Still in the dark
Acknowledgement
The last time Australia was free from foreign ownership was 1788. This nation was founded on the forceful dispossession of First Nations people from their lands. Sovereignty was never ceded. Most of the wealth of this nation is stolen wealth. Whenever considering foreign investment in Australia we should acknowledge that unless investors are First Nations people or organisations, they are foreign investors. Issues regarding foreign investment in Australia today must be considered in light of these facts.
Recommendation: That the forceful dispossession of First Nations people from their lands be acknowledged, by: first establishing a Truth & Justice Commission; then enacting a national Treaty and/or Treaties with First Nations peoples in this country, sovereign to sovereign; and then, subject to Treaty negotiations, establishing a national First Nations Voice to be included in the governance of Australia, as determined by First Nations peoples.
Introduction
This inquiry was established late 2019 through a motion moved by Senator Whish-Wilson in the Senate. The inquiry was established in response to concerns that Australia’s foreign investment approval process was not transparent or accountable. A number of high profile cases—that are well documented in the Chair’s report—illustrated these concerns. These cases include:
the sale of Van Diemen’s Land (VDL) dairy to Moon Lake Investments;
the takeover of Bellamy’s by Mengniu; and
the proposed Musselroe Bay resort development.
In apparent response to these concerns the government introduced the Foreign Investment Reform (Protecting Australia’s National Security) Bill 2020. This Bill addressed some of the shortcomings with the foreign investment approval process. In particular, the Bill gave much clearer powers to the Treasurer to enforce conditions upon foreign investment, as well as consolidating public registers of foreign ownership.
Since this inquiry was established there has also been a global pandemic. In response, the government temporarily removed monetary thresholds for the screening of foreign investment.
The combined result is that the conditions which led to the establishment of this inquiry are quite different to the conditions in which this Chair’s report has been prepared. In particular, there has been a dramatic decline in foreign investment. The Productivity Commission recently reported that “foreign direct investment into Australia fell from over $56 billion in 2019 to under $30 billion in 2020”.
However, there remain serious flaws in Australia’s foreign investment approval process, and Australia's corporate transparency and anti-money laundering regime. Left unaddressed, these flaws will manifest again in due course. And while the Chair’s report does a good job of identifying these flaws, the recommendations do not address these issues with conviction.
We should stop pussyfooting around. We have an opportunity, given the current downturn in foreign investment, to get our house in order without being accused of targeting any particular investment or group of investors.
In these Additional Comments, the Australian Greens propose a set of recommendations to resolve three of the major flaws in Australia’s regulatory framework, namely:
the transparency of foreign investment assessment and approval;
the identification of the ultimate beneficial owner; and
the exemption of professional services who facilitate real estate transactions from anti-money laundering reporting requirements.
Publishing foreign investment approvals
Foreign investment approval in Australia largely occurs in the dark. Publication of any decision to approve a foreign investment, the reasons for approving a foreign investment, and any conditions placed on the approval of a foreign investment are at the discretion of the Treasurer. If the government of the day wants to keep quiet who, from where, is buying what, and on what condition, then that’s entirely up to them.
Moreover, regulators themselves often don’t know who the ultimate beneficiary of any proposed foreign investment is. Australia’s failure to establish a comprehensive framework to both identify and publish the ultimate beneficial owners of corporations operating this country leaves us languishing behind most of the developed world and international standards.
The lack of transparency around foreign investment approvals affects potential foreign investors' expectation of what is or isn’t acceptable. It creates a system that is intrinsically politically biased. In turn, this creates opportunities for the government to extract from foreign investors an arrangement, free from public scrutiny, that suits its political ends rather than the national interest. In a country where there is no independent national integrity commission, this creates an environment where corruption can flourish.
Case Study: VDL Dairy
The sale of VDL Dairy to Moon Lake is a perfect example of a dodgy foreign investment approval being used for political purposes. With great fanfare, the then Treasurer, Scott Morrison, approved the sale of VDL to the Chinese company Moon Lake in 2016, with the promise of $100 million to be invested and a "near doubling" of jobs.
As is well documented in the Chair’s report, there has been nothing but trouble since. Soon after the approval, Moon Lake’s financial precarity was revealed. In 2018 five members of the board quit. In 2019, senior farm managers sought indemnity from liability because of concerns regarding operating standards and practices. In 2021, the Tasmanian Dairy Industry Authority found that 19 of VDL 23 farms failed to meet the Farm Dairy Effluent Management Code of Practice. There has been nowhere near the $100m invested in the farm and nowhere near the promised doubling of jobs. However, the company was able to find $25,000 to donate to the Tasmanian Liberals in 2017-18.
While the announcement of this approval was very public, the documentation of the approval was not. Through senate estimates it was subsequently revealed that, despite the promises touted publicly by Moon Lake and Mr Morrison, the approval did not stipulate that these commitments were a condition of approval.
Nevertheless, the government does have powers—that pre-dated the establishment of additional powers in the 2020 Bill—to seek to impose new conditions where this would “not disadvantage” the purchaser. Having made the commitments in the first place, it cannot reasonably be argued that holding Moon Lake to its word would be a disadvantage. But the government has not sought to enforce these undertakings in any way, shape or form. Moon Lake has simply been allowed to break the deal and nothing has been done about it, so far as we know, because the government isn't obliged to inform the public of any new conditions they might have imposed.
In summary: a deal, between a foreign political donor and the government, announced as a public relations exercise light on detail, contained no enforceable conditions, and, despite going sour, has not been remedied at all by the government. All of which looks suspiciously like the institutionalised bribery of corporate political donations, and undermines public confidence in foreign investment.
Recommendations
There is a case for foreign investments that are directly related to the maintenance and enhancement of Australia’s national security being undertaken in secret. However, for the vast bulk of foreign investment, which is purely commercial in nature, there is no good reason for the public not to be informed about any decision of the Treasurer to issue an approval. The Chair’s report lays out the case for transparency, but falls short of calling for it. This is a cop-out.
Recommendation: The decision to grant proposed foreign investments a ‘no objection notification’ (approval) or an ‘exemption certificate’ should be made public, along with a statement of reasons, with an exemption from this publication requirement being available on national security grounds, along with a statement of reasons for the exemption.
The case for public undertakings given in respect to proposed foreign investments to be made a condition of any subsequent approval is also clear. In many cases, public undertakings are part of a public relations offensive designed to placate community concerns. Any failure to hold foreign investors to these commitments treats the Australian public as mugs. Again, Chair’s report makes the case to support a compulsory conditioning of any undertakings, but the recommendations fall short of this mark.
Recommendation: All undertakings made public in respect of a proposed foreign investment, by either the purchaser or government bodies, are to be held to be a condition of any subsequent approval; with powers to issue a divestment order being available for the breach of any such conditions.
A lack of transparency also exists in the reporting of the levels and origin of foreign ownership in Australia, particularly in relation to land. The newly established Register of Foreign Ownership of Australian Assets is required to create annually a publicly available report containing aggregate statistical information on foreign ownership, as was the previous Register of Foreign Ownership of Agricultural Land.
To date, these statistical reports, prepared by the Australian Taxation Office, have only included information on the area of agricultural land in which there is a foreign interest, and not the value of agricultural land in which there is a foreign interest. This presents a distorted picture of the level of foreign ownership, particularly given the variation in quality of agricultural land in Australia. The current approach fails to adequately represent the importance of the amount of land in which there is a foreign interest.
Recommendation: The annual statistical report contain information on the area, current value, tenure, beneficial owner, country of origin of beneficial owner, use and jurisdiction (state or territory) of all land in which there is a foreign interest.
Stopping money laundering through real estate
An issue closely related to a country’s process for assessing foreign investment proposals, and included in the terms of reference for this inquiry, is a country’s anti-money laundering and counter-terrorism financing (AML/CTF) framework.
Internationally, AML/CTF frameworks are integral to the fight against organised crime and curbing the flow of illicit capital. But Australia’s AML/CTF framework is woefully deficient.
The gaping hole in Australia’s AML/CTF framework is the failure to include real estate agents, accountants and lawyers—the ‘gatekeepers’—as providers of designated services and require these professions to report to AUSTRAC. Australia is now one of only six countries in the world not to have included the gatekeepers within the scope of AML/CTF laws, alongside the US and China, and Mongolia, Madagascar, and Mauritius.
As a result, Australia has become a hot-spot for illicit capital, and money laundering through real estate in particular. The Financial Action Task Force (FAT-F) is the world’s standard setting body for anti-money laundering and counter-terrorism financing. Their 2015 Mutual Evaluation Report stated:
Australia is seen as an attractive destination for foreign proceeds, particularly corruption-related proceeds flowing into real estate, from the Asia-Pacific region.
Other international bodies have highlighted the inadequacy of Australia’s AML/CTF framework, including:
The OECD, who in their December 2017 Phase 4 Report on Australia’s implementation of the OECD Anti-Bribery Convention recommended that Australia address the risk that the real estate sector could be used to launder the proceeds of foreign bribery.
The IMF, who in their 2019 Staff Country Report on Australia called for real estate agents, accountants and lawyers to be listed as designated services under anti-money laundering laws.
The Tax Justice Network, who in their 2020 Financial Secrecy Index Narrative Report on Australia stated that Australia is undoubtedly a host of significant quantities of illicit funds from outside the country.
So lax is Australia’s AML/CTF framework that, as the inquiry heard, the action taken by the AFP to seize assets in relation to the Musselroe Bay development only occurs following a tip-off from Chinese authorities. We’re literally dependent on the host country’s police telling us if their citizens are using Australian real estate to wash hot money.
For Australia’s foreign investment approval process to have any integrity, Australia’s AML/CTF framework must be strengthened. A failure to do so, coupled with ongoing secrecy around foreign investment approvals, will foster an environment where illegal activity is tolerated and where corruption can flourish.
Recommendation: The Australian Government introduce legislation that would include real estate agents, accountants and lawyers as designated services under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.
Register of beneficial owners
The lack of transparency regarding the nature of proposed foreign investment is not limited to information that is made public. Financial regulators themselves are often in the dark.
The inquiry heard that regulators are not able to establish the ultimate beneficial owners of foreign investors. Because of the shortcomings in Australia’s regulator regime, the Australian Office of Financial Management (AOFM) is not able to establish the ultimate beneficiary of foreign buyers of Australian Government Securities, and AUSTRAC relies on publicly available information regarding beneficial ownership. This is despite the FAT-F recommending that countries ensure regulators can establish ultimate beneficial ownership in order to help stop money laundering.
And, again, there is no obligation for the Treasurer to establish the ultimate beneficial owner of any proposed foreign investment, let alone publish that information.
However, the issue of transparency regarding beneficial ownership extends beyond foreign ownership and money laundering, and into corruption and tax transparency more broadly. The Open Government Partnership, of which Australia is a participant, has recommended that countries allow the public to “actively use ownership data to uncover networks of corruption.” In 2017, the government released a consultation on how to improve transparency of beneficial ownership. This included consultation on the establishment of a public register of beneficial owners, a commitment the government made at the UK Anti-Corruption Summit in May 2016.
But, once again, the government has failed to follow through on this commitment, and, once again, has made Australia an international laggard on this issue.
Recommendation: That a public register of companies registered or operating in Australia be establishing providing detail on the ultimate beneficial owners.
Senator Peter Whish-WilsonSenator Nick McKim
Greens Senator for TasmaniaGreens Senator for Tasmania