5.1
In comparison to foreign investment regimes elsewhere, Australia’s foreign investment regime is secretive. This secrecy is enabled in large part by the protected information provisions in the Foreign Acquisitions and Takeovers Act 1975 (the Act), and maintained by the preference of successive governments that foreign investment decision remain within the purview of the Executive.
5.2
This chapter examines the operation of the protected information provisions in the Act, before canvassing views on the necessity for confidentiality in foreign investment transactions, then discussing transparency in regimes elsewhere in the world.
Protected information provisions
5.3
Most information with regard to foreign investment approvals, conditions attached to approvals, and compliance remains secret under the provisions in the Act. The Act defines a class of information called ‘protected information’ as information:
… obtained under, in accordance with or for the purposes of this Act.
5.4
This broad definition is taken by Treasury officials to cover all information on foreign investment proposals, conditions and compliance, beyond the anonymised statistical reporting of the Foreign Investment Review Board (FIRB).
5.5
The Act imposes limitations on the disclosure of protected information, allowing disclosure for specified purposes subject to some limitations, including:
to disclose de-identified data on an aggregated basis for reporting on the administration of the Act;
if the information is in the public domain;
if consent is given by the person to whom the information relates;
to a minister administering the provisions of specified legislation, and the minister’s staff;
to a state or territory minister or employee of a state or territory government body;
to perform a person’s functions or duties, or exercise the person’s powers by providing information to specific minsters and officers; and
to foreign governments or separate government entities in relation to a foreign country (subject to an agreement being in force).
5.6
Australia’s Foreign Investment Policy document states:
The Government will not provide applications to third parties outside of the Government unless it has permission or it is ordered to do so by a court of competent jurisdiction.
The Government will defend this policy through the judicial system if needed.
5.7
Treasury officials classify almost all information as protected information. The Treasury states:
Case applications, audit reports, letters or correspondence from applicants, as well as no objection notifications, conditions and advice to the Treasurer (or delegated decision maker), are likely to contain protected information.
5.8
Nevertheless, the Treasurer has the power to make public information about foreign investment proposals, including approvals, conditions and compliance, and does so from time to time (see discussion below).
Protected information and commercial-in-confidence
5.9
The Treasury defends its lack of transparency not only by reference to the protected information provisions of the Act, but also on the basis much information is commercial-in-confidence and if disclosed, could:
affect the commercial value or interests of the individual firm;
affect the operations of markets; and
make people less likely to provide information to regulators.
5.10
Because of the protected information provisions, the Treasury, in refusing to disclose such information, does not examine the grounds upon which commercial-in-confidence might be claimed—for instance whether harm might actually be caused, or whether any harm might cross a particular threshold.
5.11
Treasury states when the terms of commonly used conditions have been made public (for instance, standard tax conditions), this has been done to provide potential foreign investors with visibility of the type of conditions that can be applied to them. On occasion, the Treasurer has made public statements in relation to high profile cases where there is strong community interest, for instance in the Moon Lake acquisition of Van Diemen’s Land Company (VDL) discussed in chapter four (though the conditions on this investment were not fully revealed), and the three cases discussed below: Bellamy’s, BHP, and Transgrid.
5.12
The Treasury would not provide an explanation as to how a range of conditions could, if made public, cause harm to the interests of a company—for instance the composition of a company board; nationality and residence of directors and senior officers; location of company headquarters; storage and access of data; and maintenance of equipment. Instead, the Treasury stands behind the protected information provisions of the Act, stating it is ‘generally prohibited from publishing the conditions imposed in an individual case’.
Box 5.1: Foreign investment conditions exempted from protected information provisions
Bellamy’s—On 15 November 2019, Treasurer the Hon Josh Frydenberg, provided conditional foreign investment approval for the proposed acquisition of Bellamy's Australia by China Mengniu Dairy Company. The Treasurer made a number of enforceable conditions on the acquisition to ensure the acquisition was not contrary to the national interest.
These conditions included (the wording of the release suggests additional conditions were also applied):
a majority of the Bellamy's Board of Directors to be Australian resident citizens;
maintenance of the Bellamy's headquarters in Australia for at least ten years; and
an investment of at least $12 million in establishing or improving infant milk formula processing facilities in Victoria.
The Treasurer stated the conditions would ensure Bellamy's maintains its presence in Australia and proceeds with the previously announced investment in infant milk formula processing facilities.
BHP—In May 2017, then Treasurer The Hon Scott Morrison issued a statement on a proposal ‘being circulated in investment markets’ under which BHP Billiton Limited would cease to be listed on the Australian Securities Exchange and its assets would be transferred to a new company that, although headquartered in Australia, would be incorporated in England and Wales and listed on the London Stock Exchange.
In so doing, the Treasurer released a list of eight conditions imposed in 2001 by then Treasurer, Peter Costello, when he agreed to a merger between BHP Limited and Billiton plc. The Treasurer stated if the conditions were breached, BHP Billiton may commit a criminal offence and could be subject to civil penalties under the Act. If the company was convicted of an offence, the directors could be held personally liable. Further, any such action would be a significant action under the Act that would require evaluation and assessment. If the acquisition proceeded without the Treasurer’s consent, the Treasurer would be able to order a divestment.
The conditions imposed by then Treasurer in 2001 were:
BHP Limited remains an Australian resident company, incorporated under the Corporations Law, that is listed on the Australian Stock Exchange under the name “BHP Limited” and trades under that name;
BHP Limited remains the ultimate holding company of, and continues to ultimately manage and control the companies conducting the businesses which are presently conducted by the subsidiaries of BHP Limited, including: the Minerals, Petroleum, Steel and Services businesses for so long as those businesses form part of the combined BHP Billiton Group (“the Group”);
the headquarters of BHP Limited and the global headquarters of the Group are to be in Australia;
the headquarters of BHP Limited and the global headquarters of the Group are publicly acknowledged as being in Australia in significant public announcements and in all public documents (as that term is defined in section 88A(1)(a) of the Corporations Law);
that both the Chief Executive Officer of the Group and Chief Financial Officer of BHP Limited have their principal place of residence in Australia;
the majority of all regularly scheduled Board meetings and Executive Committee meetings of BHP Limited in any calendar year occurs in Australia;
the Board of directors of BHP Limited is elected in accordance with the procedures notified in the proposal or in accordance with procedures approved by the Treasurer; and
that if BHP Limited wishes to act differently to these conditions, it seeks and obtains the prior approval of the Treasurer.
‘Global headquarters’ was clarified to ‘include the requirement that both the Chief Executive Officer and the Chief Financial Officer of the dual listed entities (i.e. BHP Limited and Billiton Plc) will be based in Australia and have their principal offices and key supporting functions in Australia. In addition, the centre of administrative and practical management of BHP Limited shall be in Australia and BHP Limited’s corporate head office activities, of the kind presently carried on in Australia, will continue to be carried on in Australia’.
Transgrid—In November 2015, the Treasurer approved the 99 year lease of New South Wales electricity transmission network, Transgrid, to NSW Electricity Networks. In making the announcement, the Treasurer made public a number of conditions:
the operation and control of TransGrid’s transmission system and telecommunications business is undertaken solely from within Australia;
maintenance is also to be undertaken in Australia other than where it is not possible to do this on reasonable commercial terms;
electricity supply data and personal information is accessible and held solely within Australia;
foreign consortium members maintain their interest in TransGrid at no more than 50 per cent;
50 per cent of TransGrid’s boards comprise Australian citizens and residents;
TransGrid has an independent chairperson and an independent director on the board who are Australian citizens and residents, one of whom is required for all board quorums;
senior personnel in critical positions to hold security clearances; and
audited annual reporting certifying compliance with NSW’s critical infrastructure licence conditions and annual reporting to FIRB, approved by the independent chairperson, certifying compliance with the safeguards imposed.
Views on foreign investment secrecy
5.13
There is little support for the level of secrecy that surrounds the foreign investment regime because of the implications it has for clarity and accountability for the decisions made.
5.14
The Productivity Commission states the government is 'unusually secretive' and transparency in foreign investment decision making is 'low' and 'opaque'. It calls for greater clarity through the routine publication of the reasons for decisions.
5.15
Former Chairman of the Australian Competition and Consumer Commission (ACCC), Professor Allan Fels, has questioned whether the Treasury is sufficiently accountable and transparent with regard to its regulation of foreign investment. Because of this, he has expressed concern the Treasury may not be properly enforcing the conditions it imposes. He has stated, ‘FIRB isn’t independent, politically … It’s not transparent. You don’t know the reasons or the nature of its decisions, especially conditions it sets, and it isn’t accountable or answerable to anyone’. These concerns are exacerbated by doubts discussed in chapter four as to whether the Treasury has the power, resources or inclination to enforce or follow-up its decisions.
5.16
The China Policy Centre suggests greater transparency would result in more accurate foreign investment statistics. For instance, investors may be advised by the Treasury during the ‘natural justice period’ that the preliminary view is that the application may be rejected. To avoid receiving an official order prohibiting the investment, investors may withdraw the proposal so they do not receive an official order prohibiting the investment. The consequence is the statistics are skewed where rejections are hidden as withdrawals. This has the effect of making Australia’s foreign investment regime appear more welcoming than it might be.
Practices of other regulators
5.17
Other regulators in Australia have greater transparency than the Foreign Investment Division of the Treasury or the Treasurer, including agencies that fall within the Treasury portfolio: the ACCC, and the Australian Securities and Investment Commission (ASIC).
Transparency at the Australian Competition and Consumer Commission
5.18
The Productivity Commission states the lack of public disclosure is at odds with good regulatory practice. The commission is of the view any need to preserve confidentiality is not an insurmountable obstacle to greater transparency:
The ACCC faces similar issues with its merger review process and manages to be transparent while preserving confidentiality.
5.19
The ACCC makes a range of information on its processes, procedures and decisions publicly available, including that relating to mergers, authorisations for anti-competitive arrangements including conditions imposed, and enforcement actions. The ACCC’s merger authorisation process is public and the application for merger authorisation, all related submissions by the applicant and interested parties, and the ACCC’s determination are placed on the merger authorisations public register.
5.20
Applicants and interested parties providing information to the ACCC regarding an authorisation may make a claim for confidentiality and ask that information, or parts of it, be excluded from the public register. All confidentiality claims must be substantiated and a public version of the application must contain sufficient information to enable consultation.
5.21
With regard to consideration of authorisations for anti-competitive arrangements, the ACCC is required to keep a public register containing, amongst other things:
applications for authorisation;
documents and submissions provided to the ACCC in relation to any application;
particulars of any oral submissions;
records of conferences; and
5.22
The ACCC considers requests for confidentiality on a case-by-case basis and where it accepts confidential information, it remains able to use this information for internal use, and disclose it to external advisors, consultants and third parties (subject to some restrictions). All requests must be substantiated.
5.23
The ACCC also publishes its competition enforcement interventions, and significant outcomes in competition matters.
Transparency at the Australian Securities and Investments Commission
5.24
ASIC maintains a number of public registers that record compliance and enforcement actions taken by the commission. These include:
record of infringement notices paid under the National Consumer Credit Protection Act 2009, and National Consumer Credit Protection Regulations 2010, and the ASIC Act, including a copy of the infringement notice;
enforceable undertakings register, including a copy of the enforceable undertaking document;
register of persons banned from engaging in a credit activity under a law of a state or territory;
register of banned bodies corporate;
register of summary prosecutions of companies and directors;
register of public warning notices issued about the conduct of a person in relation to financial services, including a copy of the public warning notice.
5.25
The commission states it may release ‘market sensitive information’ if it is in the public interest to release the information.
Practices in other jurisdictions
5.26
Foreign investment screening processes in other countries, according to the Productivity Commission seem able to strike a better compromise between confidentiality and transparency than Australia.
5.27
The following arrangements operate in other jurisdictions:
the President of the United States publicly announces decisions to block investment, and the Committee on Foreign Investment in the United States (CFIUS) reports annually to Congress (confidentially) on its investigations;
the Canadian government publishes a list of completed decisions and notifications of foreign investments each month; and
the New Zealand Overseas Investment Office (OIO) publishes reasons for granting or declining applications every month.
Transparency in New Zealand
5.28
The approach of New Zealand regulators provides a model for maintaining confidentiality where required, while ensuring a transparent and accountable process. Foreign investment applications submitted to the OIO are a public record. Some information within an application may be withheld in accordance with the provisions of the Official Information Act 1982. If, for reasons provided for in the Official Information Act, there is a good reason to withhold the existence of an application from the public, the OIO will not disclose the existence of the application while it is being considered. However, once an application is determined, the OIO can issue a public decision summary.
5.29
There are grounds upon which the details of an application may be withheld. Some of these reasons include:
privacy of natural persons;
free and frank expressions of opinion;
legal professional privilege;
prejudice to the maintenance of the law; and
prejudice to a person’s commercial position.
5.30
If an applicant wishes to claim confidentiality on the grounds the release of information would prejudice a commercial position, they must:
identify the prejudice that would likely result to that commercial position if the requested information were to be made available;
assess how likely it is that disclosure of the information at issue would cause the predicted prejudice to occur;
explain how that prejudice would be unreasonable; and
explain why withholding the information will not outweigh public interest in its release.
5.31
Each month, the OIO publishes a summary of each of the decisions it has made in that month (since 2005). Each summary contains information including:
section of the legislation under which the application was made;
whether some information has been withheld from the decision summary;
the investment and value;
the foreign investor and the vendor;
background on the decision, including any requirements or plans the investor has (including in some cases the conditions placed on the investment); and
contact for further information.
5.32
The OIO also publishes details of enforcement actions taken, including court orders, settlements, orders to dispose of property, enforceable undertakings, administrative penalties, and warnings. Warning letters are also published, which detail the actual breaches of conditions that are the subject of the warning.
Other transparency issues
5.33
In making recommendations about foreign investment proposals, the Treasury often requires the assistance of other parties. In some cases state and territory governments will be called upon to provide input into the consideration of a proposal. However, there appears to be a lack of transparency with state and territory governments that hinders the provision of advice on whether an investment is contrary to the national interest. Similarly, given the secrecy that accompanies investment proposals (in contrast to acquisitions examined by the ACCC), takeover targets are not consulted and provided the opportunity to contribute their views.
Transparency with consultation partners
5.34
The Government of Western Australia suggested consultation partners, like state and territory governments, may not have as much insight into the foreign investment assessment and approval process as they might find useful. As state and territory governments are called upon to review proposals, the Western Australian Government stated it would be helpful to receive feedback as to the outcome of these proposals. It suggested an in-confidence summary of the proposals rejected and approved with conditions and a brief explanation would be useful. Amendments to the Act, which now allow the Treasury to share protected information more broadly, may ameliorate this problem.
5.35
The Western Australian Government also called for clarification on issues to allow consultation partners to make meaningful contributions to the assessment of foreign investment proposals including:
the difference between a 'foreign person' investor and a 'foreign government' investor as in some proposals there is a potential for distinctions to blur; and
the weight the Treasurer might apportion between government-sanctioned and private business investment.
Transparency with takeover targets
5.36
The secrecy that surrounds foreign investment proposals means takeover targets or other interested parties have no opportunity to provide information that would assist with the assessment of the proposal against the national interest. This means decisions about an investment proposal can be made without any substantive testing of the applicant’s submissions and assertions.
5.37
Providing targets with notification of foreign investment applications (including key dates and deadlines), according to the Group of 100, would allow the Treasurer and FIRB to make better informed decisions and provide procedural fairness to Australian target companies.
5.38
For the Group of 100, the practicalities are not insurmountable—a model is provided by the ACCC merger clearance process. Hostile takeover bids would need to be made on a ‘subject to FIRB’ basis and the decision in relation to the application would be made after the proposal was public and the target was given the opportunity to make a submission on the proposal.
5.39
Under ACCC procedures, decisions on whether to grant merger clearances are only made in contentious cases after public consultation, allowing the ACCC to take into account information provided by all relevant stakeholders—acquirers, targets, and other affected parties including Australian customers and suppliers. The ACCC is able to assess the veracity of information it receives from the acquirer and test it against the views and information provided by other affected parties.