Australia unveils major change in laws for foreign investment

New norms will provide power to the government for forcing sale of a business if it creates a national security risk

Australia has announced the biggest shakeup of its foreign investment laws in almost half a century, including giving the government the power to force the sale of a business if it creates a national security risk.

Citing the need to balance economic and national security, Treasurer Josh Frydenberg said all foreign investors would face greater scrutiny when bidding for sensitive assets, regardless of the size of the deal and whether the buyer is private or state-owned.

“Technology has been evolving and our geopolitical climate has become more complex,” Frydenberg said in Canberra. “In fact, the world over, governments are seeing foreign investment being used for strategic objectives not purely commercial ones.”

In one major change, the Treasurer will be given a last-resort power to vary or to impose conditions on a deal or force a divestment after the deal has been approved by the Foreign Investment and Review Board (FIRB). A Treasury document said the power would not be retrospective. Prime Minister Scott Morrison said compliance would also be tightened, with the government to spend an additional $50 million on enforcement of the rules. A Treasury spokesman told Reuters extra resources would go to the Australian Security Intelligence Organisation (ASIO) as well as the

Taxation Office, Department of Home Affairs and Treasury.

Frydenberg did not provide details of which business sectors would be captured by the national security test and subject to FIRB’S scrutiny, but he did give some indication of areas of interest.

The definition would likely cover telecommunications, energy and utilities firms, the defence supply chain, and businesses that collect, store and own data deemed critical to Australia’s national security and defence, he said.

Scott Phillips, a partner at M&A law firm Arnold much needed, national interest investment as Australia heads into our first recession in 29 years,” Phillips told Reuters.

Under current laws, most private investments under A$275 million ($190.8 million) are not screened by FIRB, while the threshold is A$1.2 billion for companies from countries such as China which have free trade agreements with Australia. The threshold is zero for state-owned enterprises.

The government plans to release a draft of the proposed changes by next month for legislative debate with planned implementation on Jan. 1, 2021.

Changes could affect deals such as the current sale of Virgin Australia. The frontrunners for the country’s No. 2 airline, which is being sold by administrators, are US private equity firms Bain Capital and Cyrus Capital. Frydenberg did not single out China, or any other country, when announcing the overhaul, but the Chinese government has previously raised concerns with Australia about changes to foreign investment rules.