Overseas Investment Amendment Bill (No 2)

2.1. Are there any publicly available inquiry, review or evaluation reports that have informed, or are relevant to, the policy to be given effect by this Bill?

YES

Consultation document: Reform of the Overseas Investment Act 2005 - Facilitating productive investment that supports New Zealanders’ wellbeing, The Treasury, April 2019. https://treasury.govt.nz/publications/consultation/reform-overseas-investment-act-2005/

2.2. Does this Bill seek to give effect to New Zealand action in relation to an international treaty?

NO

2.3. Were any regulatory impact statements provided to inform the policy decisions that led to this Bill?

YES

“Reform of the Overseas Investment Act 2005 – Phase 2”, The Treasury, 8 October 2019 updated 12 March 2020.http://www.treasury.govt.nz/publications/informationreleases/ria 

Parts of the regulatory impact statement have been withheld under the grounds set out in the Official Information Act 1982. The particular withholding grounds are noted on the regulatory impact statement (RIS).

2.3.1. If so, did the RIA Team in the Treasury provide an independent opinion on the quality of any of these regulatory impact statements?

NO

The RIS above did not meet the threshold for needing an independent opinion on the quality of the regulatory impact assessment from the Regulatory Impact Assessment Team in the Treasury. An internal panel at the Treasury assessed both the RIS provided before Cabinet’s consideration, as well as the updated RIS which was provided to the Associate Minister of Finance (Hon David Parker), who made a number of decisions following Cabinet’s consideration of the reforms, as authorised by Cabinet. There was no change to the panel’s overall assessment following a review of the updated RIS.

Overseas Investment Act RIS Review

Overall assessment: partially meets

The RIS clearly describes the policy problems, objectives, options and the policy process to date.  It also clearly identifies where officials’ recommendations differ from the options being recommended to Cabinet, and the differing judgements and weightings behind those differing recommendations. 

The RIS is clearly written but lengthy, reflecting the complexity and breadth of the issues this policy package addresses. 

The review panel assessed the great majority of the RIS as meeting the quality assurance criteria. The key reason for the panel’s overall assessment being the RIS partially meets the quality assurance criteria is that the proposal regarding moving the rural land directive to primary legislation do not meet the consultation requirements.  This proposal has not been consulted on publicly, or with key non-Crown stakeholders, including Māori.  The proposals regarding special land acquisition also contain some features that have not been subject to public consultation. Addressing this would require appropriate consultations, and inclusion of the results of that consultation, in the proposals.

2.3.2. Are there aspects of the policy to be given effect by this Bill that were not addressed by, or that now vary materially from, the policy options analysed in these regulatory impact statements?

NO

2.4. Has further impact analysis become available for any aspects of the policy to be given effect by this Bill?

YES

The RIS has been updated subsequent to Cabinet’s consideration to reflect policy decisions made by the Associate Minister of Finance (Hon David Parker), as authorised by Cabinet. The updates include:

• in applying the good character component of the investor test, allowing the decision-maker to consider tax defaults over a relevant threshold, certain tax-related penalties and allegations of tax-related offences, settlement agreements made with the Overseas Investment Office (the OIO) and a broader range of contraventions of the principal Act;
• requiring applicants to disclose information about the structure and tax treatment of their proposed investment.  This information will be provided to Inland Revenue for monitoring purposes and will not be considered as part of an application for consent;
• compensating third parties who have their registered interests removed from the title, when the Crown acquires special land, where those interests were registered on the title of the special land prior to it being purchased by the overseas investor; and
• empowering the OIO to gather and share information related to national security and public order risks. The OIO will be able to require a person to provide information if it has reasonable grounds to suspect that an investment is a non-notified voluntary call in transaction which may pose national security or public order risks. The OIO will also be able to share information with other agencies (and vice-versa) to aid in assessing national security and public order risks for transactions screened under the national interest test or subject to the call in power.

2.5. For the policy to be given effect by this Bill, is there analysis available on:

(a)   the size of the potential costs and benefits?

YES

(b)   the potential for any group of persons to suffer a substantial unavoidable loss of income or wealth?

YES

These matters are considered in the RIS.

http://www.treasury.govt.nz/publications/informationreleases/ria 

2.6. For the policy to be given effect by this Bill, are the potential costs or benefits likely to be impacted by:

(a)   the level of effective compliance or non-compliance with applicable obligations or standards?

YES

(b)   the nature and level of regulator effort put into encouraging or securing compliance?

YES

These matters are considered at a high level in the RIS.

http://www.treasury.govt.nz/publications/informationreleases/ria 

3.1. What steps have been taken to determine whether the policy to be given effect by this Bill is consistent with New Zealand’s international obligations?

The Ministry of Foreign Affairs and Trade has been involved in the development of the changes this Bill gives effect to, to help assess whether the changes are consistent with the policy space preserved in trade agreements for the operation of our overseas investment screening regime.

3.2. What steps have been taken to determine whether the policy to be given effect by this Bill is consistent with the principles of the Treaty of Waitangi?

Treasury officials consulted with Te Puni Kōkiri and Te Arawhiti to determine whether the changes in the Bill are consistent with the principles of the Treaty of Waitangi.

Public consultation included hui with representatives from iwi organisations and Māori businesses, and the feedback informed changes to better account for Māori cultural values when considering investments in sensitive land. Investors’ plans to protect or enhance historic heritage such as wāhi tapu can already be considered under the Act, and this will be expanded to include other sites of significance, such as wāhi tūpuna and Māori reservations, and places of ancestral and cultural significance. Once amended, the Act will recognise, as potential benefits of investments, protecting or enhancing wāhi tūpuna, wāhi tapu areas and Māori reservations and providing, protecting or enhancing access across land for the purposes of stewardship of historic heritage or a natural resource.

However, due to the timing of decisions, changes to the rural land directive and special land acquisition were not consulted on publicly, or with key non-government stakeholders, including Māori. 

3.3. Has advice been provided to the Attorney-General on whether any provisions of this Bill appear to limit any of the rights and freedoms affirmed in the New Zealand Bill of Rights Act 1990?

YES

Advice provided to the Attorney-General by the Ministry of Justice, or a section 7 report of the Attorney-General, is generally expected to be available on the Ministry of Justice's website upon introduction of a Bill. Such advice, or reports, will be accessible on the Ministry's website at:

http://www.justice.govt.nz/policy/constitutional-law-andhuman-rights/human-rights/bill-of-rights.

3.4. Does this Bill create, amend, or remove:

(a)   offences or penalties (including infringement offences or penalties and civil pecuniary penalty regimes)?

YES

(b)   the jurisdiction of a court or tribunal (including rights to judicial review or rights of appeal)?

NO

The OIO’s enforcement tools are being strengthened to enable proportionate responses to breaches of the Act and the Regulations, and to manage significant risks to national security and public order.

Clause 44 differentiates and increases the maximum fixed civil pecuniary penalties available:

• increasing the maximum civil pecuniary penalty for individuals to $500,000,
• and introducing a separate maximum civil pecuniary penalty of $10 million in any other case.

Clause 42 creates a new civil pecuniary penalty for breaching an enforceable undertaking, with an upper limit of $50,000 for an individual and $300,000 in any other case.

Clause 48 clarifies that the High Court can grant injunctions to restrain a person from engaging in conduct that constitutes or would constitute a contravention of the Act or Regulations. This clause does not expand the jurisdiction of the High Court.

There is nothing in the Bill that limits the jurisdiction of a Court or Tribunal. The new decision-making powers in the Act will be subject to judicial review.

3.4.1. Was the Ministry of Justice consulted about these provisions?

YES

The Ministry of Justice was consulted during both the policy development and the drafting of the Bill, and received draft versions of the Bill for comment. The Ministry’s feedback was incorporated in the following provisions of the Bill.

The new civil pecuniary penalty threshold was developed in close consultation with the Ministry of Justice, to ensure that it is aligned with current practice for penalties, as is reflected in the Telecommunications Act 2001 and following the Commerce Act 1986 reform. The Bill incorporates the Ministry of Justice’s feedback that “civil” should be inserted into all references to “pecuniary penalties”.

The Treasury also tested the proposal to differentiate the maximum thresholds between individuals and all other parties with the Ministry of Justice.

The Ministry of Justice was consulted in the policy development of the powers for managing national security and public order risks, and a draft of the Bill was provided to the Ministry for comment.

3.5. Does this Bill create, amend or remove any provisions relating to the collection, storage, access to, correction of, use or disclosure of personal information?

YES

Clause 35 allows the OIO to require a person to provide information when the Regulator is investigating whether a transaction is an overseas investment transaction or a call-in transaction, and whether a transaction gives rise to, or is likely to give rise to, a significant risk to national security or public order.

Clause 60 (new section 126) allows the OIO and the listed agencies to share information relevant to managing national security and public order risks, if sharing that information is necessary or desirable for managing national security and public order risks. Pursuant to new section 126(3), an agency that shares information may impose any conditions it thinks fit for maintaining the confidentiality of the any information provided.

Clause 32 allows the OIO to require investors to provide certain information about a proposed investment’s structure and tax treatment. This information will be used by Inland Revenue for monitoring purposes and will not be considered as part of an application for consent.

3.5.1. Was the Privacy Commissioner consulted about these provisions?

YES

The Office of the Privacy Commissioner agrees that the Bill and the new information gathering and disclosure powers comply with the relevant principles and guidelines set out in the Privacy Act 1993.

3.6. Has there been any external consultation on the policy to be given effect by this Bill, or on a draft of this Bill?

YES

Consultation was undertaken from late-2018 to late-2019, before the provision of drafting instructions to Parliamentary Counsel Office in November 2019. Officials held meetings with stakeholders and the public (19 meetings with approximately 175 attendees throughout New Zealand and in Sydney). This included meetings open to the public, hui with representatives from iwi organisations and Māori businesses, and meetings with technical audiences and investors. A consultation document was released in April 2019 and 733 written submissions were received.

Due to the timing of policy development work, there was no consultation on some aspects of the policy package. Officials have since consulted extensively on these topics with relevant government agencies, legal counsel and stakeholders where appropriate. 

An exposure draft of the Bill was not released due to time limitations. However, officials met with stakeholders in December 2019 to provide an update on and seek feedback following Cabinet’s policy decisions, and the Cabinet Paper including the policy decisions was proactively released in December 2019.

The following agencies and entities have been consulted on the draft Bill: the Ministry for Primary Industries, the Ministry of Justice, the Depart of Conservation, the Ministry for the Environment, the Inland Revenue Department, the Ministry of Foreign Affairs and Trade, the Ministry of Defence, New Zealand Trade and Enterprise, the Department of the Prime Minister and Cabinet, Land Information New Zealand, Te Puni Kōkiri, the Ministry of Housing and Urban Development, the New Zealand Security Intelligence Service, the Government Communications Security Bureau, the Ministry of Business Innovation and Employment, the Ministry of Culture and Heritage, Te Arawhiti, and the Reserve Bank of New Zealand.

3.7. Have the policy details to be given effect by this Bill been otherwise tested or assessed in any way to ensure the Bill’s provisions are workable and complete? 

YES

These changes were developed in close consultation with the OIO (the regulator under the Overseas Investment Act) with the aim of ensuring that they are workable.

4.1. Does this Bill contain any provisions that could result in the compulsory acquisition of private property?

YES

Schedule 3 allows the Crown to compulsorily acquire fresh or seawater areas (previously ‘special land’), including the removal of any third parties’ interests from the title when the Crown acquires fresh or seawater areas. Schedule 3 requires compensation to be provided to the overseas investor, and allows third parties to apply for compensation if their registered interests are removed from the title, where those interests were registered on the title of the fresh or seawater area prior to it being purchased by the overseas investor.

Clause 60 (new section 93) allows the Minister to order an overseas person or their associate to dispose of sensitive assets, acquired through a call-in or national interest transaction, where the Minister has determined that there is a significant risk to national security or public order. For national interest and notified call-in transactions, a relevant condition will also need to be breached before a disposal order can be made, and disposal orders cannot be made where the risk can be adequately managed through another power. The overseas person will retain the proceeds of the disposal.

Clause 60 (new sections 94 – 111) allows for the Crown to appoint a statutory manager for an organisation which owns sensitive assets, and which an overseas person has acquired an interest in. The purpose of statutory management is to manage national security and public order risks arising from the overseas person’s interest and actions. The organisation or assets will be under the control of the statutory manager while those risks are managed. The Crown can claim costs for the process from the overseas person’s interest. Clause 60 (new section 99) requires statutory managers to have regard to legitimate interests in the organisation while managing risks to national security and public order. The proceeds of the disposal of the overseas person’s interest will go to the overseas person, after providing for the costs of the statutory manager.

4.2. Does this Bill create or amend a power to impose a fee, levy or charge in the nature of a tax?

NO

4.3. Does this Bill affect rights, freedoms, or impose obligations, retrospectively?

NO

4.4. Does this Bill:

(a)   create or amend a strict or absolute liability offence?

YES

(b)   reverse or modify the usual burden of proof for an offence or a civil pecuniary penalty proceeding?

NO

Clause 60 (new section 85) makes persons strictly liable if they do not notify the Overseas Investment Office of a call-in transaction in military or dual use technology and critical direct suppliers. An administrative fine, as set out in the regulations, will apply in such cases. There is a risk that investors will unknowingly contravene this provision. However, strict liability is appropriate because it will only apply to a small category of high-risk transactions that the Overseas Investment Office needs to be aware of, whether or not the investor is knowingly avoiding the notification requirements. The Overseas Investment Office will provide guidance to investors and their advisors, to support them in businesses in determining whether the obligation applies in any particular case.

4.5. Does this Bill create or amend a civil or criminal immunity for any person?

NO

4.6. Does this Bill create or amend a decision-making power to make a determination about a person’s rights, obligations, or interests protected or recognised by law, and that could have a significant impact on those rights, obligations, or interests?

YES

The Bill provides the relevant Ministers with new decision-making powers, including the ability to block, impose conditions on, or unwind transactions that are not currently subject to screening under the Act. The Minister will be unable to exercise these powers unless they are satisfied that various criteria are satisfied. This is consistent with the approach currently taken in the Act, where the ultimate decision-making rests with the relevant Ministers (such as under section 14 of the Act). The new national interest test is of particular note, as it allows the Minister to consider any transaction ordinarily reviewed under the Act that may be contrary to the national interest, and impose conditions or decline the transaction to preserve the national interest.

The Bill also removes some decision-making powers where low-risk transactions are removed from screening, including fundamentally New Zealand entities and most investments in land adjacent to sensitive land.

Clause 13 amends the benefit to New Zealand test, simplifying the criteria for decision-makers by reducing the 21 narrowly framed factors to 7 less prescriptive factors, with an additional factor that only applies to investments involving water bottling or bulk water extraction for human consumption.

Clause 60 introduces a new Part 3 to the Act, which will allow the Minister to impose conditions on an acquisition, to manage significant risks to national security and public order. Those conditions will affect an overseas person’s rights, obligations and interests in relation to the relevant property.

These decision-making powers are appropriately limited through criteria, and decisions will be subject to judicial review.

4.7. Does this Bill create or amend a power to make delegated legislation that could amend an Act, define the meaning of a term in an Act, or grant an exemption from an Act or delegated legislation?

YES

New regulations will be needed to bring some of the call-in and national interest test powers into effect. The call-in power will apply to investments in strategically important business assets (and entities that hold such assets) as defined in the legislation and Regulations. The national interest test will also apply automatically to those strategically important business assets (and holders of such assets). Regulations are required to bring the full scope of these powers into effect; some assets that are strategically important (that is, their ownership by overseas persons could give rise to national security and public order risks) will be defined in regulations to allow for the appropriate level of detail and flexibility. The scope of these definitions will be constrained by the high-level definitions in the Act and a statutory requirement for these definitions to be no broader than necessary to manage national security and public order risks.

The exemption criteria in the Act will be amended to allow the Minister to exempt certain fundamentally New Zealand entities from the need to obtain consent.

The Bill requires applicants to disclose information about a screened investment’s structure and tax treatment as part of an application. New regulations will be required to specify exactly what information will need to be provided. The form and information requirements will be constrained by the provisions in the Act.

4.8. Does this Bill create or amend any other powers to make delegated legislation?

NO

4.9. Does this Bill contain any provisions (other than those noted above) that are unusual or call for special comment?

NO

Classified security information in civil court proceedings

Clause 60 (new sections 113 – 125) sets out provisions for the protection of classified security information in civil court proceedings relating to the administration or enforcement of the Act. It sets out the manner in which classified security information may be used in those court proceedings which differ from normal civil procedure. These provisions are substantially the same as subpart 8 of Part 4 of the Telecommunications (Interception Capability and Security) Act 2013, except that information held by any law enforcement or regulatory agency may be classified security information if certified by the head of the agency or the Attorney-General (see new section 114).

Statutory Management

Clause 60 (new sections 94 – 111) introduces a statutory management power to manage the risks to national security or public order associated with actions by an overseas person, or an associate of an overseas person, who has an interest in sensitive assets, including (without limitation) removing the overseas person’s, or their associate’s, access to or control over the sensitive assets. This power is based on the Corporations Investigation and Management Act 1989. A notable addition to the powers in that Act is that statutory managers will be able to terminate contracts or arrangements posing significant risk to national security or public order (new section 104).