Guarding The 49th Parallel: How The Investment Canada Act And CFIUS May Reshape Cross-border M&A

Cross-border deal-making between Canada and the United States increasingly sits at the intersection of national security and economic policy. In both countries, foreign investment review has expanded well beyond traditional defence and intelligence concerns to encompass the resilience of supply chains, technology, data and innovation ecosystems. For dealmakers, this evolution means that obtaining regulatory clearance may require more time with less certain outcomes. As such, it is a strategic variable that shapes transaction design, diligence and execution certainty. In Canada, 2025 marked a turning point: in the face of unprecedented economic turbulence, Ottawa explicitly declared that economic security is national security and in a break from the past, has pursued realpolitik trade and investment relationships with countries that it does not regard as "likeminded." In the United States, the regulations that underpin review of foreign investment transactions by the Committee on Foreign Investment in the US (CFIUS) continue to apply an expansive concept of "national security" that reaches far beyond the traditional defence concerns. Together these developments are redefining how investors approach M&A across the 49th parallel. This insight outlines the current regimes in Canada and the United States and highlights the practical consequences for buyers pursuing transactions on either side of the border.

Canada's ICA: A wider lens and a more assertive process

All foreign acquisitions of control of Canadian businesses, whether foreign owned or not, are subject to one of two filing requirements under the Investment Canada Act (ICA): either an application for "net benefit to Canada" review or a notification filing. As a result of very high review thresholds¹, very few acquisitions of control are subject to net benefit to Canada review outside of the cultural sector. Those that do meet the threshold require pre-closing approval by the Industry Minister (the Minister of Canadian Heritage for cultural sector investments). Although the responsible Minister under the ICA has wide discretion to approve or reject investments, historically rejections have been relatively rare and except in the case of high profile and politically sensitive investments, generally foreign acquirors do not have to make commitments that far exceed what they were already planning to do.

The vast preponderance of foreign investments in Canada fall below the "net benefit" review threshold and accordingly, the most common filing by far is the notification form which may be filed pre or within 30 days post-closing. The notification is more of an administrative formality and applies not only to acquisitions of control but also to the establishment of new Canadian businesses.

In addition to mandatory filing requirements, the ICA has had a national security review process since 2009. With the decline in net benefit reviews as a result of dramatic increases in the financial thresholds for review over the past decade, national security review has become the more predominant form of foreign investment review. National security applies to all Canadian investments, irrespective of size or whether they involve acquisitions of control of Canadian businesses, non-controlling investments in Canadian businesses or the establishment of new Canadian businesses, to determine if they are "injurious to Canada's national security."² The federal Cabinet can prohibit an investment on national security grounds, authorize it subject to conditions or order a post-closing divestiture. Recent amendments also empower the Minister to approve transactions subject to tailored mitigation commitments, reflecting a more flexible approach that allows sensitive investments to proceed under enforceable conditions rather than face outright prohibition.

While "national security" is not statutorily defined, its scope has been broadened over the years to apply to key areas such as critical minerals (an input into computers, technology, defence and EV batteries), sensitive technology, critical infrastructure, sensitive personal information and health care security (during COVID), in addition to more traditional national security concerns associated with territorial sovereignty and defence. This trend of expanding the national security perimeter continued in March of 2025, when, faced with a highly volatile tariff and trade environment, the Minister of Industry formally declared that "economic security is national security"³ and updated the Guidelines on the National Security Review of Investments to "ensure that the ICA continues to be responsive to the evolving threat environment."⁴ The updated risk factors now expressly include whether an investment could undermine Canada's economic security through the enhanced integration of the Canadian business with a foreign economy. The government may consider whether an acquisition could shift jobs, R&D, head office functions, IP ownership or key manufacturing operations abroad, potentially hollowing out domestic capability or resiliency. In applying this factor, the government has stated that it will consider, among other things, the size of the Canadian business targeted, its place in the innovation ecosystem and the impact on Canadian supply chains. In certain circumstances, this might offer Canadian targets a shield of protection. Canadian businesses subject to hostile foreign takeovers could, in the appropriate circumstances, advocate that the government block a transaction on economic security grounds.

2024 amendments to the ICA will also introduce a new pre-closing filing requirement applicable not only to acquisitions of control but also to the purchase of non-controlling interests by foreigners. This regime is not yet in effect but once it is, transactions subject to it will be unable to close until the national security review process has run its course (as opposed to the current scenario in which notifications are permitted post-closing) and violations will attract substantial penalties⁵. This new regime is likely to apply to sensitive sectors, such as critical minerals, sensitive technology and critical infrastructure.

Meanwhile, stringent reviews of investments from jurisdictions viewed as "non-likeminded" (for example, China, Russia and Iran) – including both state-owned entities and privately held firms subject to state influence – are expected to continue, although there may now be some exceptions. There has been a shift in Canada's approach to foreign investment in recent months that may lead to potentially greater openness to investments in certain sectors from countries (such as China) with which Canada has recently entered into high level trade and investment agreements. With the seismic rupture in Canada's economic relationship with its largest trading partner, the Canadian government is proactively pursuing new sources of investment, not only from traditional partners but also from countries that it has in the past referred to as "non-likeminded." This shift reflects the realpolitik approach Canada is now pursuing to counter the impact of US trade measures – Prime Minister Carney's strategy of taking the world "as it is" and not "as it should be." This involves a reset away from "friendshoring" towards a more hard-nosed prioritization of economic interests⁶. That said, while a more positive relationship with China and other countries could mean more greenlit investments for their investors, the specific facts of each investment will determine the outcome. For this reason, there will continue to be close scrutiny of investments by investors from non-likeminded countries in sensitive sectors.

In addition, a not-yet-in-force amendment to the ICA empowering the government to order net benefit reviews of state-owned enterprise acquisitions on public-interest grounds could also heighten scrutiny of such acquisitions⁷. Note that this provision applies on its face to any country which means that, in theory, it could include a US government investor as well as US public sector pension funds. In this regard, it is notable that the Canadian government did not appear to blink when the US government announced it would purchase minority stakes in two Canadian critical mineral mining companies with operations in the United States: a 10% stake in Trilogy Metals which has an Alaskan project (copper, zinc)⁸ and a 5% interest in Lithium Americas Corp., which is developing a lithium project in Nevada.⁹ Natural Resource Minister Tim Hodgson dismissed national security concerns, saying that "the positions are small and the United States is an ally."¹⁰ Further, he noted for one of the transactions that the sole asset is in the US. It is likely, however, that the Canadian government would be less sanguine if the US government took a controlling stake in Canadian companies with critical mineral assets in Canada.

What this means for US investors eyeing Canada

Canada's new focus on economic security could mean that US investors, traditionally Canada's most significant source of foreign capital, may now face closer scrutiny under the national security review process if there is a flight risk of Canadian jobs, R&D or head-office functions to the US. Given that national security reviews involve both political and more technical (security) dimensions, one might anticipate tougher demands on US investors given the current trade tensions between Canada and the US. However, the political calculus is complex and as a result, it seems unlikely that US investors would be treated more harshly than other traditionally "likeminded" allies.

Nevertheless, it is worth pointing out that if the US terminated the Canada-US-Mexico Agreement without replacing it with a similar agreement, US investors could lose "trade agreement investor" status and fall to a lower net benefit threshold under the ICA, potentially triggering more frequent reviews. While the practical effect would likely be limited where national security reviews include an analysis of economic security, the possibility illustrates how trade relations can affect investment screening.

Finally, US investors will have to remain cognizant of the timing of implementation of the new pre-closing notification regime applying to targets in what the Canadian government views as higher risk business activities, as failure to file could trigger substantial penalties.

The US regime: CFIUS's expansive jurisdiction and increased activity

The US counterpart to the ICA is the Committee on Foreign Investment in the United States (CFIUS), established under the Defense Production Act¹¹ and modernized most recently in 2018 by the Foreign Investment Risk Review Modernization Act (FIRRMA)¹². CFIUS has broad authority to review controlling acquisitions of US businesses by foreign persons and, post-FIRRMA, certain non-controlling investments in US businesses involved with critical technologies, critical infrastructure or sensitive personal data (called "TID US businesses").¹³ Unlike the ICA's net-benefit thresholds, CFIUS's review jurisdiction has no deal value threshold. Rather, its jurisdiction, and parties' potential filing obligations, turn on the target's business activities, the types of rights being acquired by the foreign investor, and various attributes about the investor, including nationality. CFIUS also has jurisdiction to review acquisitions by foreign persons of certain real estate that is located within specified distances of identified sensitive US government installations. Transactions that CFIUS has authority to review are called "covered transactions."

Once CFIUS concludes all regulatory action as to a covered transaction, generally speaking it cannot undertake subsequent reviews of the transaction. This results in a "safe harbor," which many parties to covered transactions seek to secure before closing. In contrast, where CFIUS has not concluded all regulatory action as to a covered transaction, it retains jurisdiction to review that transaction at any time irrespective of whether the parties have submitted a filing to it for review.

CFIUS analyzes covered transactions for national security risks. If such risks are identified, CFIUS can impose measures to mitigate those risks. If it cannot identify mitigation measures that would mitigate identified national security risks, it can ask the president to prohibit the transaction or require the foreign investor to divest its stake.

Since 2018, filing with CFIUS is mandatory for certain transactions, including where certain foreign investors acquire certain governance or information access rights in a TID US business involved in critical technologies, or where certain foreign governments acquire a direct or indirect substantial interest in any TID US business. Where required, such filings must be made at least 30 days before closing.

CFIUS has sharpened its focus on identifying and assessing transactions that were not submitted to it for review, called non-notified transactions. It has also increased its enforcement of cases involving failures to make a mandatory filing, breaches of mitigation agreements, and material misstatements or omissions in matters before CFIUS.¹⁴ Treasury reporting shows that mitigation remains a material feature of CFIUS outcomes, and that CFIUS has continued to invest in compliance monitoring and enforcement, including by building out processes and dedicating additional staff resources.¹⁵ The practical effects of these developments are an increased risk that CFIUS will examine non-notified transactions and a need for robust attention to compliance with mitigation terms.

What this means for Canadian investors eyeing the US

Canada has historically been perceived as a close US ally. While transactions that involve investment from Canada are not exempt from CFIUS review, certain non-controlling investments by Canadian investors may fall outside the scope of CFIUS's review jurisdiction, and transactions involving Canadian investors are less likely to be subject to mandatory CFIUS filing requirements. Nevertheless, several features of the current US regime matter for Canada-US dealmakers. First, in defined circumstances (particularly transactions involving critical technologies), there may be a mandatory filing requirement. Second, CFIUS devotes significant resources to monitoring non-notified transactions and compliance with post-clearance mitigation. Civil monetary penalties for failures to comply with mitigation agreements have been on the rise in recent years.¹⁶ Third, CFIUS's review jurisdiction reaches beyond traditional defence-sector transactions, applies to any "covered transaction," and CFIUS takes an expansive view of what may present national security risks in such transactions, often overlapping the considerations that can trigger ICA scrutiny.

In practice, Canadian-controlled buyers often present a lower perceived risk profile than many other foreign investors, and most Canadian acquirors will likely experience predictable outcomes with CFIUS, particularly in connection with non-defence business acquisitions, such as in the consumer, industrial and services sectors. However, the full impacts of the current US administration's "America First" investment policy on foreign investment reviews have yet to become clear. CFIUS scrutiny is likeliest for Canadian investors eyeing as investment targets US business that touch upon:¹⁷

• Critical and enabling technologies
  • Semiconductors, aerospace/defence, AI, quantum computing, autonomy, advanced materials or biotech; where such technologies require an export license from the US to Canada, a mandatory CFIUS filing is likely required
• Sensitive personal data
  • Health, biometric, location, financial or other large-scale US-person datasets; personal data of US government or military personnel
• Critical infrastructure and supply chains
  • Energy, grid, telecom, ports, key manufacturing nodes and upstream inputs essential to strategic sectors
• Real estate near sensitive sites
  • Standalone or project-linked real estate near military or other sensitive facilities
• Government relationships
  • US government contractors, grantees or programs with security-relevant obligations

Both US and Canadian regimes are converging around the same risk calculus, and the overlap in risk factors across regimes (critical technologies, sensitive data and supply chains) has led to convergent scrutiny on similar categories of deals. Canadian investors in the US must now undertake the same type of front-loaded diligence and mitigation planning that US investors are bringing north of the border.

Navigating the corridor: Practical implications for deal strategy

For cross-border transactions, the convergence of the ICA and CFIUS regimes in protecting economic security creates a new operating reality and shapes transaction strategy in key ways. The two systems differ procedurally but both prioritize the same national interests, and both expect investors to engage with them early. Here are the key points for investors and targets to consider:

• Diligence must go beyond ordinary regulatory checks to a granular mapping of the target's connection to critical technologies, critical infrastructure, sensitive data, supply chains and government programs, including subsidies, contracts and research affiliations. This effort should seek to include both wide-lens national security considerations, including whether the transaction may be viewed as enhancing integration with a foreign economy in a way that undermines domestic economic security, as well as matters such as export controls and sanctions risk exposure, the target's status as a TID US business and controls on sensitive information in the possession of the target business.

• Filing strategy is a fundamental part of transaction planning. Closing timelines must take into consideration regulatory timelines and should be flexible enough to accommodate potential delays or extensions of those timelines. In the US, parties must assess whether they are required to make a CFIUS filing, and must weigh the relative merits of a declaration vs. a full notice. In Canada, parties must determine whether there is a mandatory filing requirement or whether a voluntary notification should be made to address upfront potential national security concerns. For cross-border deals with both ICA and CFIUS implications, earlier engagement and aligning ICA and CFIUS filing timelines can mitigate interim risk and reduce post-signing complications.

• Transaction design should be calibrated to reduce risk without undermining commercial objectives. For example, in Canada, although non-controlling investments do not offer a safe harbour from national security review, if the minority investor does not have rights of access to material non-public technical information or material assets, or influence over the target through powers to appoint senior management or a member of the board, then the Canadian government's national security concerns may be lessened. In the US, parties should be aware of the triggers for CFIUS jurisdiction or mandatory filing requirements, including rules relating to contingent equity interests and limitations on the use of "springing rights" structures that purport to allow parties to close an equity transaction in connection with a TID US business, with transfers of control rights deferred until after CFIUS review.¹⁸
• Parties should consider at an early stage how potential national security concerns might be managed if they arise during review. This includes aligning internally on possible response options relating to governance, information access, asset location, data handling and supply-chain continuity, and ensuring that transaction documents clearly allocate regulatory risk. Addressing these issues in term sheets and interim covenants (for example, cost-sharing, parameters for "burdensome" conditions, responses to divestiture requests and termination rights if approvals are denied) can improve execution certainty and allow parties to respond efficiently if regulators ultimately require conditions as part of clearance.

• Finally, deal documentation must explicitly address regulatory risk. Longer outside dates, detailed cooperation and information-sharing covenants, flexible interim covenants and other terms that explicitly consider and address potential mitigation are key. Reverse termination fees tied to unmitigable national security outcomes and flex provisions around financing and integration can also provide economic balance where regulatory timelines and outcomes are uncertain and are increasingly standard in cross-border M&A.

Outlook

Canada and the United States are taking a more assertive foreign-investment posture that treats national and economic security as inseparable. For cross-border M&A, this convergence brings both complexity and clarity. For cross-border investors and targets, that means more transactions will be subject to closer national security screening, with more exacting expectations around governance, data, supply chains and technology, but investors who plan for these realities through proactive diligence, thoughtful deal structuring, disciplined filing strategies and pragmatic mitigation planning can still achieve timely, durable clearances. The winning strategy now lies in an integrated, front-loaded regulatory strategy that treats ICA and CFIUS as co-equal pillars of execution certainty, not afterthoughts. Dealmakers who build this perspective into their processes from the outset will be best positioned to close successfully on both sides of the border.

Footnotes

1 C$1.386 billion in target enterprise value for investors from WTO countries, C$2.079 billion in enterprise value for "trade agreement" investors (including U.S.-controlled acquirors) and C$551 million in target asset value for WTO foreign-state investors.

2 Investment Canada Act, R.S.C. 1985, c. 28 (1st Supp.), s. 25.2(1).

3 Statement by the Minister of Innovation, Science and Industry on x.com (March 5, 2025).

4 Government of Canada, "Updated Guidelines on the National Security Review of Investments", News Release, Innovation, Science and Economic Development Canada, March 5, 2025.

5 Innovation, Science and Economic Development Canada, Consultation Paper on Enhancing the National Security Review Process Under the Investment Canada Act (February 2024).

6 This re-calibration is exemplified in the Canada-China Economic and Trade Cooperation Roadmap (the "Roadmap") released in mid-January during Prime Minister Carney's visit to China. The Roadmap highlights how Canada "welcomes Chinese investments in Canada in energy, consumer products, agriculture and other sectors" suggesting that in these sectors, Chinese investors will be more likely to receive more favourable reviews.

7 Bill C-34, An Act to amend the Investment Canada Act, 1st Sess, 44th Parl, 2024.

8 See Trilogy press release here

9 See CBC article, "U.S. government takes a stake in Vancouver-based Lithium Americas".

10 See Niall McGee, "Ottawa not concerned about U.S. stakes in critical minerals firms, minister says," Globe and Mail. In the Trilogy transaction, the US Government is also entitled to a board seat.

11 Defense Production Act of 1950, 50 U.S.C. §§ 4501–4568

12 Foreign Investment Risk Review Modernization Act of 2018, Pub. L. No. 115-232, 132 Stat. 2173.

13 31 C.F.R. § 800.248.

14 U.S. Department of the Treasury, CFIUS Enforcement and Penalty Guidelines (October 2022).

15 U.S. Department of the Treasury, Committee on Foreign Investment in the United States Annual Report to Congress, Calendar Year 2023, Section I.F (Mitigation Measures and Conditions) and Section I.H (Compliance Plans and Assessment of Compliance with Mitigation Agreements and Conditions).

16 https://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-states-cfius/cfius-enforcement.

17 U.S. Department of the Treasury, Committee on Foreign Investment in the United States Annual Report to Congress, Calendar Year 2024, Section I.G (Perceived Adverse Effects of Covered Transactions).

18 CFIUS issued a Frequently Asked Question in 2023 stating that the completion date for purposes of assessing when a mandatory filing must be submitted is the date equity rights transfer, even where corresponding rights are deferred until after CFIUS review. See: https://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-states-cfius/cfius-frequently-asked-questions

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