Some overseas companies are making a "mockery" of Australia's foreign investment rules by failing to follow through with promises they make when seeking regulatory approval for investments, a Senate inquiry has found.

The inquiry's report, released Friday, recommended three changes to Australia's Foreign Investment Review Board framework, including that foreign buyers be forced to deliver on promises they make in their takeover offers.

The report examined foreign investment in six companies, including three Tasmanian investments — Van Dairy Limited (VDL), the Musselroe Bay resort and baby formula manufacturer Bellamy's.

The committee — made up of four Labor senators, two Greens, two Liberals and independent Rex Patrick — made the case that urgent reform was needed to restore public confidence in foreign investment.

In 2016, then-treasurer Scott Morrison approved the application of Chinese-owned Moon Lake Investments to acquire the land and assets of VDL for $280 million from the New Zealand-based New Plymouth District Council.

But four years later, VDL stated it had yet to meet the significant undertakings it was required to fulfil to have the investment approved.

Earlier this year, it was revealed that VDL was issued with nine Environmental Protection Notices, and an audit by the Tasmanian Dairy Industry Authority found 19 of its 23 farms had significant compliance issues.

The report was critical of companies who failed to deliver on undertakings they had made. 

"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 the Musselroe Bay case in Tasmania showed "foreign investment officials cannot always identify when illicit funds are being used to fund acquisitions in Australia".

In 2013, a 3,000-acre property at Musselroe Bay, in north-east Tasmania, was put on the market, valued at $4 million.

The Dorset Council approved a planning permit for the Musselroe Bay Resort, to Melbourne Resort Development, with funding for the development was coming from China.

But in 2019, the AFP seized the Musselroe Bay land and six properties in Melbourne. 

The AFP alleges two Chinese nationals had moved around $23 million of fraudulently-obtained funds from China and used them to purchase and develop properties in Melbourne and Tasmania.

The report states there are "serious flaws" in Australia's foreign investment approval process, corporate transparency and anti-money-laundering regime.

It also looked at Bellamy's conditional acquisition by Chinese dairy giant China Mengniu, approved by treasurer Josh Frydenberg in 2019.

Mr Frydenberg said at the time that the conditions would ensure Bellamy's maintained its presence in Australia and proceeded with investment in infant milk formula processing facilities.

The report made a favourable example of Bellamy's, where foreign investment conditions were exempted from protected information provisions.

But the report said in other cases Australia's foreign investment regime was secretive, compared with other world countries.

"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," it said.

The two Coalition senators on the committee, Slade Brockman and Andrew Bragg, said they did not agree with the report's recommendations.

In a dissenting report they stated federal reforms to the foreign investment framework "should be allowed to bed down before further changes are undertaken".

Those reforms, implemented this year, meant the FIRB needed to approve all foreign investments in "sensitive sectors", and gave the treasurer the ability to force a company to sell its stake if a national security risk arises. 

The senators said future changes to the foreign investment framework should instead be based on an operational report into the reforms. 

Rules in need of 'significant' upgrade

The report made three recommendations to ensure investments were in the national interest.

It recommends that the government amends regulations in a way that ensures undertakings can be enforced as conditions on an investment approval.

It also suggests that the government conducts an audit of the expertise required by foreign investment regulators to assess applications against the national interest.

The third recommendation stated consideration should be given to the most suitable institutional design to support decision-making on foreign investment.

Greens senator Peter Whish-Wilson, who was part of the senate committee, said the foreign investment rules needed "significant" upgrading.

Senator Whish-Wilson said there were areas, where the government needed to legislate change - including making conditions of approval mandatory.

"They need to be set in law, the government needs to audit that those conditions are being met, and if they haven't been met then they need to be enforced," he said.

Senator Patrick said a number of concerns around Australia's foreign investment regime that existed when the inquiry started in 2019 had been resolved by the federal government's changes.

Senator Patrick said the report showed that foreign investment could be a good thing, but wasn't always.

"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."

Federal Treasurer Josh Frydenberg has been contacted for comment.