Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2016 - 2017 - 2018
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
SECURITY OF CRITICAL INFRASTRUCTURE BILL 2017
SUPPLEMENTARY EXPLANATORY MEMORANDUM
Amendments to be Moved on Behalf of the Government
(Circulated by authority of the
Minister for Home Affairs and the Minister for Immigration and Border Protection, the
Honourable Peter Dutton MP)
Amendments to the Security of Critical Infrastructure Bill 2017
(Government)
OUTLINE
1. The Security of Critical Infrastructure Bill 2017 (the Bill) will strengthen the
Government's capacity to manage the national security risks of espionage, sabotage
and coercion arising from foreign involvement in Australia's critical infrastructure.
2. The national security risks to critical infrastructure are complex and have continued to
evolve over recent years. Rapid technological change has resulted in critical
infrastructure assets having increased cyber connectivity, and greater participation in,
and reliance on, global supply chains with many services being outsourced and
offshored.
3. The Bill will apply to specific critical infrastructure assets in the electricity, water
ports and gas sectors which have been determined to be most at risk from sabotage,
coercion, and espionage.
4. The amendments to the Bill implement recommendations made by the Parliamentary
Joint Committee on Intelligence and Security (the Committee) in their report on the
Bill dated 15 March 2018. The key amendments are as follows:
amending the definition of direct interest holder and introducing definitions of
influence or control and associates to ensure direct interest holders provide
information for the Register of Critical Infrastructure Assets on all entities who
may be in a position to influence or control the asset or the direct interest
holder;
introducing an exemption from reporting for moneylenders, where the money
lending agreement does not put the lender (or a holding entity or subsidiary) in
a position to influence or control the asset;
requiring an unclassified statement of the grounds of an adverse security
assessment to be provided to the affected person (as part of issuing a direction);
and
including a requirement for the Committee to review the Bill within three years
of the Bill receiving Royal Assent.
5. In addition to responding to the Committee's report, the proposed amendments also
address some minor and technical issues in the Bill, including:
refining the definition of critical water asset to clarify that it applies to one or
more utilities or systems managed by a utility where those systems ultimately
service more than 100,000 connections, and
ensuring the definition of protected information applies to documents as well
information.
FINANCIAL IMPACT STATEMENT
The financial impact of these amendments is nil.
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REGULATION MAPPING
The regulation impact statement on the provisions in the Bill, as in the original explanatory
memorandum, is not impacted by these amendments.
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
The statement of compatibility with human rights on the provisions in the Bill, as in the
original explanatory memorandum, is not impacted by these amendments.
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AMENDMENTS TO THE SECURITY OF CRITICAL INFRASTRUCTURE BILL 2017
NOTES ON AMENDMENTS
Amendment 1 Part 1, Division 2, clause 5, page 5 (after line 14)
6. This amendment will insert a definition of associate in clause 5 of the Bill. The
meaning of an associate will be in clause 8B (to be inserted by item 15). Including a
definition of associate in the Bill will ensure there is a more accurate record of all
interest holders by capturing interests jointly held by entities with certain relationships.
This, in turn, assists to provide a better understanding of who owns and controls our
critical infrastructure.
Amendment 2 Part 1, Division 2, clause 5, page 5 (after line 17)
7. This amendment will insert a definition of corporate entity in clause 5. A corporate
entity is defined as any entity that is not an individual. Including a definition of
corporate entity in the Bill contributes to a clearer distinction between an entity, which
can be an individual, and a corporate entity, which cannot be an individual. The term is
used in the definitions of senior officer, subsidiary, higher entity and associate, and the
inclusion and use of corporate entity provides a clearer explanation of these concepts.
Amendment 3 Part 1, Division 2, clause 5, page 5 (lines 22 to 25)
8. This amendment will clarify the definition of critical water asset in clause 5 so that it
applies to one or more systems or networks managed by a utility where those systems
or networks ultimately service more than 100,000 connections. This amendment
ensures that only one report is required per water utility and they are not required to
report on more than one system or network under their control if those individual
systems or networks individually meet the 100,000 connections threshold.
Amendment 4 Part 1, Division 2, clause 5, page 6 (after line 24)
9. This amendment will insert definitions for holding entity, influence or control and
interest in clause 5.
10. The meaning of a holding entity is provided in clause 8C(2) (to be inserted by item 15).
Including a definition of holding entity in the Bill incorporates a more commonly used
term in the market. This term is then used within the moneylending exemption and
associate definition provisions, providing a simpler and clearer method of explaining
the type of entity within these provisions.
11. The meaning of influence or control is provided in clause 8A (to be inserted by item
15). The term provides a clearer explanation of the intention of the Bill, within the Bill
rather than only in the explanatory materials. Defining the term clarifies the criteria for
determining which entities are in a position to directly or indirectly influence or control
the direct interest holder and therefore need to be reported by the direct interest holder
on the Register.
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12. An interest in an asset is defined to be any 'legal or equitable interest in the asset.' This
definition would include interests held by way of a long term lease. Introducing the
definition creates a simpler and clearer use of the term interest in the Bill. For example,
use of the term interest in clause 8, when an entity is considered a direct interest
holder, can be simplified as a consequence of including this definition.
Amendment 5 Part 1, Division 2, clause 5, page 6 (after line 28)
13. This amendment will insert a definition for a moneylending agreement in clause 5. The
meaning of a moneylending agreement is provided in clause 8(3) (to be inserted by
item 14). This term is being introduced due to the inclusion of the moneylending
exemption provisions (clause 8), which uses the term moneylending agreement.
Amendment 6 Part 1, Division 2, clause 5, page 7 (lines 14 to 22)
14. This amendment will amend the definition of protected information in clause 5 to
ensure that it clearly applies to documents and information
15. Given the term protected information governs what information is afforded certain
protection under the Bill, this amendment will ensure those protections extend to
documents that are provided as well as information.
Amendment 7 Part 1, Division 2, clause 5, page 8 (after line 34)
16. This amendment includes definitions for senior officer and subsidiary in clause 5. The
meaning of a subsidiary is provided in clause 8C(1). These terms are being included to
provide a simpler and clearer method of explaining the types of entities that fall within
the newly introduced associate provision (clause 8B).
17. A senior officer of a corporate entity includes a director, a trustee, a director of the
trustee where the trustee is a body corporate, an individual involved in the central
management and control of the trust and individuals who have the capacity to affect the
business.
Amendment 8 Division 2, clause 6, page 9 (line 33) to 10 (line 8)
18. This amendment removes existing wording relating to influence or control from
sub-subclause 6(1)(f). This wording is being replaced by a new definition of influence
or control in relation to an asset in clause 8A(1) (to be inserted by item 15).
Amendment 9 Part 1, Division 2, clause 6, page 10 (lines 13 to 20)
19. This amendment replaces the existing sub-subclause 6(1)(h) with sub-subclauses
6(1)(h) and 6(1)(ha). This amendment responds to recommendation 4 of the
Committee's report into the Bill to provide greater certainty and clarity as to what
interest and control information is required to be reported.
20. The amendment provides further detail on the information that a direct interest holder
of a critical infrastructure asset is required to provide. It clarifies the original intention
to require direct interest holders to report on all entities (intermediate and ultimate
holding entities) that are in a position to directly or indirectly exercise influence or
control. Direct interest holders are required to report on all entities that are in a
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position to directly or indirectly influence and control the direct interest holder, up to
the ultimate owner.
21. This would result in the accurate reporting on entities that influence or control,
regardless of the acquisition structure used and provide Government with an
understanding of who is in a position to ultimately influence and control the direct
interest holder.
UPDATED EXAMPLE to paragraph 153 of EM, page 26
Example
Company A owns an electricity distribution network in Tasmania. Company A is
50 per cent owned by Company X. Company X only has one shareholder, Mr Smith,
who is an American citizen and lives at 1 Smith Street, in Auckland, New Zealand.
Company A, the first entity and direct interest holder of the critical infrastructure asset
(the electricity distribution network in Tasmania) would need to report, in accordance
with subclauses 6(a)-(g), its name, business number (if applicable), relevant address,
the type and level of interest it holds in the asset, information about the influence or
control it is in a position to directly or indirectly exercise in relation to the asset, and
information about the ability of a person, who has been appointed by the first entity to
the body that governs the asset, to directly access networks or systems that are
necessary for the operation or control of the asset.
Company A would also need to report on the name of each other entity that is in a
position to directly or indirectly exercise influence or control over it (sub-subclause
6(1)(h)(i) and 6(1)(h)(ii)). For each of the other entity's that are in a position to directly
or indirectly influence or control Company A, it would be required to provide all
information covered by subclauses 6(1)(b), (d) and (e) if appropriate (sub-subclause
6(1)(ha)).
Company A would report details on Company X (sub-subclause 6(1)(h)(i)) and details
on Mr Smith, an entity that is in a position to directly or indirectly influence or control
the Company X (sub-subclause 6(1)(h)(ii)). Company A would need to report on all
information covered in subclauses 6(1)(b), (d) and (e), including details on Mr Smith's
shareholding in Company X, Company X's shareholding in Company A, and Mr
Smith's residential address and citizenship details.
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Example
Entity A holds a 40 per cent interest in the critical infrastructure asset. Entity A is wholly-owned
by Holding Entity A, which is wholly-owned by Holding Entity 1, which is a subsidiary of
UP Entity A. UP Entity A, holds an interest of greater than 10 per cent in each of the holding
entities of Entity A, is in a position to appoint persons to run the asset and exercise veto rights in
relation to Entity A.
Entity A is required to report on each of these entities, up to the ultimate owner:
Holding Entity A, an entity that is in a position to directly or indirectly influence or
control the first entity - sub-subclause 6(1)(h)(i);
Holding Entity 1, an entity that is in a position to directly or indirectly influence or control
any entity covered by a previous application of this paragraph - sub-subclause 6(1)(h)(ii);
UP Entity A, the ultimate owner - sub-subclause 6(1)(h)(ii).
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Amendment 10 Part 1, Division 2, clause 6, page 10 (after line 22)
22. This amendment includes notes at the end of clause 6 to further explain the intention of
sub-subclauses 6(1)(h) and 6(1)(ha), refer to the definition of influence or control and
refer to clause 53A, which outlines interests held by trusts, partnerships,
superannuation funds and unincorporated foreign companies.
Amendment 11 Part 1, Division 2, clause 8, page 12 (lines 1 to 3)
23. This amendment replaces subclause 8(1)(a) to include direct interest holders that
jointly hold interests in critical infrastructure assets with an associate or associates. An
interest in an asset is defined to be any 'legal or equitable interest in the asset'.
24. Including the concept of associate in the Bill provides a more accurate record of
interest holders by capturing interests jointly held by entities with certain relationships.
This, in turn, assists to provide a better understanding of who owns and controls our
highest-risk critical infrastructure.
25. In determining whether an entity is a direct interest holder in relation to a critical
infrastructure asset, interests held jointly with any associates of the entity are also taken
into consideration. If an entity and its associates jointly hold an interest of at least
10 per cent in the asset, the entity is considered to be a direct interest holder.
Example
Entity A holds a 5 per cent interest in the critical infrastructure asset. Entity A carries
on a business in partnership with Entity B, which also holds a 5 per cent interest in the
asset. While Entity A does not hold an interest of at least 10 per cent in the asset, Entity
A and Entity B are considered associates and Entity A, together with its associates (and
consequently Entity B, together with its associates) hold an interest of at least
10 per cent in the asset. For the purposes of the Bill, both Entity A and Entity B are
considered to be direct interest holders.
Amendment 12 Part 1, Division 2, clause 8, page 12 (line 4)
26. The amendment removes the reference to 'lease' in the definition of a direct interest
holder. A lease is considered an interest under the Bill and the inclusion of the
definition of interest in clause 5 (inserted by amendment 4) results in the ability to
simplify subclause 8(1)(b).
Amendment 13 Part 1, Division 2, clause 8, page 12 (after line 6)
27. This amendment includes a note at the end of clause 8 to refer to clause 53A, which
outlines interests held by trusts, partnerships, superannuation funds and unincorporated
foreign companies. This provision was previously included within clause 6, but has
been deleted (by amendment 14) and moved to clause 53A (by amendment 18).
Amendment 14 Part 1, Division 2, clause 8, page 12 (lines 7 to 17)
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28. This amendment replaces the existing subclause 8(2) (which is being amended and
moved by amendment 18) with two new subclauses which provide an exemption to the
definition of a direct interest holder for moneylenders.
29. New subclause 8(2) will ensure that moneylenders, in most circumstances are not
considered to be a direct interest holder and therefore do not have to report interest and
control information in respect of the asset.
30. The definition of a moneylending agreement at new subclause 8(3) captures
agreements to lend money, or other agreements to provide financial accommodation,
entered into in the ordinary course of a moneylending business. The definition also
captures any subsidiaries or holding entities of the moneylender that are entitled to the
security interest arising from the moneylending agreement, even if these entities were
not the moneylender in the moneylending agreement.
Example
A moneylender enters into an agreement with a critical infrastructure asset operator.
The loan is secured and the security interest provided as part of the moneylending
agreement is considered an interest in the critical infrastructure asset. The entity
entitled to take and hold the security in the event of a default is not the moneylender,
but a subsidiary of the moneylender. The moneylending exemption and the
moneylending agreement definition provide an exemption for the moneylender, as well
as any subsidiary and holding entity that hold an interest in the critical infrastructure
asset for the purposes of a moneylending agreement. These entities (the moneylender,
any subsidiary and holding entity), are not considered direct interest holders and are
not required to report under the Bill.
31. The moneylending exemption applies where the security interest in the asset is held as
part of a security interest for the purposes of a moneylending agreement (sub-subclause
8(2)(a)(i)) and enforcing the security would not put the moneylender, its subsidiary or
holding entity, in a position to directly or indirectly influence or control the asset
(sub-subclause 8(2)(c)). The moneylending exemption still applies if the security is
enforced as a result of a default, and the moneylender, subsidiary or holding entity
enforce the security over the critical infrastructure asset and hold an interest in the asset
(sub-subclause 8(2)(ii)). However, the exemption only applies where the interests are
held in the ordinary course of a moneylending business, and the entities are not in a
position to directly or indirectly influence or control the asset (sub-subclause 8(2)(b)).
Example
Company A, a moneylender, holds a security interest over a critical infrastructure asset.
Company B, the borrower, defaults on the loan and Company A is required to enforce
the security interest. This results in Company A acquiring an interest in the critical
infrastructure asset.
Company A, after acquiring the interest, obtains control and influence over the critical
infrastructure asset, and begins to control the asset for purposes outside of the usual
business of a moneylender.
8
The moneylending exemption would no longer apply and Company A would be
considered a direct interest holder and would be required to report on interest and
control information in respect of the asset.
Amendment 15 Part 1, Division 2, clause 8, page 12 (after line 17)
32. This amendment inserts new provisions to the Bill, clauses 8A, 8B and 8C.
33. Clause 8A defines the meaning of influence or control. The new provision provides a
list of situations where an entity is considered to be in a position to influence or control
an asset (subclause 8A(1)), or another entity (subclause 8A(2)). The provisions assists
direct interest holders to determine which entities are in a position to directly or
indirectly influence or control the direct interest holder and therefore which entities
they are required to report on.
34. While influence or control over an asset or another entity is not limited to the situations
detailed in subclauses 8A(1) and 8A(2), it includes the following:
the entity is in a position to exercise voting or veto rights in relation to the
b
o
dExample
y
The Chief Executive Officer of a company related to the ultimate holding
t company holds veto rights in relation to the direct interest holder, which is
halso the body that governs the asset. The Chief Executive Officer is in a
aposition to influence or control the direct interest holder.
t
The direct interest holder is required to report on the following:
g o the name of the Chief Executive Officer and the company -
o sub-subclause 6(1)(a);
v o the ABN or business number of the company - sub-subclause 6(1)(b);
e o the address of the head office or principal place of business and the
r country of incorporation or formation - sub-subclause 6(1)(c);
n o the residential address, the country of residence and citizenship of the
s Chief Executive Officer;
o the name, ABN or business number, the address of the head office or
t principal place of business and the country of incorporation or formation
h of the ultimate holding company - sub-subclause 6(1)(a)-(d) and
e sub-subclause 8A(1)(a).
a
sset.
9
the entity is in a position to influence or determine decisions relating to the
business plan, asset management plan, major expenditure and major loans
i
n
vExample
o
l The Managing Director of an intermediate holding company is responsible for
vthe financing and expenditure decisions of each of its subsidiaries, including the
i direct interest holder.
n
gThe Chief Executive Officer of the ultimate holding company has an overarching
right to influence financing and expenditure decisions of the subsidiaries,
t including the asset.
h
eThe direct interest holder is required to report on the Managing Director, the
intermediate holding company, the Chief Executive Officer and the ultimate
aholding company due to sub-subclause 8A(1)(d) and the influence or control
sthey are each able to exercise. The required reporting details are:
s o the name of the Managing Director and the intermediate holding
e company and the name of the Chief Executive Officer and the ultimate
t holding company - sub-subclause 6(1)(a);
. o the name of the ABN or business number of the intermediate and
ultimate holding companies - sub-subclause 6(1)(b);
o the address of the head office or principal place of business and the
country of incorporation or formation of the intermediate and ultimate
holding companies - sub-subclause 6(1)(c);
o the residential address, the country of residence and citizenship of the
Managing Director and Chief Executive Officer.
10
11
the entity is in a position to directly or indirectly influence or control another
entity if together with any associates of the controlling entity, they hold an
interest of at least 10 per cent in the controlled entity (including if any of the
interests are held jointly with one or more other entities). An associate is
defined in clause 8B.
Example
35. The
Entity A, the direct interest holder is 50 per cent owned by Holding B. Entity A is
amen
the controlled entity and Holding B is the controlling entity. Holding B also holds a
dme
50 per cent interest in Holding A, which holds a 5 per cent interest in Entity A.
nt
Holding A is also a controlling entity of Entity A, as Holding A and Holding B are
also
considered to be associates under clause 8B. Holding A, together with its associate
inclu
Holding B, jointly hold an interest of 55 per cent in Entity A. Ultimate Co is the
des
ultimate holding company of both Holding A and Holding B.
subcl
ause Entity A, as the direct interest holder would be required to report details on Holding
8A(3 A, Holding B and Ultimate Co.
) to
clarif
y
that
the
list
of
situat
ions
listed
wher
e an
entit
y is
in a
posit
ion
to
direc
tly or
indir
ectly
influ
ence
or
contr
ol an
asset
or
12
another entity are not exclusive and entities may be deemed in future to be in a position
to directly or indirectly influence or control in situations other than those listed in the
Bill.
36. These amendments provide greater clarity on the requirements of the Bill and allow
these terms to be used within other provisions of the Bill. For example, these terms
provide clarity to the scope and intent of clause 8, the meaning of a direct interest
holder.
37. Clause 8B defines an associate broadly. The new provision provides a list of situations
where a person is considered an associate of a person. Including a definition of
associate in the Bill will ensure there is a more accurate record of all interest holders
by capturing interests jointly held by entities with certain relationships. This, in turn,
assists to provide a better understanding of who owns and controls our critical
infrastructure.
38. The following people are associates of a person:
a person's 'relative' within the meaning given by the Income Tax Assessment
Act 1997 (defined below);
any person with whom the person is acting, or proposes to act, in concert in
relation to a critical infrastructure asset;
any person with whom the person caries on a business in partnership;
any entity of which the person is a senior officer;
any entity whose senior officers are accustomed to or under an obligation,
whether formal or informal, to act in accordance with the directions,
instructions or wishes of the person, or, if the person is an entity, the senior
officers of the person;
an entity if the person is accustomed or under an obligation, whether formal or
informal, to act in accordance with the directions, instructions or wishes of the
entity or the senior officers of the entity;
any corporation in which the person holds an interest;
if the person is a corporation, a person who holds an interest in the
corporation;
the trustee of a trust in which the person holds an interest;
if the person is a trustee of a trust, a person who holds an interest in the trust.
39. The Minister may prescribe by legislative instrument any other person or body as an
associate (sub-clause 8B(l)). This ensures the Minister can in the future capture other
relationships that would amount to an associate that are not currently captured by this
Bill.
13
40. Clause 8C provides a definition of subsidiary and holding entity, and the situations in
which a corporate entity is considered a subsidiary or a holding entity of a corporate
entity. These terms are being included to provide a simpler and clearer method of
explaining the types of entities that fall within the newly introduced associate provision
(clause 8B) and the moneylending exemption (clause 8).
Amendment 16 Part 1, Division 2, clause 12 (line 18)
41. This amendment addresses an error in subclause 12(1)(b) and clarifies that a gas
storage facility is captured if its maximum daily quantity is at least 75 terajoules per
day.
42. The intent of the amendment to subclause 12(1)(b) is reflected in the original
explanatory memorandum.
Amendment 17 Part 7, Division 1, clause 53 (lines 5 to 7)
43. The amendment simplifies the explanation of provisions within the simplified outline
of Part 7. This provides a more concise outline, which is then explained in greater
detail in the newly inserted clause 53A (to be inserted by item 18).
Amendment 18 Part 7, Division 2, page 45, before clause 54 (before line 2)
44. The amendment moves existing subclause 8(2) to clause 53A. This provision was
previously included within clause 6, but has been moved to clause 53A. This provision
clarifies the operation of clause 8, it is considered to be a miscellaneous provision,
rather than a subset of clause 8.
45. While clause 8 defines the meaning of direct interest holders, applying to interests held
by entities, clause 53A clarifies that due to the nature of trusts, partnerships,
superannuation funds, and unincorporated foreign companies, the entities themselves
are unable to hold an interest. In these situations, the interest is held by the trustee on
behalf of the beneficiaries, partner on behalf of the partnership or appointed officers on
behalf of the company. The clause deems the interest to be held by the trust, partner or
officers for the purposes of the Bill.
Amendment 19 Part 7, Division 4, page 49 (line 1)
46. The amendment inserts 'reviews' into the heading of Division 4. This amendment is
required as a proposed new provision, clause 60A, which to be included in Division 4,
provides a review mechanism for the Parliamentary Joint Committee on Intelligence
and Security.
Amendment 20 Part 7, Division 4, page 49, after clause 60 (after line 25)
47. This amendment introduces a new provision, clause 60A, which requires the
Parliamentary Joint Committee on Intelligence and Security (Committee) to review the
Bill, commencing within three years of the Bill receiving Royal Assent. The review
mechanism will provide confidence that the Bill is operating as intended and that the
powers vested in the Bill are not used beyond the intended scope. This provision also
ensures that the Bill is effective in achieving its purpose and intention as per the
14
Objects of the Bill (clause 3). The nature of the review will be at the discretion of the
Committee.
48. The Committee is required to have consideration for a number of factors when
reviewing the Bill.
49. Subclause 60A(1)(a) specifically requires the Committee to consider the operation,
effectiveness and implications of the Bill. The Committee will particularly consider the
operation, effectiveness and implications of the key mechanisms in the Bill including
the Register (Part 2, Division 2), the directions power (Part 3, Division 2) and the
information gathering power (Part 4, Division 2).
50. Subclause 60A(1)(b) requires the Committee to have consideration for the
circumstances upon which the Minister has privately declared an asset to be a critical
infrastructure asset for the purposes of the Bill (Part 6, Division 2).
51. Subclause 60(1)(c) requires the Committee to consider the appropriateness of a unified
scheme to cover all critical infrastructure assets, including telecommunication assets.
52. Subclause 60(1)(2) requires the Committee to report to each House of the Parliament
on the outcome of the review into the Bill.
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