On December 19, 2016, the Minister of Innovation, Science and Economic Development (Minister) issued Guidelines on the National Security Review of Investments (Guidelines) in an effort to provide foreign investors and their advisers with a better understanding as to the circumstances in which a national security review might be initiated by the Government of Canada under the Investment Canada Act (Act).


In February 2009, the Act was amended to provide the Government of Canada with the authority to review virtually any foreign investment that, in its opinion, could be injurious to Canada’s national security.  The national security review process is an additional clearance under the Act which is separate and distinct from the “net benefit to Canada” economic impact review process for which the Act was originally created.

In summary, if the Canadian Government, principally Canada’s security and intelligence agencies, identifies a potential national security threat associated with an investment in Canada by a non-Canadian, the Minister is advised of that concern and, after consultation with the Minister of Public Safety and Emergency Preparedness (Public Safety Minister), the Minister is responsible for referring the investment to the Governor in Council (GIC) if he agrees that the investment could be injurious to national security.  The GIC then determines whether a review should be ordered.  If the GIC orders a review, the Minister, after consultation with the Public Safety Minister, then conducts a formal review and, if necessary, submits a report to the GIC with his recommendations at which point the GIC has the authority to take any measures in respect of the investment that it considers advisable to protect national security.  These measures include permitting the investment to proceed with or without conditions or prohibiting the investment or, if already made, requiring the divestiture of the investment.

Unfortunately, little practical guidance was until now provided to foreign investors and their advisers as to the circumstances in which a national security review might be initiated.  This situation contrasted with national security reviews conducted by the Committee on Foreign Investment in the United States which had issued guidance on the types of investments that might be of concern to it.  The Guidelines which inform investors of the procedures that will be followed in the administration of the national security review process set out in Part IV.1 of the Act and in the National Security Review of Investments Regulations are intended to help remedy this lack of guidance.


The Guidelines explain that the national security review process under the Act is supported by Public Safety Canada and Canada’s other security, intelligence and investigative agencies which include: Canadian Security Intelligence Service; Royal Canadian Mounted Police; Canada Border Services Agency; Department of National Defence; Communications Security Establishment; Department of Foreign Affairs and International Trade; Canada Revenue Agency; and provincial, regional and municipal police forces.  Proposed and implemented investments by non-Canadians are evaluated on the basis of the specific facts related to each such investment, which facts may include sensitive information related to international relations or national defence or national security that is in the possession of and safeguarded by the Canadian Government.  As such, national security considerations may restrict the degree to which Canada may share with the investor sensitive information that it is using in its evaluation process.

During a review by the GIC, an opportunity for the non-Canadian and other parties to make representations to the Minister is available under the Act.  Commercial information that is provided during the review process is protected by the strict confidentiality provisions contained in the Act.  Sensitive information is protected under the Canada Evidence Act and other applicable laws.

Relevant to the Government’s assessment are both (i) the nature of the asset or business activities that are the subject of the investment and (ii) the identity and background of the parties involved in the investment.  Relevant parties may include any third parties that could exercise influence with respect to the investment.

Specific national security related factors that the Guidelines state may be taken into account during the review process include:

  1.    the potential effects of the investment on Canada’s defence capabilities and interests;
  2.    the potential effects of the investment on the transfer of sensitive technology or know-how outside of Canada;
  3.    the investment’s involvement in the research, manufacture or sale of goods/technology identified in the controlled goods list that forms part of the Defence Production Act;
  4.    the potential impact of the investment on the security of Canada’s critical infrastructure which includes processes, systems, facilities, technologies, networks, assets and services essential to    the health, safety, security or economic well-being of Canadians and the effective functioning of government;
  5.    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;
  6.    the potential of the investment to enable foreign surveillance or espionage;
  7.    the potential of the investment to hinder current or future intelligence or law enforcement operations;
  8.    the potential impact of the investment on Canada’s international interests, including foreign relationships; and
  9.    the potential of the investment to involve or facilitate the activities of illicit actors, such as terrorists, terrorist organizations and organized crime.

The above list of factors which is not intended to be an exhaustive list demonstrates the very wide range of factors that could, if they are relevant to a particular investment, result in a national security review being initiated by the GIC.  For this reason, the Guidelines encourage foreign investors who are proposing to make investments that involve operations or assets in Canada where any of the above listed factors may be present to contact the Investment Review Division of Innovation, Science and Economic Development Canada at the earliest stages of the development of their investment projects for the purpose of discussing their investment proposals.

The Guidelines also note that the Minister has the authority to require that information be provided by the non-Canadian investor and/or other parties involved in the proposed or implemented investments.  In the event that information is requested, investors are encouraged to respond to such information requests without delay in order not to further delay what can be a lengthy review process.

Since 2009, national security issues have been raised with respect to a number of proposed and implemented investments involving Canadian businesses.  Some of the factors listed above appear to be relevant to what is publicly known about those transactions which suggests that the Guidelines will be useful in assisting foreign investors in their Canadian related investment deliberations and planning.

The Government of Canada is also expected to introduce amendments to the Act that will require annual reporting on the administration of its national security provisions, which are similar to the reporting requirements that are already in place for reviews conducted under the Act’s “net benefit” provisions. While such reporting may be of little assistance to foreign investors and their advisers, mandatory public reporting ensures some degree of transparency and accountability in regulatory environment otherwise shrouded in secrecy.

The Guidelines and proposed amendments are a positive development in Canada’s foreign investment review regime.