Energy and resources companies could be classified as covert agents acting on behalf of foreign governments and state-owned entities to exert political influence in Australia under the recently commenced Foreign Influence Transparency Scheme Act 2018 (Cth) (Scheme).
The Scheme is Australia’s most recent attempt to curtail covert foreign interference in the Australian political system. Since the Scheme commenced on 10 December 2018, there have been 23 companies, groups or people who have voluntarily added themselves to the public register established by the Scheme.
The requirement to register under the Scheme arises where a person (defined broadly to include companies, partnerships, associations, organisations and any combination of individuals who together constitute a body) engages in registerable activities on behalf of a foreign principal. “Foreign principal” is defined to include foreign governments and foreign government related entities, political organisations and individuals.
Broadly, the registrable activities include:
- parliamentary lobbying for the purpose of political or governmental influence;
- general political lobbying, communications activities or disbursement activities for the purpose of political or governmental influence; and
- any activity undertaken by a former Cabinet minister or a person who at any time in the previous 15 years was a minister, member of federal parliament (or a staffer), senior adviser to a minister, or the head of a public agency.
Why should energy and resources companies be concerned?
The register currently includes entities that you would typically expect to act on behalf of foreign principals, like lobbyist firms (and one 9/11 conspiracy theorist), as well as several major energy and resources companies such as Woodside and Shell. This indicates that whilst the Scheme may be intended to publicise the activities of agents who are engaged by foreign principals for the purpose of furthering their political influence in Australia, energy and resources companies that are not specifically engaged for such purposes can still be caught by the Scheme. The registration of Woodside and Shell shows us that energy and resources companies may be required to register under the Scheme where such companies act as the operator or manager of a joint venture that has participants who are foreign principals, either because they are state-owned entities or are partly owned by governments or government related entities. To the extent that the operator or manager engages in registerable activities, it is at least arguable that it is engaging in such activities on behalf of any joint venture participants who qualify as foreign principals.
For example, from the information available in the register, Woodside has registered its general political lobbying activities on the basis that it may from time to time engage in the development and review of legislation and policy that affects projects it operates on behalf of joint venture participants who qualify as foreign principals under the Scheme. Similarly, Shell has registered its general parliamentary lobbying activities in its capacity as the appointed operator of the Prelude project, in which it acts on behalf of joint venture participants who qualify as foreign principals under the Scheme. It appears that there are a number of other energy companies that have registered under the Scheme on the basis that they conduct similar activities.
In some instances, it is arguable that the decision to register under the Scheme may be based on a conservative interpretation of the provisions of the Scheme. As mentioned above, a person is required to be registered when it engages in registerable activities on behalf of a foreign principal. As explained in the Attorney-General’s Department’s (Department) guidance on the Scheme, acting on behalf of a foreign principal means acting:
- under an arrangement with the foreign principal;
- in the service of the foreign principal;
- on the order or at the request of the foreign principal; or
- under the direction of the foreign principal.
The Department goes further to say:
“Regardless of the nature of the relationship between the person and the foreign principal, both the person and the foreign principal must have intended or expected that the person might or would undertake the registerable activities on behalf of the foreign principal. If a person undertakes an activity without the foreign principal’s knowledge or expectation, then there is no obligation to register under the scheme. In this case, the person’s activities and the foreign principal’s interests are merely coincidental.”
Further, for most of the registerable activities, the activity only becomes registerable if it is undertaken for the purpose of political or governmental influence. This means that the sole, primary or substantial reason that the person is undertaking the activity is to influence a political or governmental process, decision or outcome.
There may be some circumstances where the activities of the operator or manager of a joint venture and the interests of the other participants are merely coincidental or where the operator or manager of the joint venture is acting in another capacity, in which case registration under the Scheme would not be required. However, this would depend on the terms governing the operation of the particular joint venture. It should also be noted that the Australian subsidiaries of state-owned entities operating in Australia may also be required to register under the Scheme to the extent they engage in registerable activities on behalf of their parent entity.
Foreign government related entities
One of the ways in which a company will be considered a foreign government related entity is if a foreign principle holds more than 15% of the company’s issued share capital. Once a company is considered a foreign government related entity, it will then also fall within the definition of foreign principal. If such a company (Company A) holds more than 15% of the issued share capital of another company, Company A then becomes a foreign government related entity. This will continue to apply for each subsequent entity in which a foreign government related entity holds more than 15% of the issued share capital.
Energy and resources companies should ensure they have conducted sufficient due diligence to ensure that their joint venture partners and any other entity on behalf of which it might engage in registerable activities are not caught by this tracing mechanism. In addition to the tracing mechanism, a corporation will be considered a foreign government related entity if:
- a foreign principal is in a position to appoint at least 20% of the company’s board members;
- if the directors of the company are accustomed, or under an obligation (whether formal or informal), to act in accordance with the directions, instructions or wishes of the foreign principal; or
- if the foreign principal is in a position to exercise, in any other way, total or substantial control over the company.
The obligation to register rests with the person undertaking the registrable activities on behalf of the foreign principal and not with the foreign principal itself. A person has 14 days to apply for registration once they become liable to register. There are harsh penalties for failing to register or annually renew their registration, including imprisonment for up to 5 years. Registrants must comply with the Scheme’s reporting obligations and are required to publicly disclose certain information.
While it may not have been the intention of the Scheme to require energy and resources companies to register their activities on behalf of the joint venturers they represent, such companies should ensure they are aware of the extent to which the joint venture participants are connected to foreign governments or foreign government related entities in order to avoid failing to register under the Scheme if they are technically required to do so.
If you have any questions in relation to the Scheme or think you or your company may be required to register, please contact our Energy + Resources team.
Many thanks to Giorgia Fraser, Graduate, for her assistance with this update.