Canada: The New National Security Guidelines – Investments That Pose A National Security Risk

Last Updated: December 30 2016
Article by Alicia Quesnel

On December 19, 2016 the Government of Canada released its much anticipated guidelines on the national security review of investments under the Investment Canada Act (the "National Security Guidelines").

The national security provisions of the Investment Canada Act came into effect on March 12, 2009. These provisions allow the Minister of Innovation, Science and Economic Development (the "Minister") and the Governor in Council (e.g. federal cabinet) to reject a foreign investment on the basis that it is "injurious to national security". Regulations setting out the process for national security reviews were enacted; however, no further guidance on what constitutes an investment "injurious to national security" has been provided - until now.

Background

While the previous government eschewed transparency in the national security review process - for national security reasons, the new government has made it a priority to be much more transparent. In its 2015-2016 Annual Report, the Minister reported that between March 12, 2009 (when the national security provisions came into effect) and March 31, 2016, the Governor in Council ordered a total of eight (8) national security reviews. This is a very small percentage of the number of notifiable and reviewable transactions that took place in that period (less than 0.2%); however, action was taken by the Governor in Council in all seven (7) of the eight (8) cases reviewed. One (1) application was withdrawn. In three (3) cases, the foreign investor was directed not to implement the proposed investment. In two (2) cases, the foreign investor was required to divest control of the Canadian business it had acquired. And in a further two (2) cases, the investments were approved subject to conditions that addressed the national security risks identified.

Of the cases subject to national security review, only one (1) was publicly addressed by the Minister. In 2013, the Governor in Counsel rejected Accelero Capital Holdings S.a.r.l's bid to acquire MTS Allstream, a division of Manitoba Telecom Services Inc. on national security grounds. While the specifics of the rejection were not made public, then Minister of Industry, the Honourable James Moore, noted that "MTS Allstream operates a national fibre-optic network that provides critical telecommunications services to businesses and governments, including the Government of Canada."

In 2015, the Governor in Counsel ordered O-Net Communications Group Ltd., a Hong Kong-based developer of optical networking components, to divest itself of its $5 million investment in Montreal-based ITF Technologies Inc. The order was made quietly, without reasons, and only became public when O-Net Communications Group Ltd. applied to the Federal Court for judicial review of the decision. The Attorney General initially opposed the decision, but on November 9, 2016 ultimately consented to an order of the Federal Court to set aside the decision and conduct a new national security review.

National Security Guidelines

The new National Security Guidelines comprise 10 paragraphs. Of these 10 paragraphs, only one (1) paragraph addresses the type of transactions that may be subject to a national security review. Paragraph 6 of the National Security Guidelines sets out of a high level list of non-exclusive "factors" that the Minister of Innovation, Science and Economic Development (the "Minister") or the Governor in Council can consider as they relate to national security:

  1. the potential effect 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. involvement in the research, manufacture or sale of goods/technology identified in Section 35 of the Defence Production Act;
  4. the potential impact of the investment on the security of Canada's critical infrastructure. Critical infrastructure refers to 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, terrorists organizations or organized crime.

While none of these factors are particularly surprising, it is nonetheless helpful to have them set out in writing. Not unexpectedly, they focus on acquisitions that could be injurious to our national defence, that could result in the transfer to a foreign entity of technology or other expertise that could be deployed in Canada in a harmful way, or that promotes or facilitates surveillance, espionage and sabotage. The meaning and scope of "critical infrastructure" (for example, transportation, including pipelines and electricity distribution systems, as well as telecommunications infrastructure) and "critical goods and services" (broadcasting and telecommunications) are best viewed in this light. But as with most high level guidelines, they offer little guidance on how broadly or narrowly they will be applied in any given case or by any given government. Moreover, parties to transactions involving foreign investors also need to understand that the list is non-exhaustive.

Going Forward – Engage Early

For foreign investors, the uncertainty surrounding a potential requirement to divest of all or a part of the Canadian business after closing remains. As a result, even though the vast majority of foreign investments are not reviewable or subject to pre-closing approval, many foreign investors in certain industries have been counselled to file their post-closing notifications more than 45 days in advance of closing to allow the national review period to expire prior to closing.

The National Security Guidelines formally recognize that this approach is a prudent one, and further suggest that early contact with the Investment Review Division will provide foreign investors with even greater protection. In paragraph 8, the National Security Guidelines "encourage" foreign investments to "contact the Investment Review Division at the earliest stages of the development of their investment projects" if any of the factors in paragraph 6 "may be present" and, recommend, if their investment is not reviewable, to "file a notification ... at least 45 days prior to planned implementation." Paragraph 10 of the National Security Guidelines make it clear that officials at the Investment Review Division will meet with investors to discuss their investments and to "clarify information requirements that might be useful" in the course of assessments.

Greater transparency surrounding the national security provisions of the Investment Canada Act is much appreciated and the National Security Guidelines are a great first step in that direction. Hopefully, as we gain experience in the national security realm, the government's ongoing commitment to increased transparency and accountability will help us to more fully understand the full scope and reach of these provisions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.