In what appears to be a dramatic shift in Canada’s foreign investment review policy, the federal government has recently approved the acquisition of ITF Technologies Inc. (“ITF”), a Montreal-based technology firm, by O-Net Communications Holdings Limited (“O-Net”), a Chinese developer of optical networking components, which is said to be effectively controlled
Investment Canada Act: National Security Review Powers Rarely Invoked
Canadian government responses to two requests made by Fasken Martineau under the Access to Information Act (AIA) and the recent publication by Innovation, Science and Economic Development Canada (ISED) of its Annual Report Investment Canada Act 2015-16 evidence that Canada’s power to conduct national security reviews under the Investment Canada Act (ICA) in respect of foreign investments in Canada has rarely been invoked during the almost 8 years that such power has existed.
Because of the confidentiality obligations imposed on government officials by the ICA and the sensitive nature of the assessment process which is intended to safeguard Canada’s national security interests, the Government historically has been reluctant to comment publicly on specific investments that it has subjected to national security reviews or on the review process in general. For a considerable period of time, this reluctance extended to even providing statistics on the number of national security reviews that it had actually undertaken.…
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Investment Canada Issues National Security Review Guidelines
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.…
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