Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2019-2020
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
FOREIGN INVESTMENT REFORM (PROTECTING AUSTRALIA'S NATIONAL
SECURITY) BILL 2020
FOREIGN ACQUISITIONS AND TAKEOVERS FEES IMPOSITION
AMENDMENT BILL 2020
EXPLANATORY MEMORANDUM
(Circulated by authority of the
Treasurer, the Hon Josh Frydenberg MP)
Table of contents
Glossary................................................................................................. 1
General outline and financial impact ...................................................... 3
Overview and context for foreign investment reforms ............................ 7
Chapter 1 National security review and last resort power .......... 11
Chapter 2 Improving the integrity of the framework and
technical amendments ............................................... 37
Chapter 3 Improving compliance and additional
enforcement tools ...................................................... 67
Chapter 4 A fairer and simpler framework for foreign
investment fees........................................................ 123
Chapter 5 Register of Foreign Owned Australian Assets ......... 133
Chapter 6 Regulation impact statement ................................... 151
Chapter 7 Statement of Compatibility with Human Rights ........ 211
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 of Foreign Ownership of Water or
Register Act 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
1
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.
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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.
4
General outline and financial impact
• 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.
5
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 jobs1 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
1
ABS cat. no.5494.0 -- Economic Activity of Foreign Owned Businesses in Australia,2014-15
2
OECD (2020), FDI flows.
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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);
8
Overview and context for foreign investment reforms
• 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.
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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.
10
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).
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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
12
National security review and last resort power
$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.
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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.
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National security review and last resort power
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 A foreign person must notify the
Treasurer before taking a notifiable Treasurer before taking a notifiable
national security action or a action.
notifiable action.
Call-in powers
The Treasurer also has powers for The Treasurer has powers for
certain actions not covered by the significant actions assessed against
FATA or significant actions that are the national interest.
not notified if the action poses a
national security concern.
A person may also voluntarily notify A person may voluntarily notify of a
of an action that could be reviewed proposed action.
under the Treasurer's 'call-in'
power.
Last Resort Powers
The Treasurer is able to give orders The Treasurer is unable to
necessary to reduce national security unilaterally amend a no objection
risks if: notification or any conditions in the
• there has been a material no objection notification if it is
misstatement or omission in detrimental to the foreign person or
information provided to the without the foreign person's consent.
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.
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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.
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National security review and last resort power
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
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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]
18
National security review and last resort power
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]
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Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020
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
20
National security review and last resort power
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
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Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020
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]
22
National security review and last resort power
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
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Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020
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 the whole or part of the proposed
Australian business acquisition.
Start an Australian business the starting of the whole or part of the
Australian business.
Acquire an interest in the assets of an the whole or part of the proposed
Australian business 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.
24
National security review and last resort power
Where the action has not been taken
If the action is to ... The Treasurer may make an order
prohibiting ...
Enter or terminate a significant the entering or terminating of the
agreement with an Australian agreement.
business
Acquire an interest in Australian the proposed action.
land
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 the person who acquired the interest
Australian business 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 the person who acquired the interest
Australian business 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 specified persons to do within a
agreement with an Australian specified period, or refrain from
business. doing, specified acts or acts of a
specified kind.
Acquire an interest in Australian the person who acquired the interest
land to dispose of the interest within a
specified period to one or more
persons who are not associates of the
person.
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Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020
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
26
National security review and last resort power
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
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Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020
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]
28
National security review and last resort power
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]
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Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020
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]
30
National security review and last resort power
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
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• 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
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National security review and last resort power
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]
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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
34
National security review and last resort power
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]
35
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.
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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
38
Improving the integrity of the framework and technical amendments
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 An action to acquire interests in
factor in determining that an action securities in an entity or an interest
is a significant action once a foreign in the assets of a business is not a
person controls an entity or business. significant action unless the change
of control test is met.
A foreign person is deemed to have Where a foreign person's percentage
taken an action and acquired an holding in an entity increases (e.g. as
interest in securities in an entity a result of not participating in a share
where the person's proportional buyback) but the person has not
holdings have increased without the acquired any additional securities,
person taking any action. the foreign person is not considered
This deemed action may be a to be taking an action.
notifiable action or significant action
or both.
The definition of 'Australian The definition of 'Australian
business' includes activities carried business' may not necessarily cover
on by Government irrespective of all activities carried on by
whether the activity is carried on for Government, as these activities are
profit or gain. not generally carried on in
anticipation of profit or gain.
The tracing rules of the FATA apply The tracing rules of the FATA do
to unincorporated limited not apply to unincorporated limited
partnerships. partnerships.
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New law Current law
The Treasurer may extend or further Where the Treasurer has been
extend the decision period by up to notified of a proposed action, the
90 days without issuing an interim Treasurer has 30 days to make a
order or the person's consent. 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 If a court finds an order or decision
made by the Treasurer to be invalid, made by the Treasurer to be invalid,
the Treasurer can make a new order the Treasurer cannot make a new
or decision. 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 Protected information about a
decisions or orders made under the decision made under the FATA
FATA may be shared with a cannot be disclosed to a Minister, an
Minister, an officer or employee of officer or employee of the
the Commonwealth, State or Commonwealth, State or Territory or
Territory or an officer or employee an officer or employee of the
of the Commonwealth, State or Commonwealth, State or Territory
Territory body (the recipient), where body, where they have provided
they have provided information that information that assisted with the
assisted with the decision or order. decision.
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 may be shared Protected information cannot be
with a foreign government and disclosed to a foreign overseas
separate government entities where government.
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.
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Improving the integrity of the framework and technical amendments
New law Current law
In addition to the existing prescribed Protected information may be
Acts, protected information may be disclosed under the FATA to a
disclosed under the FATA for the Minister or an accountable authority
purposes of administering three of the Commonwealth for the
additional Acts: purposes of the administration of the
ï‚· the Competition and prescribed list of Acts. The
Consumer Act 2010; regulations can prescribe additional
Acts.
ï‚· the Australia's Foreign
Relations (State and Territory
Arrangements) Act 2020; and
ï‚· the Northern Australia
Infrastructure Facility
Act 2016.
The Treasurer can prescribe
additional Acts.
In addition to the existing permitted Protected information may be
purposes, protected information may disclosed under the FATA to a
be disclosed under the FATA for the Minister or an accountable authority
purposes of a Minister discharging of the Commonwealth or
that Minister's responsibility for departmental secretary responsible
matters about water, for agriculture, industry, investment
telecommunications and promotion, taxation policy, foreign
infrastructure. investment in Australia, defence and
for national security purposes.
The Commissioner may disclose The Commissioner is not permitted
protected information directly to to disclose protected information to
persons appointed by the persons appointed by the
Commonwealth for the purposes of Commonwealth for the purposes of
the FATA. the FATA.
Protected information under the Protected information under the
FATA can be disclosed if it does not FATA may only be disclosed if it is
or not reasonably capable of periodic aggregate information
identifying a person. 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 For the purposes of the FATA,
the FATA, if a foreign person enters actions covered by an agreement are
into an agreement to acquire an taken to have occurred when a
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Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020
New law Current law
interest and the provisions of the person enters into the agreement
agreement to acquire the interest are unless the provisions of the
conditional on foreign investment agreement to acquire the interest are
approval, then the actions covered by subject to conditions which have not
the agreement are not taken to have yet been met.
occurred unless that approval has
been given.
It is clarified that the Treasurer or the The Treasurer may apply to a court
Commissioner can apply to the court to make an order if a foreign person
for an order where a foreign person has contravened a civil penalty
has contravened the restrictions on provision under the FATA.
the ownership of established
residential dwellings.
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.
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Improving the integrity of the framework and technical amendments
.
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]
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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
44
Improving the integrity of the framework and technical amendments
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
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Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020
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
46
Improving the integrity of the framework and technical amendments
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.
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Diagram 2.1
Company
Company A Company B
(foreign) (foreign)
20% 80%
Limited
General Partner
Partnership
(foreign)
(foreign)
BikCo
(foreign)
Australian Target
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.
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Improving the integrity of the framework and technical amendments
Diagram 2.2
Limited Limited Limited
partner 1 partner 2 partner 3
15% 65% 20%
General Limited
Company A
Company Partner B Partnership B
(foreign)
(foreign) (foreign)
80% 20%
Limited
General Partner
Partnership A
(foreign)
(foreign)
BikCo
(foreign)
Australian Target
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
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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
Limited Limited Limited
partner 1 partner 2 partner 3
15% 65% 20%
General Limited
Company A
Partner B Partnership B
Company (foreign)
(foreign) (foreign)
80% 20%
Limited
General Partner I General Partner A
Partnership A
(foreign) (foreign)
(foreign)
BikCo
(foreign)
Australian Target
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]
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Improving the integrity of the framework and technical amendments
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.
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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).
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Improving the integrity of the framework and technical amendments
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]
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Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020
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
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Improving the integrity of the framework and technical amendments
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
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Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020
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
56
Improving the integrity of the framework and technical amendments
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
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Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020
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;
58
Improving the integrity of the framework and technical amendments
• 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]
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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
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Improving the integrity of the framework and technical amendments
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
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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
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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
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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
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Improving the integrity of the framework and technical amendments
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
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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]
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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
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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 An infringement officer may issue an
infringement notice if the infringement notice if the
infringement officer believes on infringement officer believes, on
reasonable grounds that the person reasonable grounds, that the person
contravened a civil penalty provision contravened a civil penalty provision
in the FATA. relating to residential land.
An infringement notice is a tier 1 An infringement notice is a tier 1
infringement notice if the notice infringement notice if the notice
relates to an alleged contravention of relates to an alleged contravention of
a civil penalty provision by a person a civil penalty provision by a person
that is discovered because the person that is discovered because the person
informed the Treasurer (or the informed the Commonwealth of the
Commissioner on behalf of the conduct that constituted the alleged
Treasurer) or the Registrar of the contravention.
conduct.
A tier 3 infringement notice can be No equivalent
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Improving compliance and additional enforcement tools
New law Current law
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.
The maximum criminal penalty of: The maximum criminal penalty of:
• Individual -- 15,000 penalty • Individual -- 750 penalty units or
units or 10 years imprisonment. 3 years imprisonment.
• Corporation -- 150,000 penalty • Corporation -- 3,750 penalty
units. units.
These penalties apply to the These penalties apply to the
following criminal offences in the following criminal offences in the
FATA and offences introduced by FATA:
this Bill:
• section 84 (Failing to give notice);
• section 84 (Failing to give
• section 85 (Taking significant
notice);
action before end of period);
• new subsection 84(2) (Failure
• section 86 (Contravening orders
to give notice where there is a
under core Part 3);
passive increase in percentage
held in an entity); • section 87 (Contravening
conditions); and
• section 85 (Taking action
before end of period); • subsection 88(1) (Failing to
advertise new dwellings).
• new section 85A (Taking
certain prohibited actions);
• section 86 (Contravening orders
under Part 3);
• section 87 (Contravening
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New law Current law
conditions);
• subsection 88(1) (Failing to
advertise new dwellings); and
• section 88A (Contravening
directions and interim
directions).
The maximum financial penalty for a The maximum financial penalty for a
breach of a civil penalty provision is: breach of a civil penalty provision is:
• Individual -- the greater of:
• Individual -- 250 penalty units.
- 5,000 penalty units; or
- 75 per cent of the value for the • Corporation -- 1,250 penalty
action to which the alleged units.
contravention relates, The penalties apply to a
determined according to the contravention of the following civil
introduced valuation rules. penalty provision in the FATA:
However, the penalty is capped at a
maximum monetary value of 2.5 • section 89 (Contravening orders
million penalty units. under Part 3);
• Corporation -- the greater of: • section 91 (Failing to give
- 50,000 penalty units; or notice);
- 75 per cent of the value for the • section 92 (Taking a significant
action to which the alleged action before the end of the
contravention relates, period); and
determined according to the
introduced valuation rules. • section 93 (Contravening
However, the penalty is capped at a conditions).
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
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Improving compliance and additional enforcement tools
New law Current law
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 The maximum financial penalty for a
contravention of a civil penalty contravention of a civil penalty
provision relating to residential land provision relating to residential land
under section 94 of the FATA, where under section 94, where a foreign
a foreign person acquires an interest person acquires an interest in
in residential land without giving a residential land without giving a
notice under section 81, or if the notice under section 81, or if the
notice is given, takes an action before notice is given, takes an action before
the day mentioned in section 82, is the day mentioned in section 82, is
increased to be the greater of the the greater of the following:
following:
• 10 per cent of the consideration
• the amount of the capital gain for the residential land
that was made or would be acquisition;
made on the disposal of the
• 10 per cent of the market value
interest in the relevant
of the interest in the relevant
residential land;
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 penalties for The maximum financial penalties for
contravention of the strict and contravention of the strict and
absolute liability offence listed in absolute liability offence listed in
section 119 of the FATA for failing section 119 of the FATA for failing
to make and keep records is increased to make and keep records is
to 250 penalty units. 30 penalty units.
The maximum financial penalties for The maximum financial penalties for
contravention of section 133 of the contravention of section 133 of the
FATA for failing to comply with the FATA for failing to comply with the
notice given by the Treasurer to notice given by the Treasurer to
provide information necessary for provide information necessary for
exercising the Treasurer's powers is exercising the Treasurer's powers is
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New law Current law
250 penalty units, or imprisonment 30 penalty units, or imprisonment for
for 6 months, or both. 6 months, or both.
A person is liable for a civil penalty No equivalent
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.
The Treasurer can revoke a no No equivalent
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.
Foreign persons who have been A foreign person is required to notify
issued a no objection notification for the Treasurer when taking action
a proposed significant action, or an specified in a no objection
exemption certificate are required to notification where it is included as a
notify the Treasurer within 30 days of condition in the no objection
when the action has occurred. notification. This currently occurs for
all residential land acquisitions.
The maximum penalty for a failure to A foreign person must give notice to
notify is 250 penalty units for the Commissioner of their holdings of
individuals and 1,250 penalty units agricultural land as at the start of
for corporations. 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 No equivalent
interim directions where the
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Improving compliance and additional enforcement tools
New law Current law
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.
The Treasurer has standard No equivalent
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.
The Treasurer has standard The Commissioner has investigative
investigative powers under Part 3 of powers under the TAA, which may
the Regulatory Powers Act, including be used in relation to provisions of
access to premises with consent or by the FATA that are taxation laws. The
warrant to gather information in order provisions of the FATA that are
to investigate potential taxation laws are those where powers
non-compliance with the relevant or functions have been delegated to
offence or civil penalty provisions of the Commissioner under section 137
the FATA. of the FATA.
The Treasurer can accept enforceable No equivalent
undertakings relating to compliance
with the FATA provisions, which are
enforceable under Part 6 of the
Regulatory Powers Act.
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.
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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]
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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
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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
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Improving compliance and additional enforcement tools
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 that is mentioned in has this value ...
action ... any of these
provisions ...
1 an paragraph 40(2)(a) The total of the following:
acquisition of (significant action) (a) the value of the
a direct
paragraph 47(2)(a) consideration for the
interest in an
(notifiable action) acquisition;
entity or a
business paragraph 55B(1)(b) (b) the total value of the
or (c) (notifiable other interests held by the
national security person, alone or together
action) with one or more associates:
(i) in the entity or business;
or
(ii) previously acquired
from the entity or business
1A an paragraph 55D(1)(a) The total of the following:
acquisition of or subparagraph (a) the value of the
an interest of 55E(1)(a)(i) consideration for the
any (reviewable national acquisition;
percentage in security action)
an entity or a (b) the total value of the
business 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 paragraph 47(2)(b) The higher of the following:
acquisition of (notifiable action) (a) the total asset value for
a substantial
the entity;
interest in an
Australian (b) the total issued securities
entity value for the entity
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Item This kind of that is mentioned in has this value ...
action ... any of these
provisions ...
3 an paragraph 40(2)(b) The higher of the following:
acquisition of (significant action) (a) the total asset value for
interests in
the entity;
securities in
an entity (b) the total issued securities
value for the entity
4 an issue of paragraph 40(2)(c) The higher of the following:
securities in (significant action) (a) the total asset value for
an entity
subparagraph the entity;
55D(2)(a)(i) (b) the total issued securities
(reviewable national value for the entity
security action)
5 an entering paragraph 40(2)(d) The total asset value for the
into an (significant action) entity to which the
agreement agreement relates
subparagraph
55D(2)(a)(ii)
(reviewable national
security action)
6 an alteration paragraph 40(2)(e) The total asset value for the
of a (significant action) entity
constituent
subparagraph
document of
55D(2)(a)(iii)
an entity
(reviewable national
security action)
7 an paragraph 41(2)(a) The total of the following:
acquisition of (significant action) (a) the value of the
a direct
consideration for the
interest in an
acquisition;
Australian
business that (b) the total value of the
is an other interests held by the
agribusiness person, alone or together
with one or more associates:
(i) in the business; or
(ii) previously acquired
from the business
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Item This kind of that is mentioned in has this value ...
action ... any of these
provisions ...
8 an paragraph 41(2)(b) The value of the
acquisition of (significant action) consideration for the
interests in acquisition
subparagraph
assets
55E(1)(a)(ii)
(reviewable national
security action)
9 entering into paragraph 41(2)(c) The total value of the assets
or (significant action) of the business
terminating a
subparagraph
significant
55E(1)(a)(iii)
agreement
with an (reviewable national
Australian security action)
business
10 an section 43 (significant the greater of the following:
acquisition of action) (i) the value of the
an interest in
paragraph 47(2)(c) consideration for the
Australian
(notifiable action) acquisition;
land
paragraph 55B(1)(d) (ii) the market value of the
(notifiable national interest
security action)
section 55F
(reviewable national
security action)
11 starting a paragraph 55B(1)(a) the market value of the
business (notifiable national business
security action)
paragraph 55E(2)(a)
(reviewable national
security action)
12 an subparagraph the greater of the following:
acquisition of 55B(1)(e) (notifiable (i) the value of the
a legal or national security consideration for the
equitable action) acquisition;
interest in an
exploration (ii) the market value of the
tenement in interest
respect of
Australian
land
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Item This kind of that is mentioned in has this value ...
action ... any of these
provisions ...
13 if no regulations made for that amount
previous item the purposes of
applies--an section 44 (significant
action action)
specified in
regulations regulations made for
that specify, the purposes of
or set out a section 48 (notifiable
method for action)
determining,
an amount
for the action
14 if no regulations made for the greater of the following:
previous item the purposes of (i) the value of the
applies--an section 44 (significant consideration for the action;
action action)
specified in (ii) the market value of the
regulations regulations made for benefit obtained by the
the purposes of action
section 48 (notifiable
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
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Improving compliance and additional enforcement tools
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]
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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
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Improving compliance and additional enforcement tools
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
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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 Current New Brief description
provision imprisonment imprisonment
term and term and
financial financial
penalty penalty
Subsection 84(1) Imprisonment Imprisonment A foreign person
(previous section for 3 years, or for 10 years, or must provide
84) 750 penalty 15,000 penalty notice under
units, or both. units (or 150,000 section 81 before
penalty units if taking a
the person is a notifiable action
corporation), or or notifiable
both national security
action.
Subsection 84(2) No equivalent Imprisonment A foreign person
for 10 years, or must provide
15,000 penalty notice where
units (or 150,000 they are deemed
penalty units if through section
the person is a 18A to take a
corporation), or notifiable action
both or notifiable
national security
action because
there is passive
increases in
securities they
hold in an entity
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Improving compliance and additional enforcement tools
Offence Current New Brief description
provision imprisonment imprisonment
term and term and
financial financial
penalty penalty
Subsection 85(1) Imprisonment Imprisonment A foreign person
(previous section for 3 years, or for 10 years, or must not take a
85) 750 penalty 15,000 penalty significant
units, or both. units (or 150,000 action, notifiable
penalty units if national security
the person is a action,
corporation), or reviewable
both 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 A foreign person
for 10 years, or must not take an
15,000 penalty action that has
units (or 150,000 not been taken at
penalty units if the time the
the person is a Treasurer gives
corporation), or the person a
both notice that the
action may pose
a national
security concern.
Section 85A No equivalent Imprisonment A foreign person
for 10 years, or must not take an
15,000 penalty action that is
units (or 150,000 prohibited by
penalty units if paragraph
the person is a 79A(3)(b) or
corporation), or subsection
both 79A(4)
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Offence Current New Brief description
provision imprisonment imprisonment
term and term and
financial financial
penalty penalty
Section 86 Imprisonment Imprisonment A person must
for 3 years, or for 10 years, or not engage in
750 penalty 15,000 penalty conduct
units, or both. units (or 150,000 contravening an
penalty units if order made
the person is a under Part 3.
corporation), or
both
Section 87 Imprisonment Imprisonment A person must
for 3 years, or for 10 years, or not engage in
750 penalty 15,000 penalty conduct
units, or both. units (or 150,000 contravening
penalty units if conditions
the person is a specified under
corporation), or section 74
both relating to a
significant action
or in an
exemption
certificate.
Subsection 88(1) Imprisonment Imprisonment The developer
for 3 years, or for 10 years, or must advertise
750 penalty 15,000 penalty new dwellings
units, or both. units (or 150,000 prior to
penalty units if disposing of an
the developer is interest in the
a corporation), dwelling to a
or both foreign person,
contravening a
condition of the
exemption
certificate.
Section 88A No equivalent Imprisonment A person must
for 10 years, or not engage in
15,000 penalty conduct that
units (or 150,000 contravenes
penalty units if directions and
the developer is interim
a corporation), directions.
or both
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Improving compliance and additional enforcement tools
Offence Current New Brief description
provision imprisonment imprisonment
term and term and
financial financial
penalty penalty
Subsection Imprisonment Imprisonment A person must
133(5) for 6 months or for 6 months or comply with the
30 penalty units, 250 penalty notice given by
or both. units, or both. 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
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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 Current New financial penalty Brief description
penalty financial
provision penalty
Subsection 250 penalty The lesser of the A person must not
89(1) units (or following: (a) 2,500,000 contravene an
(previous 1,250 penalty units; order made under
section 89) penalty units (b) the greater of the Part 3
if the person following:
is a (i) 5,000 penalty units
corporation) (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.
Subsection 250 penalty The lesser of the A foreign person
91(1) units (or following: (a) 2,500,000 who proposes to
(previous 1,250 penalty units; take a notifiable
section 91) penalty units (b) the greater of the action or a
if the person following: notifiable national
is a (i) 5,000 penalty units security action
corporation) (or 50,000 penalty units must give a notice
if the person is a under section 81
corporation); before taking the
action.
(ii) the amount worked
out under section 98F
for the action.
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Improving compliance and additional enforcement tools
Civil Current New financial penalty Brief description
penalty financial
provision penalty
Subsection No The lesser of the A foreign person
91(2) equivalent following: (a) 2,500,000 must provide
penalty units; notice where they
(b) the greater of the are deemed
following: through section
(i) 5,000 penalty units 18A to take a
(or 50,000 penalty units notifiable action
if the person is a or notifiable
corporation); national security
action because
(ii) the amount worked
there is passive
out under section 98F
increases in
for the action.
securities they
hold in an entity
Subsection 250 penalty The lesser of the A foreign person
92(2) units (or following: (a) 2,500,000 who proposes to
(previous 1,250 penalty units; take a significant
section 92) penalty units (b) the greater of the action, notifiable
if the person following: national security
is a (i) 5,000 penalty units action, an action
corporation) (or 50,000 penalty units that poses a
if the person is a national security
corporation); concern, or a
reviewable
(ii) the amount worked
national security
out under section 98F
action that has
for the action.
been notified must
not take the action
before the day
mentioned in
section 82.
Section 92A No The lesser of the A foreign person
equivalent following: (a) 2,500,000 must not take an
penalty units; action prohibited
(b) the greater of the by paragraph
following: 79A(3)(b) or
(i) 5,000 penalty units subsection 79A(4)
(or 50,000 penalty units
if the person is a
corporation);
(ii) the amount worked
out under section 98F
for the action.
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Civil Current New financial penalty Brief description
penalty financial
provision penalty
Subsection 250 penalty The lesser of the A person who is
93(1) units (or following: (a) 2,500,000 given a no
1,250 penalty units; objection
penalty units (b) the greater of the notification must
if the person following: not contravene a
is a (i) 5,000 penalty units condition
corporation) (or 50,000 penalty units specified in the
if the person is a notification.
corporation);
(ii) the amount worked
out under section 98F
for the core Part 3
action.
Subsection No The lesser of the A person who is
93(2) equivalent following: (a) 2,500,000 given a notice
penalty units; must not
(b) the greater of the contravene a
following: condition
(i) 5,000 penalty units specified in that
(or 50,000 penalty units notice.
if the person is a
corporation);
(ii) the amount worked
out under section 98F
for the action.
Subsection 250 penalty 5,000 penalty units (or A person who is
93(3) units (or 50,000 penalty units if specified an
1,250 the person is a exemption
penalty units corporation) certificate must
if the person not contravene a
is a condition
corporation) specified in the
certificate.
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Civil Current New financial penalty Brief description
penalty financial
provision penalty
Subsection The greater The greatest of the A foreign person
94(4) of the following: who proposes to
following: (a) the amount of the take a notifiable
(a) 10 capital gain that was action, notifiable
percent of made or would be made national security
the on the disposal of the action, reviewable
consideration interest in the relevant national security
for the residential land; action or an action
residential (b) 25 per cent of the that poses a
land consideration for the national security
acquisition; residential land concern and that
(b) 10 acquisition; is a residential
per cent of land acquisition
(c) 25 per cent of the
the market must give a notice
market value of the
value of the under section 81
interest in the relevant
interest in and must not take
residential land.
the relevant the action before
residential the day mentioned
land. in section 82.
Section 95A No The greatest of the A foreign person
equivalent following: must not take an
(a) the amount of the action relating to
capital gain that was residential real
made or would be made estate acquisition
on the disposal of the prohibited by
interest in the relevant paragraph
residential land; 79A(3)(b) or
(b) 25% of the subsection 79A(4)
consideration for the
residential land
acquisition;
(c) 25% of the market
value of the interest in
the relevant residential
land.
Subsection No 250 penalty units A person who is
97(1A) equivalent given a notice
relating to
residential real
estate acquisition
must not
contravene a
condition
specified in that
notice.
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Civil Current New financial penalty Brief description
penalty financial
provision penalty
Section 98A No 5,000 penalty units (or A person must not
equivalent 50,000 penalty units if engage in conduct
the person is a that contravenes
corporation) directions and
interim directions.
Section 98B No The lesser of the A person must not
(1) equivalent following: (a) 2,500,000 give a false or
penalty units; misleading
(b) the greater of the information or
following: documents that
(i) 5,000 penalty units relates to a no
(or 50,000 penalty units objection
if the person is a notification for
corporation); core Part 3 actions
(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
Section 98B No 5,000 penalty units (or A person must not
(2) equivalent 50,000 penalty units if give a false or
the person is a misleading
corporation) information or
documents that
relates to an
exemption
certificate
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Civil Current New financial penalty Brief description
penalty financial
provision penalty
Section No 250 penalty units A person must
98C, 98D equivalent notify the
and 98E 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 No The lesser of the A foreign person
130ZV equivalent following: is required to give
(a) 25 penalty units for notice to Registrar
each period of 30 days under Division 3
or part of a period of 30 or 4 of Part 7A of
days starting at the the FATA before
notice time and ending the notice time
when the notice is
given;
(b) 250 penalty units.
[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
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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 that is mentioned in has this value ...
action ... any of these
provisions ...
1 an acquisition paragraph 40(2)(a) the greater of the
of a direct (significant action) following:
interest in an
paragraph 47(2)(a) (i) the value of the
entity or a
(notifiable action) consideration for the
business
paragraph 55B(1)(b) acquisition;
or (c) (notifiable (ii) the market value of the
national security direct interest
action)
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Improving compliance and additional enforcement tools
Item This kind of that is mentioned in has this value ...
action ... any of these
provisions ...
1A an acquisition paragraph 55D(1)(a) the greater of the
of an interest or subparagraph following:
of any 55E(1)(a)(i) (i) the value of the
percentage in (reviewable national consideration for the
an entity or a security action)
business acquisition;
(ii) the market value of the
interest
2 an acquisition paragraph 47(2)(b) the greater of the
of a (notifiable action) following:
substantial
(i) the value of the
interest in an
consideration for the
Australian
entity acquisition;
(ii) the market value of the
substantial interest
3 an acquisition paragraph 40(2)(b) the greater of the
of interests in (significant action) following:
securities in
(i) the value of the
an entity
consideration for the
acquisition;
(ii) the market value of the
interests
4 an issue of paragraph 40(2)(c) the greater of the
securities in (significant action) following:
an entity
subparagraph (i) the value of the
55D(2)(a)(i) consideration for the issue;
(reviewable national (ii) the market value of the
security action) securities
5 entering into paragraph 40(2)(d) the greater of the
an agreement (significant action) following:
subparagraph (i) the value of the
55D(2)(a)(ii) consideration for the
(reviewable national entering into the
security action) agreement;
(ii) the market value of the
benefit obtained by the
entering into the
agreement
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Item This kind of that is mentioned in has this value ...
action ... any of these
provisions ...
6 an alteration paragraph 40(2)(e) the greater of the
of a (significant action) following:
constituent
subparagraph (i) the value of the
document of
55D(2)(a)(iii) consideration for the
an entity
(reviewable national alteration;
security action) (ii) the market value of the
benefit obtained by the
alteration
7 an acquisition paragraph 41(2)(a) the greater of the
of a direct (significant action) following:
interest in an
(i) the value of the
Australian
consideration for the
business that
is an acquisition;
agribusiness (ii) the market value of the
direct interest
8 an acquisition paragraph 41(2)(b) the greater of the
of interests in (significant action) following:
assets
subparagraph (i) the value of the
55E(1)(a)(ii) consideration for the
(reviewable national acquisition;
security action) (ii) the market value of the
interests
9 entering into paragraph 41(2)(c) the greater of the
or terminating (significant action) following:
a significant
subparagraph (i) the value of the
agreement
55E(1)(a)(iii) consideration for the
with an
Australian (reviewable national entering into or
business security action) terminating of the
significant agreement;
(ii) the market value of the
benefit obtained by the
entering into or
terminating of the
significant agreement
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Improving compliance and additional enforcement tools
Item This kind of that is mentioned in has this value ...
action ... any of these
provisions ...
10 an acquisition section 43 the greater of the
of an interest (significant action) following:
in Australian
paragraph 47(2)(c) (i) the value of the
land
(notifiable action) consideration for the
paragraph 55B(1)(d) acquisition;
(notifiable national (ii) the market value of the
security action) interest
section 55F
(reviewable national
security action)
11 starting a paragraph 55B(1)(a) the market value of the
business (notifiable national business
security action)
paragraph 55E(2)(a)
(reviewable national
security action)
12 an acquisition subparagraph the greater of the
of a legal or 55B(1)(e) (notifiable following:
equitable national security (i) the value of the
interest in an action) consideration for the
exploration
tenement in acquisition;
respect of (ii) the market value of the
Australian interest
land
13 if no previous regulations made for that amount
item applies-- the purposes of
an action section 44
specified in (significant action)
regulations
that specify, regulations made for
or set out a the purposes of
method for section 48 (notifiable
determining, action)
an amount for
the action
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Item This kind of that is mentioned in has this value ...
action ... any of these
provisions ...
14 if no previous regulations made for the greater of the
item applies-- the purposes of following:
an action section 44 (i) the value of the
specified in (significant action) consideration for the
regulations
regulations made for action;
the purposes of (ii) the market value of the
section 48 (notifiable benefit obtained by the
action) 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]
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Improving compliance and additional enforcement tools
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
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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.
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Improving compliance and additional enforcement tools
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.
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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
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Improving compliance and additional enforcement tools
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
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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:
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Improving compliance and additional enforcement tools
• 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.
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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
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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
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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]
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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
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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).
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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
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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]
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Improving compliance and additional enforcement tools
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
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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
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Improving compliance and additional enforcement tools
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
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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.
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Improving compliance and additional enforcement tools
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]
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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
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(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
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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].
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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]
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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.
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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 Fees are payable on applications and
notices made under the FATA. All notices made under the FATA. Fee
fee amounts are to be prescribed in amounts are prescribed in the FATA
the Fee Regulation. Fees Act and Fee Regulation.
The Fee Regulation can prescribe fee
amounts including (but not limited
to):
• Specifying a fee amount or
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New law Current law
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.
FATA
Fees are payable for a notifiable No equivalent
national security action.
Fees are payable when the Treasurer No equivalent
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.
Fees are also payable for reviewable Fees are payable for actions notified
national security actions that are to the Treasurer that are not
voluntarily notified to the Treasurer. notifiable.
Fees are payable for retrospective No equivalent
notifications for all notifiable,
notifiable national security and
significant actions.
Fees are payable when a person A fee is payable if a person applies
applies to vary their no objection to vary their no objection
notification or notice imposing notification.
conditions.
Fees are payable when a person No equivalent
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.
Only one person in a joint tenancy All joint tenants in a joint tenancy
arrangement is required to submit the arrangement are required to submit
vacancy fee return, in order to the vacancy fee return.
determine the applicable vacancy fee
liability.
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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
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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]
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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
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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
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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
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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]
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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]
132
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.
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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 There is a legislated register of
ownership of certain Australian foreign ownership of agricultural land
assets is notified to, and recorded and water. The Commissioner also
on, a register held by a Registrar separately maintains a register of
that is appointed by the Treasurer. foreign ownership of residential land.
The information is subject to rules The use of the information on the
that are broadly consistent with the agricultural land and water register is
treatment of other information governed by the TAA.
relating to foreign investment in
Australia under the FATA.
The Government will maintain and There is no single register of foreign
have access to a single register of ownership of Australian assets.
foreign ownership of specified Various registers are in place,
Australian assets. including those described above
Registers of foreign ownership of maintained by the Commissioner and
media assets and critical registers of foreign ownership of
infrastructure assets will continue media assets and critical infrastructure
to be maintained by other assets maintained by other
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New law Current law
Commonwealth bodies. 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
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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]
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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]
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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]
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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]
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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
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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 Registered circumstance exists
requiring a register notice while ...
acquiring a direct interest in an the foreign person holds an interest
Australian entity that is an (other than an equitable interest) of
agribusiness any percentage in the Australian
entity
acquiring interests in securities in an the foreign person holds an interest
entity (other than an equitable interest) of
any percentage in the entity
issuing securities in an entity the securities remain on issue
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Significant action by foreign person Registered circumstance exists
requiring a register notice while ...
entering into an agreement relating to the foreign person is a party to the
the affairs of an entity under which agreement, the agreement has that
senior officer(s) of the entity act on effect, and the entity exists
the directions etc. of a foreign person
with a substantial interest
altering constituent documents of an the constituent document continues
entity as a result of which senior in force, it has that effect, and the
officer(s) of the entity act on the entity exists
directions etc. of a foreign person
with a substantial interest
acquiring a direct interest in an the foreign person holds an interest
Australian business that is an (other than an equitable interest) of
agribusiness any percentage in the Australian
business
acquiring an interest in assets of an the foreign person holds an interest
Australian business (other than an equitable interest) of
any percentage in the Australian
business
entering or terminating a significant the foreign person is a party to the
agreement with an Australian agreement, the agreement has that
business 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 Registered circumstance exists
notice while ...
acquiring a direct interest in an the foreign person holds an interest
Australian entity that is an (other than an equitable interest) of
agribusiness any percentage in the Australian
entity
acquiring a direct interest in an the foreign person holds an interest
Australian business that is an (other than an equitable interest) of
agribusiness any percentage in the Australian
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Notifiable action requiring a register Registered circumstance exists
notice while ...
business
acquiring a substantial interest in an the foreign person holds an interest
Australian entity (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 Registered circumstance exists
requiring a register notice 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 the foreign person holds an interest
national security business (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 the foreign person holds an interest
that carries on a national security (other than an equitable interest) of
business 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.
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Table 5.4
Reviewable national security action Registered circumstance exists
by foreign person requiring a while ...
register notice
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 foreign person is a party to the
the affairs of an entity under which agreement, the agreement has that
senior officer(s) of the entity act on effect, and the entity exists
the directions etc. of a foreign person
with a direct interest
altering constituent documents of an the constituent document continues
entity as a result of which senior in force, it has that effect, and the
officer(s) of the entity act on the entity exists
directions etc. of a foreign person
with a direct interest
acquiring an interest in an Australian the foreign person holds an interest
business (other than an equitable interest) of
any percentage in the Australian
business
acquiring an interest in assets of an the foreign person holds an interest
Australian business (other than an equitable interest) of
any percentage in the Australian
business
entering or terminating a significant the foreign person is a party to the
agreement with an Australian agreement, the agreement has that
business 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
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Register of Foreign Owned Australian Assets
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
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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]
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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]
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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
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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:
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- 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]
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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-related3).
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 identified4 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 paper5. 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
3
ABS cat. no. 5494.0 -- Economic Activity of Foreign Owned Businesses in Australia, 2014-15.
4
Productivity Commission 2020, Foreign Investment in Australia, Research paper p81.
5
OECD, J Phol 2019 - Acquisition and ownership related policies to safeguard essential security interests:
new policies to manage new threats.
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- 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 investment6.
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 noted7, 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
6
Ibid.
7
Productivity Commission 2020, op.cit.
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Regulation impact statement
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.
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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
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Regulation impact statement
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 rules9. 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
8
Productivity Commission 2020, op.cit.
9
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.
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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
taxpayers10. 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.
10
This policy was outlined in the 2015 Regulation Impact Statement - Strengthening Australia's foreign
investment framework.
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Regulation impact statement
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
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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.
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Regulation impact statement
• 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.
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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.
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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.
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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.
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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
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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.
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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).
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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
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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
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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.
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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:
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• 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.
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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
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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
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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.
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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.
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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
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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 economies11.
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.
11
OECD, 2020 - FDI inflows.
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Regulation impact statement
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 million12.
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.
12
Foreign Investment Review Board, Annual Report 2018-19.
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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
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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 Individuals Total change
organisations 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
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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 $500,000 per annum.
6.159 While this option will also allow for greater administrative
flexibility and discretion by government agencies in the use of foreign
investment data, it will significantly broaden the circumstances in which
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Regulation impact statement
the disclosure of protected information is permitted, and may raise
investor concerns over the reduced confidentiality of their information.
Table 6.2 Summary of regulatory costs of options
Average additional annual regulatory costs, from business as usual ($million)
Business Community Individuals Total change
organisations 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
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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
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Regulation impact statement
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 $18.5 million per annum.
6.177 While this option will streamline the foreign investment review
framework for foreign government investors and reduce their regulatory
burden, it may also expose Australia to greater risks due to the reduced
rate of screening. The tighter screening thresholds that foreign
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government investors currently face reflect a long-standing presumption
that, on average, foreign government investors can pose a greater risk to
Australia's national interest than private investors. By liberalising the
screening requirements for foreign government investors, as proposed
under this option, this will reduce the Government's oversight of these
investments, and increase the risk that an investment that is contrary to
Australia's interests may proceed unmitigated.
Table 6.3 Summary of regulatory costs of options
Average additional annual regulatory costs, from business as usual ($million)
Business Community Individuals Total change
organisations 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
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Regulation impact statement
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.
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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 Individuals Total change
organisations 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
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Regulation impact statement
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 Individuals Total change
organisations in cost
Option 1 $0 $0 $0 $0
Option 2 ($0.1) $0 ($0.6) ($0.7)
Option 3 $0 $0 $0 $0
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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
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Regulation impact statement
$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 $650,000 per annum.
6.209 Option 3 will not, however, deliver the greatly advanced data
analytics delivered under Option 2, and will therefore not provide the
enhanced capability to identify risk and support improved decision
making. The reduced capabilities of this option will therefore not improve
case processing times as much as Option 2, and will continue to leave
investors facing a higher regulatory burden than under Option 2.
6.210 The IT build and delivery requires additional Government
funding (but less than under Option 2). These costs can however be
recovered from investors through reform to the application fee
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framework (see sections 3.6 and 4.6), in line with the Government's
policy that the costs of administering the foreign investment regime
should continue to be borne by foreign investors, not Australian
tax payers.
Table 6.6 Summary of regulatory costs of options
Average additional annual regulatory costs, from business as usual ($million)
Business Community Individuals Total change
organisations 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.
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Regulation impact statement
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.
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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
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Regulation impact statement
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 No regulatory oversight
burden of actions that may be
No financial cost to contrary to national
Government security
Option 2 - a balanced Enables Government New notification
approach oversight of actions that requirements for actions
could be contrary to that could be contrary to
national security national security
Increased workload to
process new actions
Option 3 - significant Prohibitive regulatory Significant reporting
increase in protection oversight to ensure burden on investors
investments are not Decrease in foreign
contrary to national investment in Australia
security
Table 6.8
Improving the integrity of the foreign investment framework
Benefits Costs
Option 1 - status quo No additional regulatory Investor's will continue
burden to face regulatory
No financial cost to uncertainty
Government Case assessments and
policy development will
remain hampered by
lack of information
Option 2 - a balanced Expands the range of Information flows will
approach actions the Government remain limited to certain
will have powers over, purposes
without increasing
regulatory burden
More efficient and more
informed case
assessments
Option 3 - significant Greater administrative Increased regulatory
increase in protection flexibility and discretion burden
Reduced confidentiality
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Improving the integrity of the foreign investment framework
Benefits Costs
of investor information
Table 6.9
Stronger compliance and enforcement tools
Benefits Costs
Option 1 - status quo No additional regulatory Limited monitoring and
burden investigative powers to
No financial cost to ascertain compliance
Government Limited enforcement
options where non-
compliance detected
Option 2 - a balanced Additional monitoring, Increased staffing to
approach investigative and implement the
enforcement powers monitoring,
consistent with other investigative and
regulators enforcement powers.
Increased penalty Associated increased
amounts for training requirements
proportionate penalties
Option 3 - significant Detailed oversight of Significant reporting
increase in protection activities by investors 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 Significant reporting
burden obligations for lower
Maintain detailed risk investments
oversight of activities by
investors
Option 2 - a balanced Fewer reporting Decrease in regulatory
approach obligations for lower oversight of actions that
risk investments may be contrary to
national interest
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Regulation impact statement
Streamlining less sensitive investments
Benefits Costs
Option 3 - significant Significant reduction in Substantial decrease in
decrease in protection reporting burden for regulatory oversight of
foreign government actions that may be
investors contrary to national
interest
Table 6.11
Register of foreign ownership of Australian assets
Benefits Costs
Option 1 - status quo No additional regulatory Visibility of realised
burden foreign investment
No financial cost to remains low
Government
Option 2 - a balanced Faster and more robust Additional regulatory
approach case processing, with burden
improved compliance Financial cost to
monitoring Government for IT build
Better data set to aid
future policy
considerations
Option 3 - significant Faster and more robust Significant increase in
increase in protection case processing, with additional regulatory
improved compliance burden
monitoring Financial cost to
Larger data set to aid Government for IT build
future policy
considerations
Table 6.12
A fairer and simpler framework for foreign investment fees
Benefits Costs
Option 1 - status quo No additional regulatory Financial cost to
burden Australian taxpayers to
No financial cost to fund reforms
foreign investors Investor's will continue
to face regulatory
uncertainty
Option 2 - a balanced No financial cost to Some foreign investors
approach Australian taxpayers will pay more
Fairer and simpler fee
framework
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A fairer and simpler framework for foreign investment fees
Benefits Costs
Option 3 - significant No additional regulatory Investor's will continue
increase in protection burden to face regulatory
No financial cost to uncertainty
Australian taxpayers 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 Case assessments will
burden continue to take longer
No financial cost to than otherwise necessary
Government with greater delays over
time
No analytical support for
detection of non-notified
transactions
Option 2 - a considered Cases handled more IT build and delivery
investment quickly and more will require additional
efficiently, with Government funding
compliance activities
more effectively
managed
Greatest reduction in
regulatory burden
Option 3 - lower level Cases handled quicker IT build and delivery
of investment than Option 1, but less will require additional
timely than Option 2 Government funding
Reduced regulatory
burden
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
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Regulation impact statement
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 Individuals Total change
organisations in cost
Total, by $3.3 $0 ($1.8) $1.5
sector
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 billion13.
13
Australian Investment Council and Preqin, 2019 Yearbook: Australian Private Equity &
Venture Capital Activity Report, May 2019.
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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
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Regulation impact statement
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.
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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
200
Regulation impact statement
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
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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 ($43,614). This equivalence is due to similarities in
application, assessment and reporting requirements for all types of
exemption certificates.
Last resort review power
6.259 The Government will also introduce a national security last
resort review power to reassess approved foreign investments where
subsequent national security risks emerge. The last resort review power
will allow the Treasurer to impose conditions, vary existing conditions, or,
as a last resort, require the divestment of foreign interests in a business,
entity or land.
6.260 This power will only be applicable to investments made, or
approvals granted, after the proposal comes into effect. Given this power
is not retrospective and will only be used as a last resort, it is not expected
this power will be used, or used very rarely.
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Regulation impact statement
Table 6.15
Average additional annual regulatory costs, from business as usual ($million)
Business Community Individuals Total change
organisations in cost
Mandatory $2.9 $0 $0 $2.9
notification
Call-in $0.1 $0 $0 $0.1
Investor $1.9 $0 $0 $1.9
certainty:
Voluntary
notification
Investor $0.4 $0 $0 $0.4
certainty:
Investor-
specific
exemption
certificates
Last resort $0 $0 $0 $0
review
power
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.
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Table 6.16
Average additional annual regulatory costs, from business as usual
Measure Estimated change in Total change on costs
number of applications from changed number
of applications
Changed treatment of 3 $98,213
small increases in
interests
Narrowing scope of 2 $65,475
moneylending
exemption
Ensuring state and 0.5 $16,369
territory businesses
meet the definition of
an Australian business
Tracing rules extended 0 $0.00
to unincorporated
limited partnerships
Exempting certain (4) ($130,950)
royalty streams of
mining and production
tenements
Exempting exploration (3) ($98,213)
tenements acquired by
private investors
Updating the definition 1 $32,738
of Australian media
businesses
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
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Regulation impact statement
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 Individuals Total change
organisations in cost
Entities ($2.2) $0 $0 ($2.2)
exempted
from being
considered
foreign
government
investors
Entities $0.3 $0 $0 $0.3
applying for
ECs
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
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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
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Regulation impact statement
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.
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Table 6.18
Average additional annual regulatory costs, from business as usual
Business Community Individuals Total change
organisations in cost
Residential $0 $0 $0 $0
land
Agricultural $0 $0 $0 $0
land and
water
Commercial $26,517 $0 $0 $26,517
land
Mining and $10,431 $0 $0 $10,431
exploration
tenements
Business $21,096 $0 $0 $21,096
(non-land)
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 Individuals Total change
organisations in cost
Simpler and ($0.1) $0 ($0.6) ($0.7)
fairer fee
framework
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Regulation impact statement
An improved IT capability for better information collection and case
assessment
6.281 An improved IT system will make it easier for investors to
submit their foreign investment applications and provide the necessary
information in an efficient manner.
6.282 Over the past two years, investors have submitted, on average,
approximately 9,900 applications to the Government for screening each
year. Stakeholder feedback suggests that legal counsel currently spend
approximately 20 hours in developing and submitting an application. It is
assumed that the proposed new IT system will reduce this time burden by
an average of approximately five minutes per application.
Table 6.20
Average additional annual regulatory costs, from business as usual ($million)
Business Community Individuals Total change
organisations 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 Individuals Total change
organisations in cost
Total $3.3 $0 ($1.8) $1.5
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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
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• 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;
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Statement of Compatibility with Human Rights
• 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'
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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:
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Statement of Compatibility with 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
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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
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Statement of Compatibility with Human Rights
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.
14
General comment No. 16: Article 17 (Right to privacy), Thirty second session (1988) at
[3]-[4].
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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.
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Statement of Compatibility with Human Rights
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;
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• 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.
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Statement of Compatibility with Human Rights
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.
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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.
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Statement of Compatibility with Human Rights
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;
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• 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.
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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.
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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.
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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
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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
15
General comment No. 16: Article 17 (Right to privacy), Thirty second session (1988) at
[3]-[4].
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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.
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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
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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
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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
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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
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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.
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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.
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