Entering Australia's defence market: What the Hanwha-Austal decision reveals about Foreign Investment Clearance

Late last year, Australian Treasurer Jim Chalmers approved a proposal by South Korean defence conglomerate Hanwha Group to increase its stake in Austal from 9.9% to 19.9%, making it Austal's largest shareholder. The clearance took 10 months and came with strict conditions. For foreign companies eyeing opportunities in Australia's defence sector, the Hanwha case is a clear signal of what the approval process involves and demands.

What is FIRB and why does it matter?

The Foreign Investment Review Board (FIRB) is an independent advisory body that reviews foreign investment proposals and makes recommendations to the Australian Treasurer, who has the final authority to clear, block or impose conditions on investments. FIRB is not a rubber stamp. In sensitive sectors, it is a substantive gatekeeper.

For most commercial investments, FIRB review may be straightforward. However defence is different. Foreign investment approval is mandatory, regardless of deal size, for any investment in a business that develops, manufactures or supplies critical goods or technology for military use, or that provides critical services to the Department of Defence (directly or indirectly). This covers a wide range of activities: military vehicles, specialised maintenance, data services, artificial intelligence applications, and directed energy and capabilities, among others.

If your business touches any of these areas, FIRB review is not optional.

FIRB does not conduct its review in isolation. It relies on a network of partner agencies to inform its assessment and prepare its recommendation to the Treasurer. Agencies include the Australian Competition & Consumer Commission, the Australian Taxation Office, and Australia's intelligence services. Each of those agencies runs its own review process, on its own timeline. The practical consequence is that the overall FIRB timeline is not controlled by FIRB alone. Rather, it depends on the complexity of the transaction, how quickly and completely the investor responds to information requests, and how long each partner agency takes to complete its assessment. In sensitive defence cases, this multi-agency process is a significant driver of extended review periods, and one that investors cannot manage without understanding it exists.

Practical lessons for foreign defence investors

The Hanwha-Austal approval offers three practical lessons for foreign defence investors.

Expect a long process. The standard FIRB decision period is 30 days. Complex defence cases routinely run longer. Hanwha's 10-month review reflects the level of scrutiny applied to investments in strategically sensitive assets; Austal builds vessels for both the Australian and United States navies. Investors should build significant time buffers into transaction planning from the outset.

Conditions will be real and may be restrictive. Hanwha's clearance is understood to include conditions restricting access to sensitive information, placing stringent requirements on board appointments, and capping future increases in shareholding. These are not nominal compliance obligations. They reflect the Treasury's approach to managing national security risk through ongoing conditions rather than outright refusal. Investors need to assess whether conditions of this kind are commercially workable before committing to a transaction.

Relationship with Australia matters. FIRB operates within Australia's broader strategic framework. Investors from AUKUS partner nations (the United States and the United Kingdom) and Five Eyes countries generally encounter a more navigable process, though scrutiny remains rigorous. For investors from countries outside those frameworks, the bar is usually higher. This does not mean clearance is unavailable, but the scrutiny may be more intensive, timelines may be longer, and conditions may also be more extensive. Knowing where the country sits in Australia's strategic landscape is essential to realistic planning.

Practical steps for foreign defence investors

• Be transparent from the start. FIRB expects complete disclosure of ownership structures, funding sources, and strategic intentions. Incomplete applications not only cause delays, but may signal risk. Proactive disclosure of potentially sensitive information, before it is requested, is consistently the better approach.
• Understand what conditions mean in practice. FIRB approvals in the defence sector increasingly include ongoing compliance obligations: annual reporting, operational restrictions, and monitoring arrangements. Non-compliance carries serious consequences, including significant financial penalties and divestment orders. Conditions imposed at approval are not negotiated away later. Assess them carefully before signing.
• Factor in the regulatory environment beyond FIRB. Defence investments in Australia intersect with other regulatory frameworks, including the Security of Critical Infrastructure Act 2018 (SOCI Act) and, depending on the nature of the business, export control and defence procurement rules. FIRB approval does not resolve obligations under those regimes. A complete regulatory picture is essential before transaction close.
• Engage early and engage the right people. The intersection of foreign investment law, national security policy and sector-specific regulation is complex. Advisers who understand not just the legal framework but how Treasury actually evaluates risk and which conditions are negotiable are essential. Early engagement with FIRB, before formal lodgement, can shape how an application is received.

Takeaway

Australia's defence sector offers genuine opportunities for foreign investors. The Hanwha-Austal approval confirms that even complex, politically sensitive transactions can succeed. But success requires patience, full transparency and a realistic assessment of the conditions that approval will carry.

For foreign investors prepared to engage seriously with the process, the pathway exists. The key is understanding what it actually involves, and planning accordingly.

Our foreign investment practice is a recognised leader in advising on Australia’s foreign investment regulatory framework. We provide strategic guidance on complex Foreign Investment Review Board applications, regulatory compliance, and investment structuring. If you have any questions about this article, please contact us here.

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future. 

Published by:

Jeanne Vallade

Valentin de Roany

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