Foreign investors can now notify voluntarily under Investment Canada Act national security regulations

Changes to the Investment Canada Act (ICA) came into force on August 2 to allow foreign investors to voluntarily notify the government of investments that may raise national security concerns. The changes also significantly increase the amount of time the government has to review any investment that has not been notified.

What you need to know

• New voluntary notification regime. Voluntary notification is now available for foreign investments that are otherwise not required to be notified under the ICA, including acquisitions of a minority non-controlling interest in a Canadian business.
• Information to provide. Similar to the mandatory notification regime, foreign investors notifying under the new voluntary regime must provide information about themselves and the investment.
• Increased review time for non-notifiable investments. Any investments in or establishments of new Canadian businesses that are not formally notified can be reviewed on national security grounds for up to five years (up from 45 days) after the investment is completed.

Background

The ICA requires foreign investors to notify the government of investments when they acquire control of Canadian businesses or establish new businesses. However, the government’s jurisdiction to review foreign investments on national security grounds extends beyond those investments requiring notification under the ICA, such as minority investments that do not result in an acquisition of control of a Canadian business. Until now there had been no mechanism to seek approval for non-notifiable investments.

This had been a concern to both investors and the government. For investors, it meant assuming the risk that the government would order an unwinding or divestment—or impose conditions on investments after closing. For the government, it meant that it was not getting notice of potentially problematic (from a national security perspective) investments.

Voluntary notification regime

The new voluntary notification regime provides foreign investors with the option to obtain pre-closing regulatory certainty for formerly non-notifiable investments. This option may be especially desirable for minority investments that do not constitute an acquisition of control under the ICA and that could potentially raise national security issues. By making a voluntary filing, investors can start a review period the expiration of which effectively constitutes approval.

Review period extension

In addition to creating the option of voluntary notification, the changes to the ICA also increase the time that the government has to initiate a national security review for a non-notifiable investment from 45 days to five years after closing. This extension of the review period serves two purposes. First, it incentivizes investors to notify in order to be certain that no national security issues will arise long after closing, thereby bringing more transactions to the attention of the government. Second, it gives the government significantly more time to discover and review any investment that was not notified.

Conclusion

These changes are consistent with the trend of increased focus on national security enforcement in relation to foreign investment. In 2021, the government issued more detailed guidelines on national security reviews and indicated an intention to apply more scrutiny to certain transactions, including those involving state-owned enterprises, critical minerals, and critical Canadian infrastructure (see those updated guidelines).

Voluntary notification is a welcome addition to the ICA enforcement regime. Foreign investors in Canada can now, in all instances, notify and achieve regulatory certainty around national security issues well in advance of implementing their investment.