Authors
On March 24, the government of Canada issued updated guidelines on the national security review of foreign investments.
Under the Investment Canada Act, the government has discretion to review virtually any foreign investment on the grounds it could be “injurious to Canada’s national security”. Numerous investments have been blocked or restructured for national security reasons. Most of these investments involved Chinese investors seeking to acquire businesses relating to critical infrastructure or sensitive technology.
National security review guidelines were initially issued in 2016 (see our bulletin on those guidelines here). Those guidelines explained that in making a national security assessment the government will consider the nature of the assets or businesses subject to an investment as well as the nature of the foreign investors.
The updated guidelines expand on those original guidelines by identifying additional issues that could present foreign investment national security concerns, including investments by state-owned or state-influenced investors and involving Canadian businesses that have access to sensitive personal data, use sensitive technology or are involved in critical minerals/critical mineral supply chains.
The expanded list of sensitive areas, particularly in the fast-growing technology sector, provide additional clarification of the government’s primary concerns. This will assist both foreign investors and Canadian businesses with greater clarity in transaction planning and upfront national security risk assessment.
The breadth of business activities covered by the updated guidelines in their totality, which effectively include most aspects of the modern economy, should serve as a reminder that it will be challenging for investors from non-allied countries (particularly China and Russia) to avoid national security scrutiny of in-bound investments. All cases will of course continue to be reviewed individually on their own merits and in some problematic cases mitigation strategies could be used to pre-empt or address government concern.
That said, the updated guidelines are iterative rather than transformational as they reflect enforcement practice and experience rather than a policy change. Accordingly, we do not expect a material difference in day-to-day enforcement activity. Moreover, as of a result of these changes, the Canadian government’s stated approach to national security reviews remains broadly consistent with that of the United States.
As always, when considering potential investments where national security issues are expected to arise, investors and Canadian businesses alike are encouraged to engage counsel and government relations advisors as early as possible in the transaction planning process given the complex and evolving nature of the national security review regime under the Investment Canada Act.
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