A Senate inquiry has found that Australia's foreign investment rules “make a mockery” of important processes.

Overseas companies often fail to follow through with promises made when seeking regulatory approval for investments, a Senate inquiry has found.

The inquiry examined foreign investment in several local companies, with a committee comprising four Labor senators, two Greens, two Liberals and independent Rex Patrick calling for urgent reform to restore public confidence in foreign investment.

The inquiry looked at a number of case studies in which pledges made in the process to acquire Australian land or companies were not carried out, and some deals that assisted in international money-laundering.

“So-called 'voluntary undertakings' made at the time an investor is seeking approval for an investment, but which later fail to materialise, make a mockery of Australia's assessment process against the national interest and undermine community confidence in the foreign investment framework,” the report said.

The report also said that “foreign investment officials cannot always identify when illicit funds are being used to fund acquisitions in Australia”.

“There remains doubt as to whether the Treasury has the knowledge, experience, and information management systems to appropriately regulate foreign investment in Australia,” the report said.

“Most information with regard to foreign investment approvals, conditions attached to approvals, and compliance remains secret under the provisions in the (Foreign Investment and Takeovers) Act.”

The report made three recommendations, calling on the government to amend regulations so that undertakings can be enforced as conditions on an investment approval.

It also suggested the government audit the expertise required by foreign investment regulators to assess applications against the national interest.

The third recommendation is to consider the most suitable institutional design to support decision-making on foreign investment.

The Federal Government earlier this year implemented reforms that require the FIRB to approve all foreign investments in “sensitive sectors”, and allow the treasurer to force a company to sell its stake if a national security risk arises. 

The two Coalition senators on the committee, Slade Brockman and Andrew Bragg, issued a dissenting report saying these reforms to the foreign investment framework “should be allowed to bed down before further changes are undertaken”.

Senator Patrick says there are improvements that should be made immediately. 

“The laws are much stronger than what they were 12 months ago and that's a good thing, what we need to make sure is that there's transparency around the decisions that the treasurer makes, and indeed around the undertaking that they may apply to any particular procurement,” he said.

‘If people can see the reasoning of the treasurer they can criticise it, but it will also cause him to make sure his decisions are solid.

“Likewise, if we can see what undertakings are required then people from the outside can observe and make sure, for example, where a capital investment is required, that over time that investment is made.”