On February 12, 2022, the federal government proposed, in the Canada Gazette, amendments to the National Security Review of Investments Regulations (the “Regulations”). The Regulations set out the timelines of the national security review process under the Investment Canada Act (the “Act”). If ratified, the proposed amendments would create a voluntary filing mechanism for investors that do not currently have a filing obligation under the Act, and would extend the initial national security review period from 45 days to five years for all investments by non-Canadians that do not make a filing. Investors who choose to submit a voluntary filing will, within 45 days from the certification date of their filing, know whether the Government of Canada intends to challenge their investment. The proposed amendments will benefit businesses contemplating an investment in Canada by creating an option to achieve regulatory certainty pre-implementation.
The Current National Security Review Process
The Act authorizes national security reviews of all investments, whether implemented or proposed, by non-Canadians into Canada in situations where the Minister of Industry has reasonable grounds to believe that such an investment could be injurious to Canada’s national security. Under the Act, these investments fall into one of three categories:
(i) the establishment of a new Canadian business or an entity carrying on operations in Canada;
(ii) the acquisition of control of a Canadian business, including a part of a business capable of being carried on as a separate business, of any dollar value; and
(iii) the acquisition of all or part of an entity carrying on operations in Canada.
When investments fall into the first and second of these categories, non-Canadian investors are required to file an application for review or a notification. However, certain investments falling into the third of these categories, particularly an acquisition of part of a Canadian business that does not constitute an acquisition of control of that Canadian business under the Act (e.g. minority interests in Canadian businesses), are not required to make any filing. This distinction between the presence and absence of a filing is significant because it has implications for non-Canadian investors seeking regulatory certainty (i.e. certainty that their investment will not be subject to government interference on the basis of national security concerns).
Under the current regime, the initial review period begins when the Minister of Industry becomes aware of an investment and ends 45 days after the (i) date on which the filing was certified or (ii) in the case of investments that do not require a filing, the date on which the investment is implemented. Within the initial review period, the government must decide whether it will take any action on the investment by:
- issuing a notice that a national security review may be ordered (which triggers an additional period for review of 45 days to consider whether a formal review is needed); or
- ordering a formal review (which triggers an additional period for review of 90 days to consider what, if any, measures to protect national security will be made).
Concerning investments that do not require a filing, the 45 day review period commences when the Minister of Industry first becomes aware of an investment, which could be anytime, and, as a practical matter, could be long after implementation. In such cases, investors may find themselves in a situation where conditions are imposed on their investment or where they are ordered to divest their investment in part or altogether. The absence of any precise date on which the 45 day review period commences creates significant uncertainty for non-Canadian investors in this situation.
Proposed Amendments: Extending the Initial Review Period & Permitting Voluntary Filings
For investments that do not require a filing, the proposed amendments would give non-Canadian investors an option to make a voluntary filing to the Minister of Industry. If the non-Canadian investor chooses to make a voluntary filing, the government will be required to decide whether it will take any action within 45 days from the date on which the filing is certified as complete. However, if the non-Canadian investor chooses not to make a voluntary filing, the government would have up to five years after the date of implementation of the investment to decide whether it will take any action. Consequently, non-Canadian investors who choose to file voluntarily would enjoy a much shorter initial review period (45 days instead of five years) and, even if the government decides to take action, they would be made aware of such action prior to implementing their investment.
Information Required for the Voluntary Filing
The proposed amendments provide a list of information non-Canadian investors would need to disclose in the voluntary notification. This information is largely the same as that which is required to be included in the notices that are currently mandatory under the Act (i.e. information concerning the purchaser, its ultimate controller, the nature of the investment and the target entity). The disclosures mainly consist of contact information and questions aimed at determining whether the investor is state-owned or state influenced.
The Impact: What Businesses Need to Know
If the proposed amendment is implemented, foreign investors who are not otherwise obligated to make a filing under the Act (e.g. minority investors in Canadian businesses) will have a voluntary filing method to determine whether their proposed investments raise national security concerns under the Act.
If you have questions about the national security review process or Canadian foreign investment law more generally, you can reach out to any member of Fasken’s National Security Group. Our group has significant experience advising clients on all aspects of national security law.
The information and guidance provided in this bulletin does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s National Security Group.