Treasurer Josh Frydenberg announced today comprehensive changes to Australia’s foreign investment regime.  These changes are expected to come into effect on 1 January 2021, replacing the temporary measures announced on 29 March 2020 (see our update here).

The key takeaway from the changes are:

  • many investments in a new category of businesses called “sensitive national security businesses” (such as telecommunications, electricity, gas, infrastructure, defence and potentially that handle sensitive data) which are otherwise below the normal (pre-29 March) monetary thresholds will now be screened by FIRB under a new national security screening regime;
  • the government will have new “call in” and “last resort review” screening powers to assess national security risks;
  • the government will have new powers to enforce compliance with the Foreign Acquisitions and Takeovers Act 1975 (FATA) in a more targeted way;
  • there will be an exemption from the definition of ‘foreign government investor’ for certain investors that have foreign-government ownership but are privately controlled.  This is welcome news for private equity funds and institutional investors that are otherwise captured in the current definition of ‘foreign government investor’ and screened by FIRB;
  • other reforms to close out gaps in the existing legislation.


Under Australia’s foreign investment rules, the Treasurer has powers to make orders in relation to certain kinds of investments if he considers them to be contrary to the national interest.  The universe of transactions over which the Treasurer has this power are called ‘significant actions’.  A subset of these – called notifiable actions – must be notified and approval sought (failure to do so is an offence).  Other significant actions do not strictly speaking have to be notified, but doing so and obtaining a notice of no objection cuts off this power. 

New national security regime

The new national security regime is a complement to the existing regime, rather than a replacement.  It applies to certain investments that would not be caught as a significant or notifiable action under the existing regime, because the transaction is valued below the relevant monetary thresholds. 

Specifically, any acquisition by a foreign person of 10% or more, or less than 10% with certain control factors, in a “sensitive national security business”, or where a foreign person (including a foreign-owned Australian business) starts to carry on the activities of such a business, will require approval (regardless of value).  This can include the taking and enforcement of security, which in these instances will no longer be subject to the moneylending exemption.

There is no definition yet of “sensitive national security business”, but the Government has flagged that it will be narrower than the current “sensitive business” test (applicable to monetary screening thresholds).  It may include:

  • businesses regulated under the Security of Critical Infrastructure Act 2018 (Cth) or Telecommunications Acts 1996 (Cth).  This includes electricity, port, water and gas assets, telecommunications businesses;
  • any business involved in the manufacture or supply of defence or national security-related goods, services or technologies;
  • any business that can create vulnerabilities in the security of defence and national security supply chain, the defence estate and or other core defence interests;
  • any business or land situated in or proximate to defence or national security installations;
  • any business that owns, stores, collects or maintains sensitive data relating to Australia’s national security and/or defence.

Unless the regulations prescribe with more accuracy (than what is proposed in the Summary Booklet) the types of businesses that will be a “sensitive national security business”, we anticipate that there will be difficulties in assessing whether a target entity would meet some of these tests.

For transactions caught within this regime, the review will be a targeted national security review, rather than the broader national interest test under the current foreign investment regime.

Call-in powers

Any investment not otherwise subject to the existing national interest or new national security mandatory pre-investment notification process will be able to be called in before, during or after the investment if the Treasurer considers that the investment raises national security concerns. 

The “call in” power will provide the Treasurer with the ability to compel particular investors to submit an application for screening where national interest concerns arise. 

Once called in, the 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.

It will be possible to voluntarily notify to get some certainty, and investors will be able to apply for time-limited investor-specific exemption certificates which enable them to make eligible acquisitions without case by case screening.  Investors will only be approved where they have been assessed as not posing a national security risk. 

Last resort review power

The amended FATA will grant the Treasurer a “national security last resort review power” to reassess approved foreign investments that were previously reviewed (including under the call in power) but where subsequent national security risks emerge. 

This would allow the Treasurer to impose conditions, vary conditions or require divestments in the following circumstances:

  • there isn’t another means to address the risk;
  • the applicant made a material misstatement or omission in its application to the Treasurer, and this misstatement or omission directly related to national security risks proposed by the acquisition;
  • the activities of the investor have changed substantially, posing national security risks which could not be reasonably foreseen at the time of approval;
  • a material change occurs to the operating environment, which alters the nature of national security risks posed at the time of approval;
  • national security risks have emerged in relation to the acquirer or the target which could not be reasonably foreseen ta the time of approval.

The Summary Booklet states that this power will be subject to “significant safeguards” but does not specify what those safeguards might be.

The “last resort review power” will not apply retrospectively, and so it will not affect approvals obtained before the legislative changes take effect. 

Compliance monitoring and enforcement

In line with the increased imposition by FIRB of reporting, audit and operational conditions on foreign investment approvals, the Treasurer will be given new powers to monitor and enforce compliance with those conditions, such as:

  • site-based inspections or investigations;
  • a new directions power, if government has a reason to suspect that investor has, is or will engage in conduct that breaches a condition of their approval or the foreign investment law. 

There will also be significant increases in penalties:

  • Criminal penalties for all kinds of investments:  maximum of 10 years in prison and $3.15 million fine for individuals ($31.5 million for corporations);
  • Civil penalties for non-residential investments:  $1.05 million to $525 million for individuals (this is not a typo) and $10.5 million or $525 million for corporations;
  • Civil for residential investments:  greater of 25% of consideration for the acquisition or 25% of market value of the interest in the property.

The extended compliance and enforcement powers would also include a range of new enforcement powers and compliance measures, including measures that:

  • enable the Government to better tailor compliance actions with particular breaches;
  • a new legislative power that requires applicants to notify the Treasurer once an action has been taken (this has previously been dealt with through conditions);
  • a new power to accept enforceable undertakings;
  • more coordinated information sharing, including internationally;
  • a new register of foreign ownership which will merge existing registers of agricultural land, water and residential registers (and, we assume, the register of Critical Infrastructure Assets) and include any existing and new approvals; 
  • new powers to unilaterally extend the statutory decision period by up to 90 days without issuing a stop order.

Private equity and institutional investors

The good news for private equity funds is that the definition of foreign government investor will be altered, and for those funds that are still caught by the new definition, a broader exemption certificate will be available.  In particular:

  • entities that do not have a 20% foreign government investor ownership from one country, but do have 40% or more from multiple countries will no longer be deemed to be foreign government investors provided that none of the foreign government investors has control or influence over the entity’s investment and operational decisions; and 
  • entities that are 20% or more owned by a single foreign government (that has no influence or control over the entity) will still be deemed to be a foreign government investor but will be able to apply for a broader exemption certificate which could be granted for longer periods than are currently available.

While investors that are no longer deemed to be foreign government investors will still be subject to screening at the thresholds for private foreign investors (pre-29 March 2020, $275 million, or $1,192 million for FTA-partner countries), this is welcome news for private equity and institutional investors with large foreign government investor bases which are currently captured by the $0 foreign government investor threshold.

Other interesting changes

There are a range of technical fixes proposed including treatment of limited partnerships; transactions resulting in incidental increases in ownership as a result of share buybacks and capital reductions; a new and fairer fee schedule; and a modernisation of the definition of ‘Australian media business’.