Australian exporters have lost billions due to would-be buyers’ negative perceptions of the Australian government’s anti-encryption legislation, according to the first formal evaluation of the legislation’s impact since it was controversially passed in late 2018.

Formally known as the Telecommunications and Other Legislation Amendment (Assistance and Access) Act 2018 (TOLA) – often referred to as the ‘Encryption Act’ – the legislation gives law enforcement authorities several ways of forcing companies to provide access to data encrypted by their software.

The new analysis, commissioned by the Internet Society and conducted by Law & Economics Consulting Associates (LECA), concluded that TOLA “has the potential to result in significant economic harm for the Australian economy and produce negative spillovers that will amplify that harm globally”.

Despite widespread concern – that the bill was a bridge too far, would damage Australia’s international reputation, and that it had been formulated and passed too hastily – the Australian Federal Police used the powers 12 times in the first half of 2019 and 19 times during 2019-20, the agency revealed in a submission tabled last August.

Other law-enforcement bodies have pressed the case for TOLA, with ASIO expressing frustration at the industry’s recalcitrance about TOLA – but eight out of the nine multi-billion-dollar tech companies granting empirical interviews to LECA said they had negative impressions of the law and “were not fully convinced” by the government’s promise to limit the scope of TOLA’s application.

TOLA had presented new economic risks for three reasons, the LECA analysis found, including through an increase in business uncertainty; harm to the “brand image” of designated communications providers in Australia; and the “indirect threat that TOLA poses for trust in digital services”.

“These direct and indirect effects are likely to be broad-based and accumulate over time as effects ripple through the economy,” the analysis warns, also noting that “the non-disclosure rules and secrecy shrouding TOLA activity provide a significant barrier to collecting evidence of TOLA’s economic impacts.”

Measuring the economic impact

LECA’s research included a survey of 79 companies identified as being potentially impacted by TOLA, of which 54 were headquartered in Australia.

Only 10 per cent of respondents said they had positive feelings about TOLA, with 62 per cent saying they had quite or very negative perception of the law.

Four out of 10 respondents said that TOLA had impacted their business in one or more ways – with damage to product development and marketing decisions (impacting 31 per cent), OPEX/CAPEX (21 per cent), customer relations (16 per cent), vendor relations (16 per cent), sales (16 per cent), and the reputation of the business (14 per cent).

Of the respondents that had experienced an impact from TOLA to date, fully 36 per cent said the legislation had affected the risk environment for their business globally and 28 per cent said it had impacted the confidentiality, security, or privacy of their encrypted services.

One of the surveyed companies said TOLA’s damage to its brand image had caused it to lose current and future sales in the order of $1 billion – “consistent”, the report noted, “with the expectation that the potential direct economic harms can be quite large”.

That kind of economic damage, Internet Australia chair Dr Paul Brooks said, reflects the significant impact that critics of the law warned about years ago.

“The government did not commission any economic impact assessment of these laws when initially proposed,” he said in launching the research, “despite the dangers of significant economic impact being highlighted throughout several parliamentary and independent enquiries over the past years.”

Overall, 10 per cent of respondents said their global revenues had been impacted negatively by the law, while 21 per cent said their investment in encrypted services had been hit.

R&D investment also had taken a battering, with 22 per cent investing less in new product development due to TOLA; 19 per cent saying their global R&D expenditure had declined; and 19 per cent reporting that the legislation had hit the global value of their brand or reputation.

Fully 12 per cent said they’d had trouble attracting good staff to work for their business because of TOLA.

Rather than forcing critics of TOLA to justify their opposition, the analysis argues, the potential economic impact “suggests that the burden of proof should be shifted to evaluating the case for why TOLA is expected to yield significant benefits since the risk of significant harms posed by TOLA is clear.”