Federal government proposes significant Investment Canada Act amendments

On December 7, the Minister of Innovation, Science and Industry (the Minister) announced comprehensive proposed amendments to the Investment Canada Act (the ICA) in Bill C-34. The Minister released a corresponding backgrounder on the proposed amendments and committed to strengthening Canada’s national security review process to better mitigate the potential security threats that can be posed by foreign investment. There is currently no proposed timetable for the progress of Bill C-34, but the government has indicated there will likely be a consultation process for any related regulations that are proposed. Bill C-34 will be debated and reviewed further in the House of Commons and Senate before it becomes law.

Key features of the proposed amendments include the following:

Notifications required for investments in prescribed business sectors

• Requiring a pre-implementation filing requirement for investments in Canadian businesses in prescribed sectors where a non-Canadian acquires either (i) control of an existing Canadian business, or (ii) part of an existing Canadian business if the investment results in the non-Canadian investor having the right to appoint individuals who can direct the operations of the business or other prescribed special rights.
• The proposed amendments do not define “prescribed business sectors” (this will come via regulations), but the focus will be on sensitive sectors that may raise national security concerns where the non-Canadian investor could obtain access to material non-public technical information or assets, such as sensitive personal information or intellectual property, immediately upon closing.
• Investments in an existing Canadian business that are subject to notification cannot be implemented until the timelines under the national security review have elapsed.
• The timing for filing a pre-implementation notification is not yet prescribed.

Ministerial authority to extend national security reviews

• Allowing the Minister to extend national security reviews beyond the first 45-day extension currently allowed under the ICA, without obtaining a Governor-in-Council order.
• Authority to be exercised prior to the expiry of the prior review period and in consultation with the Minister of Public Safety and Emergency Preparedness.
• Proposed amendments do not indicate the length of time that a national security review can be extended under the Minister’s authority.

Interim conditions can be imposed during national security reviews

• Granting the Minister the authority to impose interim conditions on an investment while a national security review is ongoing to prevent injury to Canada’s national security that might occur before the completion of the review.
• Interim conditions imposed only until a national security review is complete, and can be amended or removed by the Minister at any time during the review.
• Authority to be imposed in consultation with the Minister of Public Safety and Emergency Preparedness.

Ministerial authority to accept undertakings to mitigate national security risk

• Granting the Minister the authority to accept binding undertakings from investors to reduce potential national security injury that would result from the investment. Under the current ICA provisions, imposing conditions on an investment can only occur through a Governor-in-Council order.
• Potential undertakings could include obtaining government approval for proposed business locations, creating corporate security protocols to safeguard information or granting access to facilities for compliance inspections, among others.
• Exercising this authority in consultation with the Minister of Public Safety and Emergency Preparedness.
• Allowing conditions to be amended or ended, if economic or security circumstances change.

Information sharing with international counterparts

• Granting the Minister the authority to share information with international counterparts on terms and conditions the Minister deems appropriate. Currently, information about specific investors is considered privileged and cannot be disclosed.
• Enhancing awareness of and ability to protect against investors who are simultaneously active in several jurisdictions.

Penalties for non-compliance with the ICA

• Updating the penalties for non-compliance with different sections of the ICA and allowing for future updates to these penalties by way of regulations.
• Penalties will be significant, and include:
  • fines for failure to give notice of, or file applications with respect to, certain investments in an amount that is the greater of $500,000 and any prescribed amount, and
  • fines for any other contravention of the ICA in an amount that is the greater of $25,000 and any prescribed amount for each day of the contravention.
• Introducing a penalty for failing to comply with the pre-implementation filing requirements.

Other proposed amendments

• Refining the definitions of WTO, trade agreement and CUSMA investors in the ICA.
• Protecting sensitive information from disclosure during judicial reviews of national security review decisions.

Key takeaways

Under the transitional provisions in Bill C-34, the new provisions (once in force) will apply to all investments being reviewed under the ICA at the time the amendments are enacted. However, many aspects of the proposed amendments remain undefined and clear guidance is needed regarding how certain amendments will be applied once enacted (for example, how penalties for non-compliance will be applied and how the information sharing powers will operate in practice).

In our view some of the new powers granted should also be subject to limitations – for example, the Minister’s authority to impose interim conditions during a national security review should be restricted to circumstances where there is a clear national security risk. While the government’s desire to amend Canada’s foreign investment review framework responds to evolving national security concerns, it is critical to ensure these changes are accompanied by appropriate guidance to avoid having a chilling effect on foreign investment in Canada.

The proposed amendments are the most substantive changes to the ICA in over a decade. If enacted as is, these amendments will likely result in the government reviewing more investments prior to closing and having greater authority over national security reviews. However, the department responsible for administering the ICA is significantly understaffed and the proposed amendments are likely to only exacerbate this problem unless additional resources are provided.

Norton Rose Fulbright is actively monitoring developments in this area, and we will provide more detailed analysis on possible amendments to the ICA as this process evolves.