Foreign investments

Canadian government steps up national security reviews of foreign investments

By Brian Mich and Natasha Moore

The Minister of Innovation, Science and Industry of Canada, François-Philippe Champagne, on March 24and released revised guidelines on reviewing national security investments. Canadian companies and international investors should consider what these new national security review provisions mean for their business planning, supply chains and communications.

The guidelines, which were issued under the Investment Canada Act (“ICA”) are intended to inform “investors of the procedures that will be followed in administering the national security review process set out in the national security review of investments”.

At the time of release, Minister Champaign issued the following statement:

“Updated guidance released today identifies areas that could present national security concerns in foreign investments. These include sensitive personal data, certain sensitive technology areas, critical minerals and corporate investments. state-owned or state-influenced investors.”

Such investments will trigger a mandatory and potentially lengthy review process – up to 200 days or more with the consent of the investor.

The National Security Review process under the ICA enables the Federal Cabinet to take action to address national security risks associated with foreign investment. Cabinet can block investment in Canadian companies (or the establishment of a new Canadian company). If an investment has already been made, the Cabinet may also impose a sale of the business. Foreign investments subject to national security review include acquisitions of control of Canadian businesses (whether or not Canadian-owned) of any monetary value, minority investments, and the establishment of a Canadian business.

If any of this sounds familiar, that’s because the updated guidelines closely match the national security checks administered by the Committee on Foreign Investment in the United States (CFIUS). Canada’s tightened investment rules were not specifically driven by the US government, but the revised guidelines come as the US government works with Canada to boost regional supply chains to counter the dominance of the China in these sectors. The United States and Canada plan to deepen their financial and logistical partnerships, particularly through their capabilities in critical minerals and technology.

Sensitive personal data

The guidelines broadly define access to sensitive personal data to include: personally identifiable health information, financial data, private communications, location; or, personal data about government officials, including members of the military or intelligence community. Investors should be prepared to apply this definition to a wide range of Canadian businesses, from financial services to food delivery.

Specified Sensitive Technology Areas

The revised guidelines provide details on what the government will consider to be “sensitive” technologies with an additional appendix containing a non-exhaustive list of such technologies. It includes artificial intelligence, robotics, autonomous systems, energy, data storage and transmission. Expect a timely and uncertain mandatory review process for investments made in this area.

Critical minerals

The updated Guidelines also include a list of critical minerals targeting 31 minerals considered “critical to the sustainable economic success of Canada and our allies.” The reference to “our allies” is important because the United States and Canada are members of the Energy Resource Governance Initiative, an international pact to agree to share mining experience and resources, which include nickel, manganese , cobalt, potash, rare earth elements, uranium and lithium, among others. Be prepared not only for mining investments to trigger a national security review, but also consider the location of mining as equally important. For example, in December 2020, Canada blocked Shandong Gold’s bid for mining company TMAC Resources, on national security grounds, as it operated in the sensitive Arctic region.

Investments by state-owned or state-influenced foreign investors

The updated Guidelines for State-Owned and State-Influenced Investors underscore the serious concerns of the Canadian government regarding foreign access, particularly from China, to technologies. It is strongly recommended that international investors begin a rigorous analysis of their proposed activities and seek the necessary expertise for an appropriate filing and communication strategy.

The key takeaway for global businesses

Despite the stricter guidelines, the policies are a welcome step towards transparency for foreign investors and critical industries. Canada will not outright ban foreign investment or access to sensitive information, but mitigation measures will likely be required, further increasing the timing and uncertainty of transactions in this space. Ultimately, Canadian companies and international investors should keep in mind that the feasibility, certainty and cost of any transaction will be determined by a timely national security review and skillful negotiation to navigate the attenuation conditions required.

Brian Mich is a partner and Natasha Moore is a consultant in the compliance, forensics and intelligence practice at Control Risks, the global risk management consulting firm.