Penalties for ex-Defence staff who work unauthorised for a foreign government or military should be proportionate or else innovation and capability would suffer, a parliamentary inquiry was told.
A public hearing was held in Canberra on Thursday for the Military Secrets Bill, which will make it an offence for certain former defence staff members to work for a foreign military or government body without authorisation.
A person found guilty of this offence would face 20 years' imprisonment.
The bill would regulate the work that certain former defence force members could do on behalf of a military organisation or government body of a foreign country.
Australian Industry Group Head of Defence and National Security Kate Louis said penalties should be reviewed to ensure they are proportionate with the offences.
"The compliance burden and reputational risk of an employee potentially being sentenced to 20 years imprisonment could have an impact on Australian employment and the industry more broadly," she told the hearing.
"Australian innovation and capability would undoubtedly suffer as a result."
Australian Security Intelligence Organisation (ASIO) has warned other nations are trying to snatch sensitive information - from defence capabilities to foreign policy and medical advances.
"In response, we must harden and we must adapt," ASIO Deputy Director-General Ewan MacMillan told the hearing.
In a submission to the federal Parliamentary Joint Committee on Intelligence and Security, ASIO said the need to protect Australia's secrets could not be overstated.
"It is critical to keeping Australians safe, preserving our democratic values, maintaining strategic advantage and retaining the trust of our key allies," it added.
ASIO told the committee - which is reviewing an amendment to the Defence Act related to military secrets - that secrecy provisions could be hardened for the nation's intelligence community personnel due to the "unprecedented threat currently facing Australia".
In 2022, reports emerged that serving and former military pilots from Western countries were being tapped on the shoulder to provide training in China.
The Defence Department, in its submission, said the bill was an "important step" towards ensuring foreign actors couldn't acquire secrets through ex-personnel or any other Australians with knowledge of, or access to, sensitive technology and information.
ASIO said personnel who faced lower penalties for unauthorised disclosure of classified or sensitive information might be more susceptible to approaches by foreign intelligence services.
"The committee will closely examine the Military Secrets Bill to ensure that it appropriately manages the potential risk of former defence staff members revealing sensitive defence information and placing Australia's national security at risk," Committee chair Peter Khalil said.
