A Step in the Right Direction: Updated Guidelines on Canada's National Security Review Bring Greater Clarity

On March 24, 2021, the Minister of Innovation, Science and Industry (the “Minister“) announced updates to the Guidelines on the National Security Review of Investments (the “Guidelines“) issued under the Investment Canada Act (the “ICA“). This first update since the Guidelines were issued on December 21, 2016 appears to respond to widely expressed concerns about the sanctity of personal information, vulnerability of Canadian intellectual property, and the growing importance of things like critical minerals to Canada’s geopolitical positioning and the basic health and safety of citizens in a post-pandemic world. Additionally, areas of technology broadly understood to be of concern to the Government of Canada (the “Government“) have been expressly listed, with the only potential surprise being “Advanced Ocean Technologies.”

Background Separate and distinct from the “net benefit to Canada” economic impact assessment, the ICA provides for a national security review that gives the Government the authority to review any acquisition (or establishment) of all or part of a Canadian business, that, in its opinion, could be injurious to Canada’s national security. In 2016, the Minister issued Guidelines as a way to provide foreign investors with a clearer picture as to the circumstances under which the Government of Canada may initiate a national security review.

For more information on the introduction of the Guidelines in 2016, see our post, Investment Canada Issues National Security Review Guidelines. What’s new The Guidelines previously contained specific factors the Government would consider during the national security review process.

The updated Guidelines expand that list of factors and provide additional clarity with respect to some of the pre-existing factors, including the potential effects of the investment on:

  • Canada’s defence capabilities and interests – this consideration now includes, but is not limited to, the defence industrial base and defence establishments.
  • Transfer of sensitive technology or know-how outside of Canada – this factor has been updated to provide additional clarity on what may be considered sensitive technology, including those developed in the following fields:Advanced Materials and Manufacturing
  • Advanced Ocean Technologies
  • Advanced Sensing and Surveillance
  • Advanced Weapons
  • Aerospace
  • Artificial Intelligence
  • Biotechnology
  • Energy Generation, Storage and Transmission
  • Medical Technology
  • Neurotechnology and Human-Machine Integration
  • Next Generation Computing and Digital Infrastructure
  • Position, Navigation and Timing
  • Quantum Science
  • Robotics and Autonomous Systems
  • Space Technology
  • Critical minerals – the list of factors now includes consideration of the impact of an investment on critical minerals and critical mineral supply chains. For more information on which minerals are considered critical in Canada, see our recent post, Newly Critical: Copper, Helium and More – Canada’s List of Critical Minerals has Expanded for 2021.
  • Involving or facilitating the activities of corrupt foreign officials – corrupt foreign officials have been added to the examples of illicit actors whose activities may be considered.
  • Exploitation of sensitive personal data – the list adds consideration of the ability to enable access to sensitive personal data, exploitation of which could harm Canadian national security. Helpfully, the Guidelines provide a non-exhaustive list of the types of personal data that may be considered sensitive: (a) personally identifiable health or genetic data, (b) biometric data, (c) financial data, (d) communications data, (e) geolocation data, and (f) personal data concerning government officials, including members of the military or intelligence community.

    These are not new concerns to the Government, but the express listing represents a welcome move towards clarity that tends to explain the “why” behind past general expressions of federal concern.

Note that the Guidelines provide a non-exhaustive list of factors that may be taken into account during a national security review. Investments that do not possess the listed characteristics may nevertheless present national security concerns. Conversely, investments that possess some of the above-listed characteristics will not necessarily be viewed by the Government as injurious to Canada’s national security.

Each of the factors must be set within the current bilateral, geopolitical, and domestic political contexts in order to produce a more fully-developed picture of the likelihood of an investment’s ultimate approval by the Government. What Stays the Same Consistent with the Government’s April 2020 Policy Statement on Foreign Investment Review and COVID-19, the updated Guidelines now provide that the Government will subject all foreign investments by state-owned investors, or private investors assessed as being closely tied to or subject to direction from foreign governments, to enhanced scrutiny under the ICA, regardless of the investment’s value.

Enhanced scrutiny of foreign direct investments, both controlling and non-controlling, in Canadian businesses, has been the Government’s policy for some time now. What’s Next While these revised National Security Guidelines do provide a new level of transparency to the investment community concerning what types of transactions may attract national security scrutiny, they do not address the need for more openness and transparency during actual national security reviews in the context of specific transactions.

Actions to mitigate perceived security issues should always be something to be considered. In the past, the Government has shown reluctance to engage in mitigation discussions, appearing to prefer a binary “go / no go” approach. Hindering the ability to determine whether mitigation is even a possibility is a certain lack of transparency or openness by the government as to the exact nature of its security concerns with respect to a specific transaction.

Acknowledging that mitigation discussions are inherently difficult given that national security matters are involved, something more needs to be done to ensure that otherwise beneficial transactions are not blocked simply because the parties to the deal have not been given a full and fair opportunity to address the government’s security concerns and to offer possible mitigation options to address those concerns.

A published list of specific areas of federal concern will make it more difficult for the Government to keep its concerns general and instead, will invite a healthy debate about specific problems with a deal — and specific solutions thereto.

This is a step in the right direction in the attraction of the foreign capital crucial to Canada’s economic recovery from COVID-19.

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