Simply put, an FGI is an entity in which:

• a foreign government or separate government entity from the same foreign country, alone or together with any one or more associates, holds an interest of at least 20%; or

• foreign governments or separate government entities from more than one foreign country, alone or together with any one or more associates, hold an aggregate interest of at least 40 %.

Below are some key implications once an entity is recognized as an FGI:

• Investments by FGIs are not subject to any monetary threshold. Relatively high monetary thresholds are applicable in determining whether investments by non-foreign government investors (Non-FGIs) are subject to Foreign Investment Reiew Board (FIRB) review; in comparison monetary threshold for investment by FGIs is zero.

• Stricter rules for qualifying as notifiable actions.[1] Investments by FGIs, including acquiring a direct interest (usually at least 10% or the ability to influence) in an Australian entity or an Australian business, starting an Australian business, etc. qualify as notifiable actions, and as such requires prior notification to the FIRB and obtaining FIRB approval before FGIs can proceed.

• More elements will be considered during the national interest tests. Whether the investment is commercial in nature or whether the investor may be pursuing broader political or strategic objectives that may be contrary to Australia’s national interest will be considered.

  
  

Although significant actions[2] that are not also notifiable actions do not need to be notified under the FIRB regime, it is a prudent choice for an investor to notify such actions in advance given that the Treasurer[3] may block or unwind the transaction at a later stage. As such, it is a common practice for parties to make obtaining FIRB approval a condition precedent for closing.  

The Treasurer has 30 days to consider an application and make a decision. The Treasurer may also extend this period by up to a further 90 days. In practice, the Treasurer also invite the applicants to voluntarily apply to extend the timeframe and the applicants often accept, which makes it difficult to specify how long a review process will actually take.

The Treasurer may prohibit a significant action, give a no objection notification or impose conditions on a significant action. The FIRB has been increasingly willing to use conditions and undertakings as a mechanism to increase the government's oversight of more complex or sensitive investments. Examples of conditions we are aware that the FIRB has requested in the past (and in some cases imposing) include:

• the requirement that certain directors of the target hold security clearance;

• the requirement that the board of the target consist of a certain number of Australian citizens;

• the requirement that certain data relating to the target’s business be stored only in Australia;

• that the target invest a certain amount of money in Australia over an agreed period of time;

• that the acquirer sell down a certain percentage of its shares in the target after a certain date; and

• that there is reporting on compliance with the FIRB conditions.

FGIs who fail to comply with foreign investment laws are subject to civil or criminal penalties. Penalties will depend on various factors including the nature of the investment and the extent of the breach. Orders can also be made requiring divestiture of the relevant entity or business.

[1] There are two categories of transactions that are covered by the FIRB regime, i.e. significant actions that are also notifiable actions and other significant actions.

[2] An action will only be a significant action if all of the conditions specified for the type of action are met. The conditions include the types of actions, whether change of control has taken place and whether the momentary threshold has been met, etc.

[3] Treasurer means the Treasurer of Australia. When making foreign investment decisions, the Treasurer is advised by the Foreign Investment Review Board (FIRB), which examines foreign investment proposals and advises on the national interest implications. FIRB is a non-statutory advisory body. Responsibility for making decisions rests with the Treasurer.