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Keeping your dawn raid guidance current
Unannounced inspections or ‘dawn raids’ are used by antitrust authorities to obtain evidence when there are suspicions that individuals or businesses have infringed the antitrust rules.
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Australia | Publication | July 2020
In recent articles, we suggested that private equity (PE) funds now required to obtain Foreign Investment Review Board (FIRB) approval for all new investments, should consider applying for a business exemption certificate (EC) so as to avoid being at a competitive disadvantage compared to domestic investors.
On 10 July 2020, FIRB updated Guidance Note 53 (Temporary measures in response to the coronavirus) to facilitate the process for obtaining ECs. FIRB has now advised that, in addition to applying for a standard business EC, for so long as the temporary changes to Australia’s foreign investment review framework remain in place, foreign investors can apply for three new types of ‘streamlined’ ECs:
FIRB’s rationale for introducing a new category of ‘streamlined’ ECs is that standard ECs can take a prolonged period of time before they are granted due to FIRB’s desire to ensure that sensitive businesses or interests in land will not be acquired by foreign persons without sufficient scrutiny. By specifying the eligibility criteria to these new ECs, FIRB expects to be able to assess and grant the new streamlined ECs relatively quickly as these fixed eligibility criteria mitigate any national security risk. This is consistent with the underlying reason for FIRB introducing ECs a few years ago, which was to reduce the regulatory burden on foreign investors who are deemed to be ‘low-risk’ to make a series of routine and low-risk acquisitions within Australia.
Set out below are details of the 3 categories of ‘streamlined’ ECs recently announced by FIRB:
The “Low-risk business EC”:
o have invested in Australia previously – FIRB has clarified that, if the foreign investor applying for the EC is a PE fund/investment fund, it is the fund manager (i.e. general partner) that is relevant for determining whether the applicant has previously invested in Australia, not the fund being used to make the investment;
o are seeking to make investments in non-sensitive sectors (i.e. investments in sectors such as defence, health, critical minerals, critical infrastructure, or service providers that have access to critical infrastructure or sensitive data will be excluded).
The “Low-risk developed commercial land EC”
o FIRB will consider reducing this fee in certain circumstances to $10,600 where a fee waiver is sought by the applicant and will be assessed on a case-by-case scenario;
o if a foreign person has already applied for (but has not yet been granted) a standard EC, they can – if they meet the relevant eligibility criteria - apply for their application to be processed as a streamlined low-risk commercial land EC and if successful, FIRB will refund some of the fees already paid so that the fees do not exceed the $10,600 fee that would have otherwise been paid.
The “Restoration variations to existing ECs”
o FIRB has indicated that the ‘restoration variations to existing ECs’ will only be granted to foreign persons where they can demonstrate that the aggregate financial limit on their existing EC has either:
• already been reached; or
• is likely to be reached in less than 3 months.
o Given the purpose of these streamlined ECs is to expedite those applications that are not likely to be contrary to the national interest, FIRB has clarified that restoration variations to existing ECs will not be granted to Foreign Government Investors1.
Investors considering making investments in ‘low-risk’ Australian businesses or entities and whose previous Australian investments did not require FIRB approval (prior to the monetary screening thresholds being reduced to nil) should consider applying for either a “Low-risk business EC” or a “Low-risk developed commercial land EC” as applicable.
Separately, existing holders of standard business ECs who have seen the financial limits on their existing ECs eroded due to FIRBs temporary reduction of the monetary screening thresholds to nil, should consider applying for a “restoration variation” to their existing EC.
The introduction of these streamlined ECs is part of a suite of changes recently introduced by the Australian government to endeavour to strike a balance between ensuring that Australia remains an attractive destination for foreign investment and continuing to protect Australia’s national interests. By introducing streamlined ECs to minimise the timeframes for FIRB pre-approval of ‘low-risk’ investments, the Australian government is re-affirming its commitment to ensure that Australia’s foreign investment regime remains fair and reasonable.
All foreign investors, particularly private equity and managed investment funds who have previously invested in Australia and wish to continue to do so will welcome these latest changes. These ECs assist foreign investors requiring FIRB approval by streamlining the procedure, which in turn, helps remove eligible ‘low-risk’ foreign investors from being at a competitive disadvantage compared to local investors not requiring such approval.
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