Worth the Wait? National Security Guidelines Finally Published under the Investment Canada Act
O Canada: the publication of guidelines does not necessarily mean transparency for investors
The federal government has finally issued long-awaited Guidelines on the National Security Review of Investments, which clarify its approach to the national security review regime for foreign investments that was enacted in 2009. While the Guidelines enumerate nine factors that the government may use to evaluate whether a transaction is injurious to national security, the process still remains, at least in part, a black box. The Guidelines maintain that the government does not have to provide much information about the review to the affected parties since the review may be based on “sensitive information”.
The Factors
The novelty of the Guidelines is in guideline 6, which provides the following non-exhaustive list of factors that may be used in reviewing a transaction for national security:
- The potential effects of the investment on Canada’s defence capabilities and interests
- The potential effects of the investment on the transfer of sensitive technology or know-how outside of Canada
- Involvement in the research, manufacture, or sale of goods or technology identified in s. 35 of the Defence Production Act and its associated Schedule
- The potential impact of the investment on the security of Canada’s critical infrastructure, including processes and systems essential to the health, safety, security, or economic well-being of Canadians and the effective functioning of government
- The potential impact of the investment on the supply of critical goods and services to Canadians or the supply of goods and services to the Government of Canada
- The potential of the investment to enable foreign surveillance or espionage
- The potential of the investment to hinder current or future intelligence or law enforcement operations
- The potential impact of the investment on Canada’s international interests, including foreign relationships
- The potential of the investment to involve or facilitate the activities of illicit actors such as terrorists or organized criminals
The National Security Review Process
The Investment Canada Act and its regulations set out a process and a timeline for the government to review investments made in Canada by a non-Canadian. It applies to all investments by non-Canadians to buy or start a business in Canada. Investments over a certain threshold must be reviewed by the government before they can be closed, and the threshold varies depending on whether the investor is:
- a private sector actor from a WTO country ($600 million),
- a state-owned enterprise from a WTO country ($375 million),
- an investor from a non-WTO country ($5 million for direct investments and $50 million for indirect transactions), or
- any non-Canadian who is seeking to invest in a cultural business ($5 million for direct investments and $50 million for indirect transactions).
Investments under these amounts must still be notified to the Minister of Innovation, Science and Economic Development. Once the Minister receives notice of any such transaction, he or she has 45 days to decide if the transaction may be injurious to Canadian national security and if, therefore, it should trigger a national security review. This means that a national security review may occur regardless of the size of the transaction.
In those 45 days, the Minister can either decide to commence a national security review, or issue a notification that the Minister is considering commencing a national security review. If the Minister does the latter, he or she has another 45 days to decide whether to commence a national security review.
If the parties choose to notify the Minister of the transaction prior to closing, and the Minister decides to proceed with a national security review, the parties must wait for clearance before the transaction may be closed.
Once the Minister decides to review a transaction for national security, he or she must issue an order to that effect and notify the parties. The Minister can then ask the parties for further information to help with the review.
The parties have the option of making representations to the Minister. However, the Minister does not have an obligation to tell the parties why the review is occurring, so parties must decide on their own what to address in their submissions. The Minister is able to rely on the sensitive nature of national security concerns to avoid telling the parties the case they must meet.
The Minister has 45 days (which may be extended an additional 20 days) to decide whether he or she wants to approve the transaction. If he or she still thinks the transaction may be injurious to national security, he or she can refer the matter to the Governor in Council (effectively, the federal Cabinet).
The Cabinet then decides whether it wants the parties to the transaction to take any measures to protect national security. The Cabinet may authorize the transaction conditionally, or may ask the non-Canadian(s) to give written undertakings. It may also require divestiture or disallow the investment.
National security is highly sensitive, and the powers afforded to the Minister and the Governor in Council under the Investment Canada Act are accordingly broad. As more investments are reviewed for national security, parties may be able to discern trends to assist them in responding to national security reviews. In the meanwhile, the nine factors enumerated in the Guidelines will have to suffice.
