is an administrative process and the self-incrimination (if any) would not be occurring in a criminal proceeding; and
·
any information that is given or documents that are produced by an individual will not be admissible in criminal proceedings under subsection 133(8) (except where false or misleading information is provided).

7.22 The right to a fair trial in Article 14 of the ICCPR is thus engaged but not limited by these amendments.

Right to freely dispose of natural wealth

7.23 Paragraph 2 of Article 1 of the ICCPR guarantees the right of an individual to freely dispose of their natural wealth and resources. Schedule 1 to the Bill engages this right by expanding the circumstances in which the Treasurer may impose conditions on or restrict the disposal of particular assets in certain circumstances, or in very limited circumstances require a person to dispose of a particular asset.

7.24 In particular, as a result of the amendments made Schedule 1 to the Bill, the Treasurer may, but does not have to, restrict the disposal of assets if the disposal would result in a notifiable national security action or a reviewable national security action occurring. The Treasurer may also require the disposal of assets if the Treasurer exercises the last resort powers introduced by Schedule 1 to the Bill.

7.25 These measures are intended to achieve the legitimate and significant objective of reducing national security risks that may be posed by transactions that would give foreign persons interest in or influence over Australian assets or entities.

7.26 The measures are directly connected to their objective because they enable the Treasurer, if necessary in the circumstances, to prevent the foreign person taking the interest in or acquiring influence that would pose a national security risk.

7.27 The measures are proportionate to the objective because the Treasurer is able to adjust the response to the national security risk by tailoring conditions of approval or the required disposal to the particular circumstances in which the power is exercised. The consequences of allowing a national security risk to persist are potentially grave. The measures are only a limited restriction of the right because they would not prohibit the disposal of assets and only restrict disposal to a particular buyer or group of buyers, leaving the person free to sell it to other purchasers. Where a disposal order is made, it will not prevent a person from receiving a fair market value for their asset in the Australian market.

7.28 For these reasons, to the extent this provision might be considered to limit the right of an individual to freely dispose of their natural wealth and resources, the limitation is reasonable in all the circumstances.

Right to privacy

7.29 Schedule 1 to the Bill engages the right to protection from unlawful or arbitrary interference with privacy under Article 17 of the ICCPR because it requires orders made by the Treasurer to be published on the Federal Register of Legislation.

7.30 Article 17 of the ICCPR prohibits unlawful or arbitrary interferences with an individual's privacy, family, home or correspondence. It also provides that everyone has the right to the protection of the law against such interference or attacks.

7.31 The Human Rights Committee has interpreted the term 'unlawful' to mean that no interference can take place except in cases envisaged by a law which comply with the provisions, aims and objectives of the ICCPR. The Human Rights Committee has also indicated that an interference will not be considered to be 'arbitrary' if it is provided for by law and is in accordance with the provisions, aims and objectives of the ICCPR and is reasonable in the particular circumstances.[14]

7.32 The right in Article 17 may be subject to permissible limitations, where these limitations are authorised by law and are not arbitrary. In order for an interference with the right to privacy to be permissible, the interference must be authorised by law, be for a reason consistent with the ICCPR and be reasonable in the particular circumstances. The UN Human Rights Committee has interpreted the requirement of 'reasonableness' to imply that any interference with privacy must be proportional to the end sought and be necessary in the circumstances of any given case.

7.33 Disclosure of personal information and a consequent interference with privacy may occur when orders made under the FATA are registered on the Federal Register of Legislation. This is aimed at achieving the legitimate objective of protecting Australia's national security.

7.34 This public registration is rationally connected to the legitimate objective because it ensures that orders are accessible to all parties that may participate in a given transaction and that there is a public record of instances where the Treasurer exercised his or her powers to make orders under the FATA. The public nature of the orders aids in securing compliance with the order and furthers the legitimate objective of protecting Australia's national security (because orders under provisions inserted or amended by the Act are made for that purpose).

7.35 The requirement for registration is likely to have a relatively minor overall impact on privacy because many applicants are not individuals and because the information contained in the orders will be describing the proposed actions or actions that need to be taken and will not include personal information unless necessary for the effectiveness of the orders. This likely minor privacy impact is counterbalanced by the significant deterrence effect of publicising orders that require compliance or indicate potential involvement with risks to national security. Overall, this means that the requirement to register orders is proportionate to the objective of reducing risks to Australia's national security.

Improving the integrity of the framework

7.36 Schedule 1 to the Bill and the amendments to improve the integrity of the framework and expand the information sharing provisions engage the following human rights:

·
the right to justice under Article 14 of the ICCPR; and
·
the right to protection from arbitrary or unlawful interference with privacy under Article 17 of the ICCPR.

Right to a fair and public hearing

7.37 The power for the Treasurer to extend the decision period may engage the right to justice under Article 14 of the ICCPR because the Treasurer is not required to consult with the affected person before deciding to extend the decision period. The person is told about the extension through a written notice which must include the reasons for the extension.

7.38 The ability for the Treasurer to extend the decision period enables cases to be processed more efficiently and meet urgent commercial deadlines without potentially being delayed by procedures such as needing to obtain the person's consent to extend the time to make a decision. The person is still afforded natural justice at other times during the decision making process such as before conditions are attached to an approval.

7.39 The rules of natural justice are expressly excluded when making a decision on the extension. Article 14 of the ICCPR states that all persons are entitled to a fair and public hearing in the determination of their legal rights and obligations.

7.40 It is arguable that the Treasurer's ability to extend the decision period does not engage Article 14 of the ICCPR as the effect of the amendment is simply to delay the decision. However, a person's rights may be interfered with where the delay causes an opportunity to be missed.

7.41 Nonetheless, the interference with the person's right is appropriate and proportionate in light of the role the foreign investment framework plays in protecting Australia's national interest, including Australia's national security. The extension allows the Treasurer sufficient time to determine whether the relevant action being considered is contrary to the national interest. It efficiently allows for the processing of sensitive or significant applications by allowing sufficient time for the Treasurer to consider the expert input that informs these applications. For such cases, a longer decision period may be required to allow consultation partners sufficient time to provide their input including where they are developing bespoke conditions.

Right to privacy

7.42 Schedule 1 to the Bill amends the FATA to expand the information sharing provisions. Information obtained through the administration of the FATA is defined as protected information and its disclosure and use is limited.

7.43 Schedule 1 to the Bill expands the information sharing provisions to:

·
allow protected information to be shared with a Minister, an officer or employee of the Commonwealth, State or Territory or an officer or employee of a Commonwealth, State or Territory body where information was provided by that party for the purpose of the Treasurer making a decision under the FATA;
·
allow protected information to be shared with a foreign government where national security risks may exist;
·
allow for information to be shared with the Minister or accountable authority administering the Competition and Consumer Act 2010, Foreign Relations (Effect of State and Territory) Arrangement Act 2020 and the Northern Australia Infrastructure Facility Act 2016 and for the purpose of discharging responsibility for infrastructure, telecommunications and water;
·
allow for the Commissioner to share information with members of the Foreign Investment Review Board; and
·
allow for the sharing of aggregate information whether or not the information that will be shared is specified in regulations.

7.44 These amendments engage the right to protection from unlawful or arbitrary interference with privacy under Article 17 of the ICCPR.

7.45 The right in Article 17 may be subject to permissible limitations, where these limitations are authorised by law and are not arbitrary. In order for an interference with the right to privacy to be permissible, the interference must be authorised by law, be for a reason consistent with the ICCPR and be reasonable in the particular circumstances. The UN Human Rights Committee has interpreted the requirement of 'reasonableness' to imply that any interference with privacy must be proportional to the end sought and be necessary in the circumstances of any given case.

Sharing information where information assisted in the Treasurer's decision making

7.46 Schedule 1 to the Bill allows the Treasurer to share information across the Commonwealth, states and territories where the particular department or agency provided information for the purposes of the Treasurer making a decision under the FATA.

7.47 When sharing the information, the Treasurer must reasonably believe that the information may assist the recipient in the performance of the recipient's functions or duties or the exercise of the recipient's powers.

7.48 Any interference with the right to privacy where such protected information includes personal information is lawful as the disclosure of information is only authorised to specific people for specific purposes under the legislation. That is, to allow for greater information sharing between Australian governments to promote effective and timely collaboration and allowing them to discharge their statutory responsibilities efficiently and effectively. The amendments do not authorise disclosure of information more broadly or for any other purpose.

Sharing information with a foreign government

7.49 Schedule 1 to the Bill inserts section 123B which allows protected information under the FATA to be shared with foreign governments in limited circumstances where national security risks may exist, where it is not contrary to the national interest and subject to agreements in place between the Commonwealth and the foreign counterpart. In addition, the information can only be shared if it is relevant to the purposes of the FATA or will assist a foreign counterpart in meeting its duties or exercising its powers.

7.50 The Australian Privacy Principles apply to the disclosures to foreign governments for national security purposes. That section authorises cross border disclosure of personal information that complies with Australian Privacy Principle 8.2(c).

7.51 The interference with the right to privacy is lawful as the amendments authorise disclosure of information to specific people for specific purposes under the FATA. That is, to allow for greater information sharing with specified government agencies and foreign counterparts to enhance compliance and address national security risks. The amendments do not authorise disclosure of information more broadly or for any other purpose.

7.52 Information sharing with foreign government entities is also subject to separate individual agreements between the Commonwealth and the foreign government or separate government entity. These agreements will set out mutually agreed standards for the handling of personal information that provides privacy protection and, where relevant, limitations surrounding public disclosure of commercial in confidence information. The agreements will also specify that the information provided can only be used for the purpose for which it was provided - that is, to assist the foreign government to perform a function or duty, or exercise a power of the government or entity. This will provide certainty for regulators and investors and appropriately protect information, including possibly personal or commercial information.

7.53 The amendment to provide for information sharing between Treasurer and foreign governments is consistent with Article 17 of the ICCPR because, to the extent the amendment authorises the disclosure of protected information, it is necessary to regulate foreign investment and ensure that proposed investments are not contrary to Australia' national security.

7.54 The amendments are justified as they enable effective and timely collaboration in relation to cases where a national security risk may be present.

Expanding the prescribed list of Acts and responsibilities

7.55 Under the FATA, protected information is currently able to be disclosed to a person for the purposes of administering a prescribed list of laws included in the FATA or for the purpose of a Minister discharging the Minister's responsibilities for a particular matter. Schedule 1 to the Bill expands the list of prescribed Acts and adds three new matters to the list of matters about which information may be shared.

7.56 This amendment enhances the mechanisms already contained in the FATA that enable effective and timely collaboration between all Commonwealth agencies, in turn enabling them to discharge their statutory responsibilities efficiently and effectively.

7.57 The amendment provides that protected information can be shared with the Minister responsible for the Competition and Consumer Act 2010, Foreign Relations (Effect of State and Territory) Arrangement Act 2020 and the Northern Australia Infrastructure Facility Act 2016 and for the purpose of discharging responsibility for infrastructure, telecommunications and water.

7.58 Under the national interest test, the Treasurer considers the impact of the proposed investment on competition. Under the Northern Australia Infrastructure Facility Act 2016 financial assistance is offered to encourage and assist private sector investment in the Northern Territory. The Minister responsible for the Foreign Relations (Effect of State and Territory) Arrangement Act 2020 may be considering an agreement which is also subject to review under the FATA.

7.59 This amendment enables effective and timely collaboration where a proposed investment may create competition concerns. It also ensures that an applicant's eligibility for financial assistance under the Northern Australia Infrastructure Facility Act 2016 is able to be considered.

7.60 Existing privacy safeguards continue to operate in relation to personal information. Where a particular disclosure includes personal information, Australian Privacy Principle 6.2(b) authorises the disclosure as it is an Australian law authorising the disclosure of personal information. However, other Australian Privacy Principles continue to apply, in particular, Australian Privacy Principle 11.1, which requires that an Australian Privacy Principle entity must take reasonable steps to protect personal information from misuse, interference or loss, and from unauthorised access, modification or disclosure.

7.61 The amendment to provide for greater information sharing is consistent with Article 17 of the ICCPR because, to the extent the amendment authorises the disclosure of protected information, it is necessary to regulate foreign investment and ensure that proposed investments are not contrary to Australia' national interest.

Information sharing between the Commissioner of Taxation and the FIRB

7.62 Under the existing law, the Treasurer can disclose protected information to other Australian government agencies, including the Commissioner, to assist those agencies to perform their functions and exercise their powers.

7.63 Schedule 1 to the Bill streamlines the process by providing a more efficient mechanism for the Commissioner to share protected information with members of the FIRB directly. It will improve the FIRB's ability to advise the Treasurer on proposed investments with high risk tax in a timely manner.

7.64 Under the national interest test, tax risks is one consideration the Treasurer contemplates to ensure proposals are not contrary to the national interest.

7.65 This amendment will enable effective and timely collaboration where a high risk tax may be present. The amendment is a reasonable change as it will allow the Commissioner, Treasurer and FIRB members to more effectively work together to ensure that where a proposed investment poses a high tax risk, conditions can be imposed to mitigate these risks. The amendment is appropriate as it will ensure that the process for sharing information is consistent with existing provisions within the FATA, FATR and tax laws.

7.66 Information that is shared between the Commissioner and FIRB members will remain subject to strict privacy protections. The FIRB members will remain subject to the requirement to take all reasonable measures to protect protected information from any unauthorised disclosure.

7.67 The amendment is consistent with Article 17 of the ICCPR because, to the extent the amendment authorises the disclosure of protected information by the Commissioner to the FIRB, it is necessary to regulate foreign investment and ensure that proposed investments are not contrary to Australia' national interest. The amendment replicates existing information sharing arrangements the Commissioner has with other agencies to ensure consistency and streamlines administrative processes.

7.68 A simpler and more efficient information sharing arrangement between the Commissioner and the FIRB is justified as it will benefit the community by enabling effective and timely collaboration where proposed investments pose a high tax risk.

Sharing aggregate information

7.69 Schedule 1 to the Bill replaces existing section 124 to provide that aggregate information can be disclosed provided that the information does not identify a person or could be reasonably capable of identifying a person.

7.70 Given that the provisions does not allow for the release of personal information or information that could reasonably identify a person it does not engage Article 17 of the ICCPR.

Improving compliance and additional enforcement tools

7.71 Schedule 2 to the Bill provides the Treasurer and Commissioner with an enhanced compliance and enforcement toolkit which engages the following human rights and freedoms:

·
the right to be presumed innocent until proved guilty according to law;
·
the right to a fair and public hearing;
·
the right not to be compelled to testify against oneself or to confess guilt;
·
the right to protection from unlawful or arbitrary interferences with an individual's privacy;
·
the right to freedom of expression; and
·
the right to freedom from discrimination on prohibited grounds.

Right to a fair trial

7.72 Schedule 2 to the Bill engages the right to a fair trial in Article 14 of the ICCPR. Article 14 of the ICCPR ensures that everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law. Schedule 2 to the Bill may be considered to engage the right to a fair and public hearing as it introduces an additional tier of infringement notices (tier 3 infringement notices) and imposes associated penalties.

7.73 However, the right to a fair and public hearing by a competent, independent and impartial hearing is not limited by Schedule 2 because the person may still elect to have the matter heard by a court rather than pay the amount specified in the infringement notice. This right will be stated in any infringement notice.

7.74 The amounts payable under the newly introduced tier 3 infringement notices (300 penalty units for a person) are consistent with The Guide and the general requirement that the amount be one fifth of the amount that a court could impose on the person. To the extent the new infringement notices apply to bodies corporate (1500 penalty units for a corporation), they do not engage any human rights.

7.75 The amounts are also consistent with the increased penalty amounts under the FATA also introduced in Schedule 2 to the Bill.

7.76 Schedule 2 to the Bill amends the FATA to trigger the enforceable undertakings provisions in Part 6 of the Regulatory Powers Act, to enable the Treasurer to accept undertakings from foreign persons to manage compliance with provisions of the FATA.

7.77 As the enforceable undertakings framework applies to the offence provisions of the FATA, the right to a fair and public hearing and the other criminal process rights and minimum guarantees in Article 14 of the ICCPR are engaged. The amendments do not limit the minimum guarantees and other criminal process rights in Article 14 of the ICCPR.

7.78 Under Part 6 of the Regulatory Powers Act, an order enforcing an undertaking that relates to compliance with provisions of the FATA can only be made by a relevant court. The court process regarding enforceable undertakings is already established in the Regulatory Powers Act, and that the amendments simply widen the scope of this process by covering the provisions in the FATA as an 'enforceable action'.

7.79 Substantively, enforceable undertakings in the FATA function as an alternative to civil or administrative action by the Treasurer, thereby providing more options in the process where a foreign person has not met an obligation. Accordingly, the right to a fair and public hearing provided for by Article 14(1) of the ICCPR is not limited.

7.80 The regulatory powers triggered by the amendments are also appropriately limited, by ensuring a narrow scope of who is an authorised person and what is a relevant court. This ensures the powers will only be used in defined circumstances.

Right to justice

7.81 Schedule 2 to the Bill engages the right to justice in Article 14 of ICCPR. The Bill empowers the Treasurer to give directions or interim directions to persons to address or prevent contraventions of provisions of the FATA. Failure to comply with such directions may constitute an offence or attract a civil penalty.

7.82 The power is intended to achieve the legitimate objective of ensuring compliance with the FATA. Since contraventions may have significant and long lasting economic repercussions and affect Australia's national interest (including national security), compliance with the requirements is paramount.

7.83 The directions power allows the Treasurer to require persons to take steps to ensure they comply with the FATA. It is not available unless the Treasurer has reason to believe that the person has engaged or will engage in conduct that constitutes a relevant contravention. This is a clear rational connection between the power and the intended objective of preventing contraventions.

7.84 Since the directions power is a means of ensuring compliance with other provisions of the FATA it is by its very nature proportionate to the objective. The penalties (civil and criminal) for failure to comply with a direction mirror the penalties associated with the primary provisions in the FATA that are supported by the directions power. This correspondence is necessary to ensure that the directions are appropriately effective in supporting compliance with the provisions the person subject to the directions is believed by the Treasurer to have or be about to contravene.

7.85 Thus, to the extent that the directions power in this Bill limits the right to justice in Article 14 of the ICCPR, the limitation is permissible.

Increased penalties

7.86 Schedule 2 to the Bill imposes significantly increased penalties for multiple offences and contraventions of civil penalty provisions. This may be considered to engage the right to justice in Article 14 of the ICCPR, particularly because the penalties are higher than suggested by The Guide.

7.87 These penalties are appropriate given the potential benefits and profits that may be derived from non-compliance with the FATA and the need to create a sufficient deterrent to protect the national interest. The increase in penalties reflects the seriousness of potential non-compliance and aligns with community standards and expectations.

7.88 The new penalty amounts are the maximum that a court can impose.

7.89 Those involved in committing offences under the FATA could receive large financial benefits from their misconduct, or could gain control of assets that may be contrary to the national interest but difficult to reverse once established. To deter such behaviour, and to ensure paying a financial penalty does not become a cost of doing business, the increase in penalties is appropriate. The higher penalty amounts calculated with reference to the value of the relevant transaction are also appropriate to deter engaging in such behaviour and effectively diminish the commercial incentives for misconduct.

7.90 These increases will neutralise any financial benefits or gains obtained from illegal behaviour. This approach is consistent with the penalties imposed with the intent of deterring similar misconduct under the Corporations Act 2001.

7.91 Even though the amendments increase the maximum penalty for offences, they do not amend any of the criminal process or procedural rights that currently exist and are upheld in accordance with Article 14 of the ICCPR. The increased penalties will apply to offences that are committed, or begin to be committed, after the Bill commences, and therefore apply prospectively, therefore upholding article 15 of the ICCPR.

7.92 To the extent the increases in financial penalties apply to bodies corporate, they do not engage any human rights.

Right to justice and retrospective penalties

7.93 Schedule 2 to the Bill engages the right to not be convicted of something that was not a crime when the activity took place in Article 15 of the ICCPR because it introduces changes that allow the Treasurer to revoke an exemption certificate or a no objection notification if a person gave the Treasurer false or misleading documents or information in a material particular at the time of applying for the exemption certificate or no objection notification. Schedule 2 to the Bill also introduces a civil penalty for providing such information.

7.94 However, while the revocation may take into account documents and information that were provided prior to the commencement of these changes, any revocation will not create a retrospective criminal liability. The revocation will only affect future conduct of the person whose exemption certificate or no objection notification has been revoked. The civil penalty has financial consequences but is not a criminal penalty.

7.95 The civil penalty provisions contained in Schedule 2 to the Bill that may be imposed for false or misleading information or documents that were provided prior to the commencement of the provisions are not 'criminal' for the purposes of human rights law. The penalty is not classified as 'criminal' under Australian law, it only applies to persons already subject to the FATA due to their economic activities rather than the general public, and there is no term of imprisonment associated with the penalty. The prescribed upper limits for the pecuniary sanction amounts for contravening the civil penalty provision are appropriate. They are proportionate to the potential benefits to persons and harm to the national interest that could flow from an exemption certificate or no objection notification based on false or misleading documents or information.

7.96 Based on the above factors, the cumulative effect and the nature and severity of the civil penalties in Schedule 2 to the Bill is not 'criminal' for the purposes of human rights law.

7.97 Thus this Bill engages but does not limit the right not to be convicted of something that was not a crime when the activity took place in Article 15 of the ICCPR.

7.98 Right to privacy

7.99 Schedule 2 to the Bill engages the right to protection from unlawful or arbitrary interference with privacy under Article 17 of the ICCPR because it requires directions made by the Treasurer and enforceable undertakings entered into by the Treasurer to be published on a website maintained by the Department as soon as practicable.

7.100 Article 17 of the ICCPR prohibits unlawful or arbitrary interferences with an individual's privacy, family, home or correspondence. It also provides that everyone has the right to the protection of the law against such interference or attacks.

7.101 The Human Rights Committee has interpreted the term 'unlawful' to mean that no interference can take place except in cases envisaged by a law which comply with the provisions, aims and objectives of the ICCPR. The Human Rights Committee has also indicated that an interference will not be considered to be 'arbitrary' if it is provided for by law and is in accordance with the provisions, aims and objectives of the ICCPR and is reasonable in the particular circumstances.[15]

7.102 The right in Article 17 may be subject to permissible limitations, where these limitations are authorised by law and are not arbitrary. In order for an interference with the right to privacy to be permissible, the interference must be authorised by law, be for a reason consistent with the ICCPR and be reasonable in the particular circumstances. The UN Human Rights Committee has interpreted the requirement of 'reasonableness' to imply that any interference with privacy must be proportional to the end sought and be necessary in the circumstances of any given case.

7.103 Disclosure of personal information and a consequent interference with privacy may occur when the directions and enforceable undertakings are published on a website maintained by the Department. This is aimed at achieving the legitimate objective of ensuring compliance with the FATA by parties that are subject to it.

7.104 This publication is rationally connected to the legitimate objective because it ensures that orders are accessible to all parties that may participate in a given transaction and that there is a public record of directions and enforceable undertakings made by the Treasurer. The publication of the directions and enforceable undertakings aids in securing compliance with the directions and enforceable undertakings and furthers the legitimate objective of ensuring compliance with the FATA (because counterparties to transactions, or other affected parties, would be less likely to proceed in contravention of a public direction or enforceable undertaking).

7.105 The requirement for publication is likely to have a relatively minor overall impact on privacy because many applicants and relevant persons are not individuals and because the information contained in the orders will be describing the relevant contraventions and actions that need to be taken and will not include personal information unless necessary for the effectiveness of the directions or enforceable undertakings. This likely minor privacy impact is counterbalanced by the significant deterrence effect of publicising directions and enforceable undertakings that promote compliance and alert third parties that transactions they are involved in may be contraventions of the FATA. Overall, this means that the requirement to publish directions and enforceable undertakings is proportionate to the objective of ensuring compliance with the FATA.

7.106 Schedule 2 to the Bill also engages the right to protection from unlawful or arbitrary interference with privacy under Article 17 of the ICCPR because a foreign person issued with a no objection notification or exemption certificate is required to notify the Treasurer where an action covered by the no objection notification or exemption certificate has been taken.

7.107 The requirement to provide information to the Treasurer will engage the person's right to privacy under Article 17 of the ICCPR as some of the information required to be included with the notification may be personal information.

7.108 The right in Article 17 may be subject to permissible limitations, where these limitations are authorised by law and are not arbitrary. In order for an interference with the right to privacy to be permissible, the interference must be authorised by law, be for a reason consistent with the ICCPR and be reasonable in the particular circumstances. The UN Human Rights Committee has interpreted the requirement of 'reasonableness' to imply that any interference with privacy must be proportional to the end sought and be necessary in the circumstances of any given case.

7.109 In this case, the reason is considered reasonable as the information will enable the Treasurer to know all relevant details about members of the population the Treasurer is expected to regulate. There is no uniform notification requirement that otherwise exists under the FATA.

7.110 These amendments are necessary to ensure the Treasurer is notified about significant actions or exemption certificates, regardless of whether conditions to notify were originally imposed. Any interference with an individual's right to privacy is lawful as the requirement is only to provide information to specified people for a specified purpose, that is, to enable the Treasurer to be properly informed about significant actions and events under the FATA.

7.111 The information will be protected information and therefore subject to limitations under the FATA. Any limitation on the right to privacy is therefore reasonable and proportionate to the legitimate objective of the legislation.

7.112 A person required to provide a notification in about a significant action or exemption certificate must do so within 30 days of the action or event taking place, including any details required by regulations and in the manner approved by the Secretary.

Right to work

7.113 Schedule 2 to the Bill engages the right to work under Article 6 of the International Covenant on Economic, Social and Cultural Rights because the Bill gives the Treasurer the ability to issue a direction to a person to cease being a senior officer of a corporation.

7.114 The right to work provides that everyone must be able to freely accept or choose their work, and includes a right not to be unfairly deprived of work. The right to work also requires that state parties provide a system of protection guaranteeing access to employment. This right must be made available in a non-discriminatory manner pursuant to Article 2(1) of the International Covenant on Economic, Social and Cultural Rights.

7.115 Schedule 2 to the Bill also engages the right to freedom of association under Article 22 of ICCPR, which protects the right of all persons to group together voluntarily for a common goal and to form and join an association.

7.116 These rights are engaged because the Treasurer may give directions requiring persons to ensure that specified persons or kinds of persons (such as persons who are not Australian citizens, or who are foreign persons) cease or do not become senior officers of particular corporations. The Treasurer may also give directions requiring persons to ensure that a specified proportion of the senior officers of a corporations is not of a specified kind of person (such as persons who are not Australian citizens, or who are foreign persons).

7.117 The power is intended to achieve the legitimate objective of ensuring compliance with the FATA. Since contraventions may have significant and long lasting economic repercussions and affect Australia's national interest (including national security), compliance with the requirements is paramount.

7.118 The directions power allows the Treasurer to require persons to take steps to ensure they comply with the FATA, including not being senior officers of corporations, where taking such a role would be a contraventions of the FATA. The directions power is not available unless the Treasurer has reason to believe that the person has engaged or will engage in conduct that constitutes a relevant contravention. This is a clear rational connection between the power and the intended objective of preventing contraventions.

7.119 Since the directions power is a means of ensuring compliance with other provisions of the FATA it is by its very nature proportionate to the objective. The penalties (civil and criminal) for failure to comply with a direction mirror the penalties associated with the primary provisions in the FATA that are supported by the directions power. This correspondence is necessary to ensure that the directions are appropriately effective in supporting compliance with the provisions the person subject to the directions is believed by the Treasurer to have contravened or be about to contravene.

7.120 The directions power is limited in the impact it may have on a person's right to work because an order would not necessarily prevent a particular person or kind of person from working. It is more likely to only prevent them from holding a particular position with a particular corporation.

7.121 The limitation on the right to group together voluntarily for a common goal and to form and join an association is also minimal because the directions would be most likely to restrict the taking up of particular offices by individuals and not prevent them from associating or forming alternative associations with similar purposes.

7.122 The balance of the relatively minor limitations on the right to work and the right to freedom of association are more than balanced by the importance of ensuring compliance with the FATA (which is necessary for the protection of Australia's national interest, including national security). Thus, to the extent that the directions power in this Bill limits the right to work in Article 6 of the International Covenant on Economic, Social and Cultural Rights or the right to freedom of association under Article 22 of the ICCPR, the limitation is permissible.

Monitoring and investigative powers

7.123 The FATA is amended to trigger the monitoring and investigative powers in Part 2 and 3 of the Regulatory Powers Act. These powers are necessary to enable the monitoring of compliance with the FATA regime and the collection of evidential material relating to contraventions. The exercise of these powers is constrained in various ways as set out below, ensuring that their use is not arbitrary.

7.124 The regime under the Regulatory Powers Act protects against arbitrary interference with privacy, as the monitoring and investigation powers cannot be exercised without consent being given to the entry into the premises, or prior judicial authorisation in the form of a warrant. Where entry is based on the consent of the occupier, consent must be informed and voluntary and the occupier of premises can restrict entry by authorised persons to a particular period. Additional safeguards are provided through provisions requiring authorised persons and any persons assisting them to leave the premises if the occupier withdraws their consent.

7.125 The Regulatory Powers Act also provides restrictions on the issuing of a monitoring or investigation warrant. For example, in the case of an investigation warrant, an issuing officer may issue an investigation warrant only when satisfied, by oath or affirmation, that there are reasonable grounds for suspecting that there is, or may be within 72 hours, evidential material on the premises. An issuing officer must not issue a warrant unless the issuing officer has been provided, either orally or by affidavit, with such further information as they require concerning the grounds on which the issue of the warrant is being sought. Such constraints on this power ensure adequate safeguards against arbitrary limitations on the right to privacy in the issuing of warrants.

7.126 In addition, an authorised person cannot enter premises under a warrant unless their identity card is shown to the occupier of the premises. If entry is authorised by warrant, the authorised person must also provide a copy of the warrant to the occupier of the premises. This provides for the transparent utilisation of the powers and mitigates arbitrariness and risk of abuse.

7.127 The monitoring and investigation powers may only be exercised in certain circumstances set out in the Regulatory Powers Act. For example, under section 52 of the Regulatory Powers Act, the power to seize evidence of a kind not specified in a warrant may only be exercised where:

·
the authorised person finds the thing in the course of searching for material of the kind specified in an investigation warrant, and
·
the authorised person believes on reasonable grounds that

-
the thing is evidential material of another kind, or
-
a related provision has been contravened with respect to the thing, or
-
the thing is evidence of a contravention of a related provision, or
-
the thing is intended to be used to contravene a related provision, and

·
the authorised person believes on reasonable grounds that it is necessary to seize the thing in order to prevent its loss, concealment or destruction.

7.128 These constraints on the exercise of the powers limit their susceptibility to arbitrary use or abuse and ensure that their use is reasonable and proportionate in the circumstances. Accordingly, the monitoring and investigation powers are necessary, proportionate and reasonable in the pursuance of the legitimate objectives of the FATA.

7.129 Triggering the provisions pertaining to monitoring and investigation powers in the Regulatory Powers Act causes offences in that Act to apply in relation to monitoring and investigating. The fair trial rights, minimum guarantees in the determination of a criminal charge and other criminal process rights contained in Article 14 of the ICCPR are engaged. Parts 2 (monitoring) and 3 (investigation) of the Regulatory Powers Act provide questioning powers to authorised persons. Under subsection 24(3) of the Regulatory Powers Act, where entry is authorised by a monitoring warrant, the authorised person may require any person on the premises to answer questions or produce documents relating to information or provisions subject to monitoring. If the person fails to do so, this is an offence under subsection 24(5) of the Regulatory Powers Act. The penalty is 30 penalty units. Similarly, under section 54(3) of the Regulatory Powers Act an authorised person who enters premises under an investigation warrant may require persons on the premises to answer questions or produce documents relating to evidential material of the kind specified in the warrant. If the person fails to do so, this is an offence under subsection 54(5) of the Regulatory Powers Act. The penalty is 30 penalty units.

7.130 These offence provisions do not limit the person's access to a fair trial or limit the other criminal process rights in any way. Sections 17 and 47 of the Regulatory Powers Act make it clear that the privileges against self-incrimination and legal professional privilege have not been abrogated by the monitoring and investigation powers provisions, including the offence provisions. These protections guarantee the criminal process rights protected in paragraphs 14(3)(d) and (g) of the ICCPR. The usual guarantees and criminal process rights will apply to these offences and are not abrogated by any provisions in the Bill or triggered provisions of the Regulatory Powers Act. Accordingly, sections 24 and 54 of the Regulatory Powers Act, as applied in these amendments, are compatible with human rights.

7.131 The monitoring and investigative powers may be considered to be coercive powers as they are powers conferred by statute on government agencies to enable them to obtain information and perform their functions. These include powers to:

·
enter and search premises, and seize evidential material;
·
arrest, restrain or detain a person; and
·
conduct personal search powers.

7.132 The Department would develop guidelines and an internal governance framework for the appropriate use of those coercive powers, outlining matters including, but not limited to:

·
how officers will be trained to exercise the powers, and how skills will be maintained;
·
how operational risks associated with exercising coercive powers (including encountering violence/resistance in gaining entry to premises, finding evidence of other offences) will be managed; and
·
how those exercising the powers will be supported, including through resources such as tools for the forensic analysis of documents and exhibit rooms, and by personnel suitably trained in planning and executing searches and acting as exhibit/property officers.

7.133 The Department will adopt best practice approaches to the use of coercive powers, including:

·
keeping written records of decisions to exercise coercive powers, including information on who authorised decisions to exercise the power, and the basis on which the decision was made; and
·
regularly publishing information on the agency's use of powers (to the extent that it is appropriate to do so) to engender community confidence and facilitate internal and external scrutiny of the use of the powers (principles 4 and 18).

7.134 The Secretary may appoint a person as an authorised officer, for the purposes of Parts 2 and 3 of the Regulatory Powers Act, who is an APS employee performing the duties of an APS Level 6 position, or an equivalent or higher position, in the Department. In order to prevent possible abuses of power, the Secretary must be satisfied that the person has suitable training or experience to properly perform the functions, or exercise the powers, of an authorised officer. This is consistent with Australian Government policy and is appropriate given authorised officers will exercise coercive powers. Appropriate limitations on coercive powers are also included in the principle legislation requiring the authorised officer to comply with the directions of the Secretary for an authorised officer's exercise of powers or the performance of functions.

Register of foreign owned Australian assets

7.135 Schedule 3 to the Bill establishes a new Register of Foreign Owned Assets. The Register will engage Article 17 of the ICCPR and the right to protection from arbitrary or unlawful interference with privacy.

7.136 The Register will record certain actions about interests acquired, held or disposed of by foreign persons. Foreign persons, and people acting on their behalf, must provide notice of their acquisition or disposal of such interests. Notification must also be given where a person becomes, or ceases to be, a foreign person in relation to such an acquisition or disposal.

7.137 The Register will incorporate the existing Register of Foreign Owned Water or Agricultural Land administered by the Commissioner.

7.138 The requirement to provide information to the Registrar will engage the person's right to privacy under Article 17 of the ICCPR as some of the information required to be included may be personal information.

7.139 The right in Article 17 may be subject to permissible limitations, where these limitations are authorised by law and are not arbitrary. In order for an interference with the right to privacy to be permissible, the interference must be authorised by law, be for a reason consistent with the ICCPR and be reasonable in the particular circumstances. The UN Human Rights Committee has interpreted the requirement of 'reasonableness' to imply that any interference with privacy must be proportional to the end sought and be necessary in the circumstances of any given case.

7.140 The information to be provided for inclusion on the Register is required for the legitimate of objective of complementing existing mechanisms for recording and monitoring details of foreign persons' interests in Australian assets, and is not publicly available. So to the extent there is any interference with the right to informational privacy, it is lawful, necessary and proportional to the legitimate objective of the legislation.

Conclusion

7.141 The Bill and Imposition Bill are compatible with human rights, because to the extent the Bills may limit human rights, those limitations are reasonable, necessary and proportionate.


ToonenaAustralia, CCPR/C/50/D/488/1992, UN Human Rights Committee (HRC), 4 April 1994.


ABS cat. no.5494.0 - Economic Activity of Foreign Owned Businesses in Australia,2014-15


OECD (2020), FDI flows.


ABS cat. no. 5494.0 - Economic Activity of Foreign Owned Businesses in Australia, 2014-15.


Productivity Commission 2020, Foreign Investment in Australia, Research paper p81.


OECD, J Phol 2019 - Acquisition and ownership related policies to safeguard essential security interests: new policies to manage new threats.


Ibid.


Productivity Commission 2020, op.cit.


Productivity Commission 2020, op.cit.


The effect of the tracing rules is that a person is taken to hold the interests in securities in companies or trusts which are lower in the corporate structure where certain requirements are met.


This policy was outlined in the 2015 Regulation Impact Statement - Strengthening Australia's foreign investment framework.


OECD, 2020 - FDI inflows.


Foreign Investment Review Board, Annual Report 2018-19.


Australian Investment Council and Preqin, 2019 Yearbook: Australian Private Equity & Venture Capital Activity Report, May 2019.


General comment No. 16: Article 17 (Right to privacy), Thirty second session (1988) at [3]-[4].


General comment No. 16: Article 17 (Right to privacy), Thirty second session (1988) at [3]-[4].


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