But it assumes FIRB has the resources and powers to adequately review foreign takeovers and monitor and enforce those with conditions of sale attached to approval of the takeover.
Until the Alinta Energy privacy scandal – which has triggered multiple inquiries by privacy and energy regulators and a Senate hearing on Friday – FIRB has largely escaped scrutiny.
Alinta Energy admits it still hasn't met all the conditions of sale three years on.
FIRB told the committee on Friday that in January 2019 it had two staff overseeing the country’s foreign investment compliance of companies, such as the $4.1 billion sale of Alinta Energy to Chinese-owned company Chow Tai Fook; the $7.4 billion sale of power line, gas pipeline and power plant group DUET to Cheung Kong Group; the sale of Loy Yang; and a series of Hunter Valley coal, rail and port assets to Yancoal, whose major shareholder is China’s Yanzhou Coal Mining Company.
A disturbing lack of resources might explain some of the limitations and the backlog in companies such as Alinta completing compliance with the conditions.
At the start of May 2020, FIRB had 10.8 full-time equivalent staff allocated to the compliance function. On Friday the number had increased to 12. That this level of staff is deemed adequate given the size and complexity of the companies it needs to monitor is astounding.
The Senate also heard that FIRB had taken zero enforcement actions against companies in the past three years to ensure compliance. It said no criminal or civil enforcement action had been taken. It had findings of “partially compliant” and “compliant with caveats”.
In 2017-2018, FIRB made decisions on more than 11,000 proposals worth $163 billion, with $16.6 billion manufacturing, electricity and gas assets. Some of those approvals were made with conditions attached that needed to be monitored by FIRB to ensure compliance.
The Senate was told that more than three years after the sale of Alinta, the energy giant still hadn’t met all the FIRB conditions and was rolling out remedial actions.
When asked if three years was a realistic time frame for Alinta to meet those conditions, Professor Allan Fels told the committee he was sceptical of the length of time it was taking to comply.
Professor Allan Fels told a Senate inquiry he is sceptical that it has taken Alinta so long to meet conditions. Steven Siewert
It seems it isn’t just staff resourcing that might be a challenge at FIRB.
When Senator Rex Patrick asked FIRB for a breakdown of the type of applications lodged with FIRB since the government’s March 30 decision to introduce temporary measures on asset sales to foreign investors, he was told that might take time because FIRB would have to do it manually.
Senator O’Neill said the structure of FIRB was wholly inadequate.
She said there had not been significant scrutiny of FIRB for decades and it was time to make it fit for purpose.
She is right. The spotlight on FIRB comes as Australians have become increasingly concerned that some of our critical assets such as dairy, land and key infrastructure operations have been sold to foreign companies with limited transparency.
At a time when asset prices are plummeting amid the economic shutdown, FIRB needs to be on top of its game.
The FIRB was set up more than 40 years ago as a non-statutory body to advise and make recommendations to the Treasurer on large foreign takeovers and critical infrastructure.
Senator Peter Whish-Wilson says FIRB's architecture isn't fit for purpose. Eamon Gallagher
The Treasurer has sole discretion of the appointment of members of FIRB and sets the minimum and maximum size of FIRB. It means it isn't independent politically.
Another issue is the lack of transparency. The issue was raised by Senator Peter Whish-Wilson, a member of the Senate committee, who wanted to understand how decisions are made and why they are often clouded in secrecy. He said FIRB's architecture wasn't fit for purpose.
He cited the example of the April 2016, $280 million sale of the country’s oldest and biggest dairy farm, Van Diemen’s Land Dairy (VDL), to Chinese company Moon Lake, which had outbid two Australian companies.
The dairy farm, deemed an asset in the national interest, required final sign off from then Treasurer Scott Morrison on advice from FIRB. It included a series of undertakings to increase employment in the area and invest more than $100 million in the businesses.
Senator Whish-Wilson said Moon Lake had done none of that. “The business has been run into the ground and there have been animal cruelty allegations,” he said.
FIRB’s response was that the undertakings weren’t enforceable, something which hadn’t been mentioned to the public at the time of sale.
It meant Moon Lake had no mandatory obligation to follow through.
The sale of Bellamy’s to Chinese dairy giant China Mengniu in 2019 also required FIRB approval and this time the public was told that the conditions were made binding, including that the majority of Bellamy's directors are Australian citizens, the company must keep its headquarters in Australia for at least a decade, and it invests $12 million in Australian processing facilities.
But there needs to be more consistency and transparency.
Senator O'Neill was interested in how much research Treasury had done into Alinta's shareholders before granting approval.
She said Chow Tai Fook's Dr Henry Cheng was a standing committee member of the 12th Chinese People’s Political Consultative Conference of the People’s Republic of China.
It was reported in The Sydney Morning Herald and The Age that Chow Tai Fook held a 9.6 per cent stake in SJM, a Macau gambling company founded by Stanley Ho. He and his son Lawrence had been banned from any involvement in Crown’s new Barangaroo facility due to their links to organised crime.
"Did Treasury consider Dr Henry Cheng’s links to the Ho family and subsequent connection to organised crime when providing advice to FIRB?" she asked.
Treasury officials indicated to Senator O'Neill it was the first time they had heard that information.
Alinta’s conditions of sale were kept secret until a whistleblower released a cache of documents to The Sydney Morning Herald and The Age which outlined those conditions and the company’s slow approach to adhering to those conditions.
The leaked internal documents showed that almost three years after the acquisition Alinta management was scrambling to form a plan and timetable to meet some of those conditions.
They also showed that at the time FIRB approved the sale, Alinta’s internal privacy controls and cyber security were inadequate.
As late as June 2019, Alinta’s internal privacy controls and systems for protecting the personal information of their 1.1 million customers remained deficient, according to an internal audit conducted by EY. The information included addresses, birth dates, Medicare and passport numbers as well as credit card details and some health information.
A key condition of sale was that data – bulk customer data, personal information or electricity or gas data – must be stored within Australia, can only be accessed within Australia and not be taken outside of Australia. It said third-party providers must also comply with the FIRB conditions.
According to Senate testimony from one third-party provider, Electricity Monster, it was holding customer data overseas and only rectified the situation when it read about the FIRB conditions in the news articles in March this year. It seems Alinta hadn’t shared that information with it before then.
Transparency leads to accountability and that creates trust – something we desperately need.