On September 28th, 2023, the Director of Investments to the Minister of Innovation, Science and Industry (the “Minister”) published the Annual Report on the administration of the Investment Canada Act (the Act) for the 2022/23 fiscal year.

During the fiscal year 2022-2023, the Investment Review Division reviewed 1,010 applications for review and notifications (which is generally in line with the five-year average). Of the 1,010 filings, five applications for review were cleared as being of likely net benefit to Canada (down from the eight applications for review approved in the fiscal year 2021-22). Notably, the average length of time to complete a net benefit review was 97 days, which exceeds the average time during the previous five years (of about 74 to 85 days). In this regard, the Annual Report notes that this should not be taken as “signalling a new trend in the timelines for net benefit reviews.”

The vast majority of notifications related to investments from the United States, with notably no investments originating from Russia.

The number of national security reviews which were initiated continued to increase – for a total of 32 investments resulting in reviews for the 2022/2023 fiscal year. Of these, 22 investments proceeded to extended reviews, and 10 resulted in no further action following the section 25.2 notice. This increase in national security scrutiny follows the current trend, which has demonstrated a significant increase in the number of national security reviews each year (with the average for the preceding five years being 14.2 reviews).  Of the 22 investments which were subject to an extended review,  10 investments resulted in no further action under the Act following the section 25.3 order; eight were withdrawn by the investor; three resulted in an order to divest the Canadian business; and one review is ongoing. The average length of time for extended reviews was 174 days. Notably, 16 of 22 investments subject to an extended national security review originated from China, three originated from the United States, and the final three originated from Cyprus, France, and the Czech Republic, respectively. These investments related to a variety of industries, including computer systems design (7), mining (6), communications (1), scientific R&D (2), pharmaceuticals (1), warehousing (1), motion picture and video industries (1), architectural/engineering (1), securities and commodities (1), and security services (1).

The 2022-23 Annual Report also highlighted five key policy developments from the 2022/2023 fiscal year:

  • Voluntary filing mechanism
    In an effort to provide greater regulatory certainty, in August 2022, the Government of Canada made it possible for an investor making non-control or minority investments to file a voluntary notification. Where a voluntary filing is made, the initial review period is 45 days from the date the filing is certified as complete. If no voluntary filing is made, the review period does not end until five years from the date the investment is implemented.
  • Enhanced scrutiny of Russian investors
    On March 8th, 2022, in the immediate aftermath of the Russian invasion of Ukraine, the Minister issued a policy statement announcing enhanced scrutiny of Russian direct investment in Canada going forward.

    Regarding net benefit reviews, the Minister advised that direct and indirect acquisitions of control of Canadian businesses by Russian investors will be found to be of net benefit to Canada on an exceptional basis only.

    Regarding national security reviews, the Minister advised that direct or indirect ties to the Russian state will support a finding that there are reasonable grounds to believe that the investment could be injurious to Canada’s national security.
  • Enhanced scrutiny of SOE-implicated investments in the critical minerals sector
    On October 28th, 2022, the Minister announced a new framework for reviewing investments involving foreign state-owned enterprises (“SOEs”) and foreign state-influenced private investors in Canada’s critical minerals sector.

    Less than a week later, the Government of Canada moved to operationalize the new policy by ordering three Chinese companies to divest their three separate minority investments in three Canadian companies involved in lithium mining.

    As Fasken’s National Security Group highlighted at the time, this policy effectively created a presumption that when a foreign SOE submits an application to acquire control of a Canadian business involved with critical minerals, the Minister will only find the investment to be of net benefit to Canada if the benefit to Canada is very clear. As regards the broader national security jurisdiction of the Act, the presence of a state-owned or state-influenced (however defined) entity automatically yields “…reasonable grounds to believe that the investment could be injurious to Canada’s national security,” thereby moving the transaction to the next stage of analysis and decision making under the Act.
  • Publishing section 25.4 decisions
    In a surprising turn of events contrary to past practice, in the immediate aftermath of naming the targets of divestiture orders, the Government of Canada announced that it would publish the names of all parties and outcomes of transactions blocked under paragraph 25.4(1)(a) and divestiture orders made under paragraph 25.4(1)(c). It was previously believed this would have a chilling effect on investment and should be avoided. In the present geopolitical circumstances, the government appears to have determined that chill or no chill, names will be named.
  • Bill C-34
    On December 7, 2022, the Government of Canada tabled Bill C-34, An Act to amend the Investment Canada Act. As Fasken’s National Security Group noted at the time, the amendments contained in the bill, which is expected to become law in 2023, would represent the first significant legislative changes to the Investment Canada Act since national security provisions were introduced in 2009.

    Proposed amendments include:
    • The creation of a pre-implementation filing requirement for investments in entities carrying on “prescribed business activities.” It is not yet known which business activities will be prescribed, but it is expected that critical minerals and dual-use technology will be among the sectors included.
    • New authority for the Minister to initiate national security reviews. Currently, initiating a national security review is a Cabinet-level decision.
    • Stiffer penalties for non-compliance.

The bill has been steadily wending its way through the legislative process. The Standing Committee on Industry and Technology completed its study of the bill on September 28, 2023, and the bill has now reached the report stage in the House of Commons

Fasken’s Competition, Marketing & Foreign Investment Group is closely monitoring these developments. If you have questions about the Investment Canada Act, you can reach out to any member of our group.

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 of Fasken’s Competition, Marketing & Foreign Investment Group.