The Investment Canada Act (ICA) provides for both net benefit and national security reviews of foreign investments into Canada. The ICA was established to provide investor certainty while reserving Canada’s ability to block individual investments under specific circumstances
New filing requirement prior to the implementation of investments in prescribed business sectors
The amendments introduce a pre-implementation filing requirement for certain investments in prescribed sectors in order to provide the government earlier visibility on investments where there is risk that the foreign investor could gain access to sensitive assets, information, intellectual property or trade secrets, for example, immediately upon closing. The government can therefore ensure that such irremediable harm does not occur. Investors in such sectors will now be required to file notifications in time periods set out in regulations.
Authority for the Minister to extend the national security review of investments
The amendments make the national security review process more efficient by providing the Minister of Innovation, Science and Industry, in consultation with the Minister of Public Safety, the power to extend reviews under the section 25.3 stage of review, whereas previously a GiC order was required at this stage in the multi-step process.
Removing the additional step of getting an order by the GiC will provide more time for security and intelligence partners to complete the increasingly complex intelligence analysis. The GiC will retain the final authority for the most consequential decisions, to either block a transaction or force divestment of a concluded transaction.
Stronger penalties for non-compliance
The amendments update the penalties for non-compliance within the provisions of the Investment Canada Act and provide the authority to update these penalties in the future, as required, in regulations.
The penalties for non-compliance were established several decades ago and have not been revisited to correspond to current typical deal valuations or inflation. An update—which is a floor, not a ceiling—with regulations to establish the ceiling and facilitate any ongoing update will make the penalty amounts more meaningful. In addition, a new penalty will be introduced for failing to comply with the pre-implementation filing requirements.
Penalties for non-compliance are a clear signal and incentive to comply with the ICA, and these changes are not expected to chill legitimate investment. The imposition of ICA fines will continue to be effected through court orders. The new penalty for a violation of the pre-implementation filing requirement is broadly in line with allied jurisdictions' foreign investment review regimes.
Authority for the Minister to impose conditions during a national security review
The amendments introduce the authority for the Minister of Innovation, Science and Industry, after consultation with the Minister of Public Safety, to impose interim conditions on an investment during the national security review. This will reduce the risk of national security injury taking place during the course of the review itself, such as through the possible access to or transfer of assets, intellectual property or trade secrets before the review is complete. At the end of the review period, if an investment is allowed to proceed, an interim condition may be converted into a permanent undertaking or condition or, if appropriate, be removed.
Authority for the Minister to accept undertakings to mitigate national security risk
The amendments allow the Minister of Innovation, Science and Industry to accept binding undertakings from investors to reduce the potential national security injury that would result from the investment.
Potential undertakings could include obtaining Government of Canada approval for proposed business locations in order to avoid proximity to Canadian assets or creating approved corporate security protocols to safeguard information and access to a site—such as details on cybersecurity, visitor logs, etc.—or to grant access to facilities for compliance inspection.
Previously, the imposition of such conditions on a transaction to mitigate national security risks could only occur through a GiC order. Allowing binding undertakings at the ministerial level also means these can be amended—or even ended—in the right circumstances or if security circumstances change.
These undertakings will have to satisfy the Minister of Innovation, Science and Industry, with the concurrence of the Minister of Public Safety, that they sufficiently address the national security injury that would result from the investment. Investors will be monitored for compliance.
Improved information sharing with international counterparts
The amendments facilitate international cooperation and information exchange by allowing the Minister of Innovation, Science and Industry to disclose information about an investor to allies in order to support their foreign investment review and national security assessments, on terms and conditions that the Minister deems appropriate. Prior to this amendment, information about a specific investor was considered privileged and could not be disclosed.
This change will help defend against a situation where an investor may be active in several jurisdictions seeking the same technology, for example, and where there is a common national security interest. That said, Canada would not share such information where there are confidentiality or other concerns.
New rules for the protection of information during the course of judicial review
The amendments introduce new provisions on closed material proceedings that will allow for the protection of potentially injurious information in the course of judicial review of national security review decisions, that is, allowing the use of sensitive information while protecting it from disclosure.
Decisions made under the national security review processes in the ICA can rely heavily on the use of sensitive information that, if publicly disclosed, would be potentially injurious to international relations, national defence or national security or would endanger the safety of any person. To strengthen the government's ability to defend such decisions in case of judicial review, the Crown may use this process to protect sensitive information that forms part of the evidentiary record that was relied upon in making these decisions. This will ensure that judges in these proceedings can consider a more complete set of factors driving the decision making at issue, even where all the information in the record may not be disclosed to a non-government party.
New ministerial authority to review any state-owned enterprise investment for net benefit
The amendments add the power for the Minister of Innovation, Science and Industry to seek a GiC order to review a state-owned enterprise (SOE) investment to acquire control of a Canadian business regardless of threshold, where the SOE is from a non-trade-agreement jurisdiction. This amendment allows the net benefit review of all SOE investments regardless of investment value, to better address public interest concerns, particularly for vulnerable industries and enterprises.
Clarification on the net benefit review factors
Section 20 of the ICA sets out a series of factors that the Minister of Innovation, Science and Industry considers in determining whether investments are likely to be of net benefit to Canada. The amendments provide additional clarification on what can be considered by expressly noting that they include the consideration of intellectual property rights developed with government funding and the use and protection of Canadians’ personal information. This change underscores the importance for the government to protect IP funded by the government and the treatment of Canadian personal information.
Corruption convictions as reasonable grounds for national security finding
The amendments would require a finding under section 25.2 of the ICA that there are reasonable grounds to believe an investment could be injurious to national security in cases where the investor had been convicted for a corruption offence in any jurisdiction. The amendments enhance government scrutiny and tighten national security review of harmful investments in cases where investors have a track record of corruption.
Clarification that the Investment Canada Act's national security review applies to acquisition of assets
The amendments clarify that the ICA has jurisdiction over asset sales, noting that in section 25.1(c), an acquisition in whole or in part of the entity is interpreted to include corporate transactions such as asset purchases that involve the acquisition of a discrete portion of the entity. Although the current national security review scheme covers the acquisition of assets, the amendments seek to eliminate potential ambiguity for investors and stakeholders while further supporting future national security reviews actions, if required, on asset transactions.
Clarification of the transparency provisions
The amendments clarify the existing interpretation of the ICA by expressly noting that the Minister of Innovation, Science and Industry may disclose that a final order authorized an investment, including if it was on the basis of terms and conditions, and the identities of the parties when issuing a final order. These amendments serve to eliminate potential ambiguity and signal the Minister’s general intent to increase transparency of the review outcomes under the ICA.
Improved transparency and accountability by requiring reporting on the use of the Minister’s authorities
The amendments add a requirement to report to the National Security and Intelligence Review Agency as well as the National Security and Intelligence Committee of Parliamentarians when the mitigation authorities are used by the Minister of Innovation, Science and Industry or when the GiC’s final order authorities are used. These changes increase transparency and accountability by providing greater national security oversight during the review process. Further, the amendments clarify the Annual Report requirement by ensuring that the Annual Report will include details on the use of the Minister’s Part IV.1 duties and powers, including the new powers on interim conditions and accepting binding undertakings to mitigate national security risks. Such disclosure will further improve transparency of the investment review process and government accountability.