Foreign investors face tighter tests as major FIRB reforms introduced

By Conrad Smith

As we foreshadowed this morning, the Federal Government today announced its plans for what is set to be the most comprehensive reforms to Australia’s foreign investment review framework in more than 20 years.

The announcement also included confirmation that the temporary COVID-19 changes to the FIRB rules will remain in place until 1 January 2021. The reduction in monetary thresholds and increased approval timeframes, announced in March in response to COVID-19, previously did not have an announced sunset date. Information regarding the earlier COVID-19 changes are discussed in our article,'COVID-19: temporary changes to FIRB notifications and foreign investment'.

The reforms, which are proposed to take effect from 1 January 2021, focus on four areas:

  • a new national security test;
  • amendment to the definition of ‘Foreign Government Investor’;
  • strengthened enforcement of FIRB conditions and an increased penalty regime; and
  • foreign investment regime integrity changes.

The National Security Test

The Government plans to introduce a new national security test which will:

  • enable the Treasurer to impose conditions or block any investment by a foreign person on national security grounds regardless of the value of investment;
  • require mandatory notification of any proposed investment by a foreign person in a sensitive national security business;
  • require mandatory notification where a business or entity owned by a foreign person starts to carry on the activities of a sensitive national security business;
  • allow any investment that would not ordinarily require notification to be ‘called in’ for screening on national security grounds;
  • allow investors to voluntarily notify to receive investor certainty from ‘call in’ for a particular investment or apply for an investor‑specific exemption certificate; and
  • allow the Treasurer to impose conditions, vary existing conditions, or, as a last resort, require the divestment of any realised investment that was approved under the Foreign Acquisition and Takeovers Act 1975 (Cth) (FATA) where national security risks emerge.

Foreign Government Investors

The Government will exempt certain investments made by entities that are currently classified as ‘Foreign Government Investors’. They will do this by narrowing of 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

Stronger penalties, compliance and enforcement powers

The Government will also get on the front foot when it comes to compliance with new monitoring and investigative powers (in line with those of other business regulators), including access to premises with consent or by warrant to gather information in order to monitor investor compliance and/or investigate potential non‑compliance.

The reforms are also looking address compliance through:

  • new powers to give directions to investors in order to prevent or address suspected breaches of conditions or of the foreign investment laws;
  • significantly increased civil and criminal penalties under the FATA;
  • expansion of  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;
  • powers 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;
  • powers with respect to an investment that was originally made in breach of the FATA where the interest has subsequently been transferred to another foreign person by will or devolution by operation of law;
  • enforceable undertakings from foreign persons to manage non‑compliance or to give weight to commitments a foreign person made at the time of applying for a no objection notification or an exemption certificate; and
  • obligations on 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 or did not occur.

Integrity measures

In order to provide greater consistency and certainty to Australia’s foreign investment regime, the Government has also stated its intention to amend the FATA and supporting regulations to:

  • clarify that foreign persons are required to seek further foreign investment approval for any increase 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;
  • 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 under a moneylending agreement;
  • require foreign persons to seek foreign investment approval for acquisitions of interests from the Commonwealth, state or territory governments or local government bodies to perform Government services or functions associated with privatisation programs that may raise national security risks;
  • apply the tracing rules to unincorporated limited partnerships in the same way they currently apply to corporations and trusts, so that beneficial interests can be traced; and
  • require a foreign person, who is a parent or spouse of an Australian resident, to seek foreign investment approval prior to the purchase of Australian land where they provide money to their Australian family member for the purchase, other than by way of a gift.


Conrad Smith

Conrad is a corporate & commercial lawyer with experience in mergers & acquisitions, restructures, succession, and insolvency.

Related practices

You might be also interested in...

Foreign Investment | 5 Jun 2020

Foreign Investment Review Board to tighten security test to invest

In an interesting development, it is being reported that the Federal Government is set to add a new national security test to Australia’s foreign investment regime. This new test is understood to apply to investments which are deemed to be sensitive national security businesses.

Corporate & Commercial | 4 Jun 2020

Continuous disclosure vs COVID-19: the welcome introduction of a due diligence defence

Continuous disclosure is a complex issue at the best of times, but the COVID-19 environment has added another layer of complexity about what needs to be disclosed to the market. The issues are novel compared with the ‘usual’ continuous disclosure issues you are used to dealing with. Some of these issues could easily be overlooked and lead to significant consequences, such as class actions or regulatory actions.