Foreign influence – from education to enforcement

In brief 8 min read

A heightened risk of foreign interference and a shift towards enforcement of the new foreign influence and interference legislation means it is now critical to consider any compliance risks your business may face.

It has been two years since the Foreign Influence Transparency Scheme (FITS) and the new foreign interference offences were introduced in Australia. While this has largely been a period of educating and assisting individuals and organisations to comply with the new registration regime and offences, recent events show the regulators are moving to enforce the legislation. Taken together with ASIO's recent reports of a heightened risk of foreign interference and the severe consequences of non-compliance, it is crucial that businesses familiarise themselves with this legislation now and promptly take any steps required to mitigate the risks of non-compliance.

Key takeaways - How does this affect you?

• Businesses may need to register under FITS if they engage with the Australian government on behalf of any foreign entities connected with a foreign government. For example, by advancing the commercial interests of a joint venture with a state-owned enterprise, or by lobbying for regulatory reform that would allow it to enter into an import arrangement with a foreign government.
• Businesses engaging with individual or corporate actors connected with a foreign government face the risk that a foreign interference offence committed by an employee can be attributed to the company. This risk increases if your business does not put in place mechanisms to promote compliance with the legislation.

Background – the foreign influence and interference law

In mid-2018, the Federal Government introduced a package of reforms aimed at strengthening Australia's national security and protecting our political system from foreign interference and covert influence. These reforms included:

Recent developments

A shift towards enforcement

The first annual report on the operation of FITS was published by the Attorney-General's Department on 15 July 2020 and covers the period from its commencement (10 December 2018 to 30 June 2019). It states that, in recognition of the broad application of FITS, much of the Department's activity during this period "focussed on awareness raising with the goal of assisting those with obligations under the scheme to fulfil them. This has included the delivery of information sessions, significant numbers of outreach letters and the operation of a dedicated helpline."³ During this period, no referrals for investigation or prosecution were made, nor were any compulsory information or document production notices issued.⁴

Although the annual report covering the second year of operation has not yet been published, the following developments over the past year signal a clear shift towards enforcement, including the exercise of various compulsory powers by regulators under both the FITS and foreign interference legislation.

Heightened risks of foreign interference

ASIO's 2019-2020 Annual Report was tabled in Parliament on 15 October 2020 and warns of mounting foreign interference threats in Australia. In his Review, Director-General Mr Mike Burgess states that 'there are more foreign spies and their proxies operating in Australia than there were at the height of the Cold War'.¹⁴

Mr Burgess also reports that during this period, ASIO discovered and disrupted a plot to penetrate Australia's intelligence community. An Australian-based foreign national was working with a team of foreign intelligence officers, who were trying to recruit multiple Australian security clearance holders to obtain sensitive information about intelligence operations.

How can you prepare?

The importance of putting in place an appropriate compliance framework is further reinforced by the severe criminal penalties that exist for failing to comply with FITS obligations, or for committing foreign interference offences. These include terms of imprisonment and pecuniary penalties for individuals and fines for body corporates, the length and quantum of which varies depending on the specific offence and the particular mental state of the person committing the offence.

Is your business at risk?

The FITS regime is complicated and there are a variety of activity types that could require a business to register. Fundamentally though, FITS risks arise for businesses that engage with the Australian government on behalf of a foreign person (entity or individual) connected with a foreign government or foreign political organisation.

Examples of the types of business activities that may give rise to an obligation to register under FITS include:

• Company A and a foreign government plan to work together to import and distribute Australian food within the foreign country. During negotiations, Australia makes changes to its export regulations that prohibit Company A from exporting the food. The foreign government advises Company A that unless it is able to have the regulations changed, it will proceed with another import partner. Company A lobbies the relevant Minister to change the regulations.
• An Australian company is a participant in a joint venture involving a foreign state-owned enterprise. From time to time, the Australian company (or a consultant lobbyist retained by the Australian company) meets with representatives of the Australian government on behalf of the joint venture to gain government support for the joint venture projects.
• A local Australian subsidiary is directed by its foreign owner to prepare a submission to an Australian Parliamentary Inquiry advancing a position that is favourable to the interests of the foreign owner. The foreign owner is a state-owned enterprise that trades under a substantially different name to the Australian subsidiary.

Additionally, businesses engaging with individual or corporate actors connected with a foreign government face the risk that if an employee commits a foreign interference offence (whether intentionally or recklessly), their conduct can be attributed to the company. Attribution of liability can be established on the basis that, for example, the company fostered a culture that directed, encouraged or tolerated non-compliance with the foreign interference legislation because it did not put any systems in place to educate its employees about the risks.

We can assist you to ensure compliance with this legislation by:

• Advising on whether any aspects of your business operations require registration under FITS and/or present foreign interference risk.
• Preparing and delivering training on the FITS and foreign interference regimes to ensure that relevant personnel are aware of the types of activities that give rise to FITS obligations or foreign interference risk.
• Preparing written policies, checklists and registers to ensure personnel are able to identify and escalate risks appropriately, whilst reinforcing a zero tolerance approach to foreign interference.