Coalition to add new national security test to Australia's foreign investment regime
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Version 0 of 1. The treasurer will be able to vary acquisition conditions by overseas buyers, or dispose of investments if national security risks emerge post-approval The Morrison government will add a new national security test to Australia’s foreign investment regime, including powers for the treasurer to vary the conditions of an acquisition by an overseas buyer, or dispose of the investment if security risks emerge post-approval. The changes, likely to irritate China after a period of diplomatic fractiousness, will be outlined by the government on Friday, and follow a decision in March that all foreign investments have to be checked in an attempt to protect local assets vulnerable to bargain hunting because of the economic fallout from the coronavirus crisis. Under the changes, overseas investors will be required to notify the Foreign Investment Review Board if they propose to start or acquire an interest – which is defined at 10%, or a position of control – in a sensitive national security business, regardless of the value of the investment. The practical effect of the change is all foreign investments in sensitive national security businesses will be screened. While all investments by government entities are screened under the current rules, the majority of private investments under $275m, or $1.192bn for countries with free trade agreements with Australia, do not face screening. It is unclear what sectors will be in the scope of a “sensitive national security business”, because the government intends to consult on the definition after it releases draft legislation for comment. But electricity, telecommunications and financial assets are likely in the scope. The overhaul will give the treasurer expanded powers, enabling investments to be called in for review either before, during or after an acquisition if the purchase raises national security risks, but was not captured by the new definition. The treasurer will also gain a last resort review power. The proposal would allow the treasurer to apply or vary conditions, or order disposal of approved foreign investments when national security risks emerge post-approval. The powers will be prospective, not retrospective. The government also proposes to beef up its capacity to ensure investors comply with conditions imposed by the regulatory process. The government will release an exposure draft in July, and run a consultation period until October. It aims to introduce the overhaul to parliament during the budget session in October and have the regime operational by next January. While beefing up national security checks, the government plans to also narrow the definition of foreign government investor to exclude some passive investments in funds where the investors have no influence or control over the investment or operational decisions of the entity or any of its underlying assets. Entities which have more than 40% foreign government ownership in aggregate, without the government exerting influence of control, but less than 20% from any single foreign government, will no longer be deemed foreign government investors under the revised framework. In a statement ahead of Friday’s announcement, Josh Frydenberg said the overhaul would ensure that Australia’s foreign investment regime is able to respond to emerging risks and global developments. “Through the introduction of a new national security test, stronger enforcement powers and enhanced compliance obligations, we will ensure that Australia can continue to benefit from foreign investment while safeguarding our national interest,” Frydenberg said. The treasurer said the intention was not to shun foreign investment. “Australia has an enviable track record when it comes to welcoming foreign investment from around the world. These reforms will not change that. “Our principles will remain the same and we will continue to adopt a non-discriminatory approach that sees proposed investments assessed on a case by case basis.” Since March, the government has subjected all foreign investments to an approval review, regardless of the value or the nature of the investment. That precaution was considered necessary during the disruptions to the global system of trade and investment created by Covid-19. |