Australian Treasury Reports Faster Foreign Investment Application Processing Amidst Increased Focus on Compliance and Enforcement

The Australian Treasury, which administers Australia's foreign investment framework, has released its first quarterly report for the 2024-25 financial year. Here are some key statistics and trends from the report.

Treasury reports material improvement in foreign investment application processing times: The median processing time for approved commercial investment proposals has fallen to 34 days, down from 41 days for the quarter ended 30 June 2024 and down from 42 days for the 2023-2024 year. Notably, the reduction in processing times occurred despite a 10% jump in the number of investment approvals approved for the same period (although for a materially lower aggregate value), and 47% of approval investment proposals were processed in 30 days or less, in contrast to 38% for the prior quarter.

Digging further into the numbers, as of September 2024, approximately 25% of filings were approved in between 31 and 60 days (a decrease on the prior quarter), 15% between 60 and 90 days (an improvement on the prior quarter), and 13% were processed within 91 days or more—which also is an improvement on the prior quarter, and consistent with the long-term average. 

For completeness, we note that figures from the Foreign Investment Review Board ("FIRB") do not provide any breakdown or granularity for approval times across the nature of investor or type of investment—therefore, readers are unable to determine whether the improved assessment timelines relate to substantive or non-substantive FIRB decisions.

Having said that, the figures reflect an encouraging step for the Treasury as it looks to meet its aspirational performance target of processing 50% of investment proposals within the initial statutory decision period of 30 days.

Can Treasury carry its processing efficiencies into more complex / substantive applications, including those in sensitive sectors? Treasury's efforts to streamline its assessment regime for "known investors" who have a good compliance record, pursuing investments into non-sensitive sectors, would appear to be paying dividends, based on Treasury's figures.

Extended assessment times exist for those proposals by new investors, or those that involve more substantive characteristics—national security or sensitive sectors, foreign government investors, or complex investment structures. Dedicating additional resourcing, and reducing consultation timeframes between FIRB and its "consult partners," could lead to broader-based improvements in processing times.

New Foreign Investment Portal: It will be interesting to see whether the government's staged release of its new Foreign Investment Portal will lead to improved processing times and more efficient communication between FIRB and applicants. During the transition phase, teething problems and administrative issues could cause delays in deal timelines. 

The Treasurer's "call-in" power; no disposal orders issued in the September 2024 quarter: The government's May 2024 reforms included bolstering the government's foreign investment compliance team, and supporting their use of the Treasurer's "call-in" power to review investments that come to pose a national security concern over time. The Treasurer's "call-in" review can occur up to 10 years after the investment has been taken—but the "call-in" power can be extinguished if the investor chooses to voluntarily notify (and obtains approval).

One possible consequence of a "call-in" review is that the Treasurer may issue a disposal order, which would require divestiture of the relevant investment by the acquirer. No disposal orders were issued in the September 2024 quarter, in contrast to the five (5) issued in the June 2024 quarter (which was the first time that Treasury published this information). Publication of the number of investments "called-in" for review, and the range of orders subsequently issued by Treasury would be of benefit to the investors and their advisers. 

Material increase in foreign investment audits, referrals for potential non-compliance, and matters under investigation: Investments under investigation by Treasury, and foreign investment audits are increasing. Treasury also reported a jump in referrals for potential investor non-compliance from other government departments, as well as from Treasury's own media monitoring and market scanning activities. Again, one of the May 2024 announced reforms was increased collaboration across government departments.

Strengthening of national security framework continues to capture investment proposals that would previously have not required notification: Although down from the 10% for the June quarter, Treasury reported that approximately 6% of the foreign investment proposals for the June quarter related to national security actions. According to Treasury, those investments would not have otherwise been captured if not for the strengthening of Australia's national security powers in 2021. (Almost all of them were mandatory notifications.)

The United States remains Australia's largest source of foreign capital, whilst commercial real estate was the most attractive industry sector: The U.S. remained Australia's largest source of foreign capital in the September 2024 quarter—with A$23 billion of approved commercial investment proposals, an amount four times that of Singapore, the second most popular source of foreign capital. There was a significant fall in Japanese investment ($8.9 billion down to $0.8 billion)—after a flurry of deals from Japanese investors through January-June 2024. China fell outside the top 10 inbound investors for commercial investments, but remained the largest source of investment into residential property.

Investment into Australian commercial real estate doubled ($12.7 billion up to $24.1 billion), whilst the services sector experienced a significant fall—although it was still well above the level of investment into minerals and resources.