Canada’s Minister of Innovation, Science and Industry, the Honourable François-Philippe Champagne (the “Minister”), announced on December 7, 2022 his commitment to protecting Canada’s economic and national security. Focused on key sectors such as critical minerals and artificial intelligence, the Minister tabled Bill C-34, the National Security Review of Investments Modernizations Act, (“Bill C-34”) which significantly amends the Investment Canada Act (the “Act”) for the first time since national security provisions were introduced in 2009. Bill C-34 is directed at modernizing the Act to better guard  against economic-based security threats that may arise from foreign investment and streamlining the existing national security review process. The amendments aim to enhance transparency, support greater investor certainty, improve Canada’s visibility on investments, and ensure that Canada is prepared to take action quickly where required.

This bulletin provides an overview of proposed amendments to the Act, summarizes some of the impacts these amendments are likely to have on foreign investors and existing Canadian businesses, and discusses what may follow next.

Overview of Proposed Amendments

  • New filing requirement prior to the implementation (i.e., closing) of investments in prescribed business sectors;
  • Authority for the Minister to initiate what was previously a Cabinet-ordered national security review of foreign investments;
  • Stronger penalties for non-compliance;
  • Authority for the Minister to impose conditions during a national security review;
  • Authority for the Minister (as opposed to the Cabinet) to accept undertakings to mitigate national security risk;
  • Improved information sharing with international counterparts; and
  • New rules for the protection of information during the course of judicial reviews.


New filing requirement prior to the implementation of investments in prescribed business sectors

  • The proposed amendments would create a pre-implementation filing requirement for certain investments, including the acquisition of minority interests, in prescribed sectors in order to provide the government earlier visibility on investments where there is risk that the foreign investor would gain access to sensitive assets, information, intellectual property or trade secrets, for example, immediately upon closing. Foreign investors in such sectors will now be required to file notifications and are prohibited from closing for a prescribed time period. Currently, some investments (e.g., non-control minority investments) are not subject to a notice requirement and where a notice is required, it can be satisfied within 30 days after closing. While not yet specified, we can anticipate that the definition of “prescribed sectors” will track with those outlined in the National Security Guidelines of 2021/22 and would include the Sensitive Technology Areas listed in the Annex to that document. This will bring Canada’s national security process closer to that existing in the United States.

Authority for the Minister to extend the national security review of investments

  • The proposed amendments would grant the Minister, in consultation with the Minister of Public Safety, the power to extend the time for national security reviews under the s. 25.3. As the Act currently stands, a Governor in Council (GiC) order is required at this stage in the multi-step process.

Stronger penalties for  non-compliance

  • The proposed amendments would update penalties for non-compliance and provide the authority to update those penalties in the future by regulation. In addition, a penalty will be introduced for foreign investors who fail to comply with the new pre-closing notification requirements.

Authority for the Minister to impose conditions during a national security review

  • Proposed amendments would grant authority to the Minister, after consultation with the Minister of Public Safety, to impose interim conditions on an investment during the conduct of a national security review. 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 proposed amendments would allow the Minister to accept binding undertakings from investors to reduce the potential national security injury that would allegedly result from an investment. As the Act currently stands, the imposition of such conditions on a transaction 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 economic or security circumstances change, without Cabinet involvement.

Improved information sharing with international counterparts

  • The proposed amendments aim to facilitate international cooperation and information exchange by allowing the Minister 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.

New rules for the protection of information during the course of judicial review

  • The proposed amendments would introduce new provisions on in camera 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.

Impact of Proposed Amendments

The proposed amendments are intended to secure Canada’s economic and national security interests without compromising positive foreign investments and economic growth. This is no easy balance. The proposed amendments could have a significant impact on both foreign investors and Canadian business operations. For example:

  • The new pre-closing filing requirement for prescribed business sectors will likely impact transaction timing. Parties will need to factor this into their transaction agreements and timetables. However, this is likely a sensible amendment as it will largely eliminate (at least in the applicable sectors) the kind of divestiture orders we have recently seen. Of course, this will only be true in respect of transactions in which proponents notify as required.
  • By extending the authority of the Minister (in consultation with the Minister of Public Safety), as opposed to having to involve the GiC, the national security review process should become more streamlined and efficient. Practically speaking, cabinet involvement in the process is incredibly time consuming, and as an interim step, often not productive. The two ministers cited should be more than capable of determining whether a national security review should proceed.
  • Foreigners making investments in prescribed sectors will need to ensure they file the mandated pre-closing notices, or risk finding themselves subject to significant penalties and possible divestiture orders.
  • The Minister, in consultation with the Minister of Public Safety, is granted the authority to impose interim conditions on an investment during the national security review, which could have the effect of opening the door to earlier productive discussions on mitigation.
  • Binding undertakings from investors that will sufficiently address the national security injury that would allegedly result from an investment could be a significant step forward if it encourages the government to explore mitigation options earlier and more meaningfully. Canada has been very reluctant to engage in such discussions in the past. Expectations to the contrary will be raised by this amendment.
  • The proposed information sharing with international counterparts will require investors to coordinate their filings and approaches in various jurisdictions. This may pose unique challenges when transactions are not otherwise public.
  • It is unclear how the Federal Court will react to a provision which formally restricts the ability of an investor to know the full case against it. Formalizing a situation in which an investor seeking to judicially review a blocking or divestiture order is prevented from testing the evidence may be seen as an erosion of procedural fairness in relation to the “black box” of national security processes.

Given the consequences that can arise from the failure to comply with the Act and the significant penalties and risks associated with lack of compliance, both prospective foreign investors and Canadian businesses would be well advised to carefully review their forward investment plans and to either implement or update compliance programs. This is particularly true for businesses interested in the critical minerals, semi-conductor, aerospace, and artificial intelligence and cybersecurity  sectors, given that most of the proposed amendments to the Act will likely impact them.

Next Steps

The tabling of Bill C-34 represents the first step in a legislative process that will see Bill C-34 makes its way through Parliament. The legislative  process entails a significant level of debate involving relevant stakeholders, given the nature and scope of changes on the horizon.

If you have questions about the proposed amendments to the Investment Canada Act, please reach out to any member of Fasken’s Competition, Marketing & Foreign Investment group or its National Security Group. Our lawyers have significant experience advising clients on all aspects of foreign direct investment and the emerging national security realities associated therewith.

The information and guidance provided in this blog post does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Competition, Marketing & Foreign Investment group.