Extension of Australia's national security investment protections
An expansion to Australia's critical infrastructure legislation sees an extension to the scope of the foreign investment restrictions applying to national security businesses.
The Australian Government's response to the increasing threat to national security stemming from sabotage, espionage and coercion posed by foreign involvement in Australia's critical infrastructure has seen a renewed focus on protecting Australia's critical infrastructure assets resulting in an extension to Australia's national security investment protections.
Recent amendments to the Security of Critical Infrastructure Act 2018 (Cth) (the Act) have expanded the definition of a 'critical infrastructure asset'. While initially only capturing the electricity, gas, water and port sectors, the new definition expands coverage to each of the following industry sectors:
- data storage and processing;
- financial services and markets;
- water and sewerage;
- health care and medical;
- higher education and research;
- food and grocery;
- space technology;
- transport; and
- the defence industry.
The revised definition of 'critical infrastructure asset' has a flow on implication for foreign investment in these sectors. A notifiable national security action will require FIRB approval when, among other things, a foreign person acquires a direct interest in a 'national security business'. The definition of 'national security business' is tied to a 'critical infrastructure asset', resulting in the expanded definition now requiring a broader range of potential investments to be subject to Australian foreign investment approval.
Not every action taken in relation to the sectors now covered under the scope of a 'critical infrastructure asset' will be reviewable by FIRB, and the Act and associated FIRB guidance provides further background on the types of investments that will require approval. For example, an entity operating in the health care and medical sector will only be considered a national security business if it deals with a critical hospital (being a hospital which has a general intensive care unit) and the focus of the food and grocery sector is limited to a short list of major nationwide grocery operators.
The expanded the definition of a 'critical infrastructure asset' will result in a greater number of approvals sought and will also result in transactions being subject to the FIRB regime that would not otherwise have required Australian FDI approval. It is important to note that actions which are not notified to FIRB may be 'called-in' if the Treasurer considers the action may pose national security concerns. To avoid retroactive unwinding of a transaction under these call-in powers, investors should consider whether the transaction falls under the new definition of a notifiable or reviewable national security action and ensure a no objections notification is received prior to completion.
While these amendments are significant, there are more to come. This first suite of amendments were pushed through as a matter of priority, as recommended by the Parliamentary Joint Committee on Intelligence and Security. Additional amendments are expected to follow after further industry consultation, including sector-specific enhance cyber security obligations, an obligation to adopt and maintain risk a management program and the declaration of systems of national significance.