In Depth

Foreign investment review in Canada continues to evolve, with a number of significant legislative and policy developments related to Canada's national security. In 2021, the Guidelines on the National Security Review of Investments were materially updated. In 2022, the ICA was amended to create a voluntary filing mechanism for minority investments that may raise national security concerns, and Minister Champagne announced major policy statements on both Russian foreign investment and foreign investment by state-owned or state-influenced enterprises (SOEs) in Canadian businesses or assets involving critical minerals. 

The most recent proposed amendments are the most extensive reforms to the ICA in more than ten years. They respond to calls for modernization of the ICA to respond to strategic and geopolitical concerns, and are intended to further support Canada’s ability to screen, review and impose conditions on foreign investments on national security grounds. 

The proposed amendments will have a significant impact on how foreign investors discharge their obligations under the ICA and in the national security review process. Key reforms included in the proposed amendments include: 

• Mandatory Pre-implementation Filing Requirements. The legislative amendments would require all foreign investors to make pre-closing notifications for investments in prescribed business sectors, and foreign investors would be prohibited from completing their investments until the prescribed national screening periods have expired. The prescribed business sectors, which are expected to build upon existing national security guidance, and the prescribed timelines that will apply, have yet to be announced and will be set out in regulations. This amendment formalizes the practice of filing pre-closing notifications voluntarily (rather than post-closing as is legally permitted today) for any investment that could raise national security concerns to obtain certainty that the investment does not raise national security concerns that an investor will have to deal with post-closing. 

• Flexibility and Efficiency in the National Security Review Process. The legislative amendments introduce new powers for the Minister to, among other things, take interim measures to protect Canada's national security during the course of a national security review, and accept undertakings to mitigate an investment's potential risk to Canada's national security. These new powers are intended to introduce flexibility and create efficiencies within the existing national security review framework, particularly where foreign investors are motivated to work with the Canadian government to mitigate any national security concerns. 

• Sharing Investor-Specific Information with Allies. The legislative amendments introduce new powers for the Minister to share information with Canada's allies, on any terms and conditions that the Minister deems appropriate, to support foreign investment reviews and national security assessments. These changes are similar to amendments made to facilitate coordination with allies that were made to the US regime in 2018. Under existing provisions, information about specific investors is generally considered protected and the Canadian government is not officially permitted to disclose such information, including to foreign states. Legislative announcements indicate that information that raises confidentiality or other concerns will not necessarily be shared, and that information will only be shared in the context of a national security review. The proposed information sharing could nevertheless raise concerns as the information foreign investors are required to provide in notifications and other filings often contain highly confidential commercial and personal data.   

• Significant Increases to Financial Penalties for Non-Compliance and New Financial Penalties for Missed Filings. The legislative amendments update and introduce new financial penalties, and create a formula to adjust financial penalties in the future. In particular, non-compliance may result in a fine of CAD 25,000 for each day that the contravention continues, and failure to file a required pre-implementation notification or application for net benefit review may result in a fine of CAD 500,000. Previously, the financial penalties were capped at CAD 10,000 per day that the contravention continued. The Canadian government will be required to seek a court order to impose any penalties; however, the reasonable size of the penalties suggests a heightened likelihood that they may be imposed in practice. 

• New Protections for Sensitive Information in Judicial Review. The proposed amendments will introduce new provisions allowing for "closed material" proceedings, which will improve transparency for foreign investors seeking to overturn national security decisions and permit the foreign investor to participate in the judicial review. The proposed amendments will permit the use of sensitive information during the course of judicial review of decisions under the ICA, while protecting the sensitive information from third party and public disclosure. 

Taken together, the amendments are likely to increase scrutiny and lengthen the ICA regulatory process in identified sectors, make certain investments no longer viable absent mitigation conditions that may be commercially unacceptable, and increase the risks and consequences generally for non-compliance. Investors will want to begin factoring the possibility of more significant regulatory hurdles into commercial timelines, and consider even more carefully their approach to future foreign investment. 

As the proposed amendments are subject to Canada's legislative process, and may be revised as they undergo public consultation and parliamentary debate, investors should monitor for further updates as the proposed amendments are developed and refined over the course of 2023. In addition, the Canadian government has signalled that many details will not become known until the adoption of implementing regulations after the legislation has been finalized.¹ 

While the proposed amendments are not retroactive and will apply only to future foreign investments in Canada once the amended legislation comes into effect, it is not too early to begin factoring the commercial implications into transaction planning and to evaluate the impact on future regulatory processes and timing, and in some sectors the viability of certain investments. 

Summary of Proposed ICA Amendments 

1. Introduce mandatory suspensory pre-implementation filing requirements for foreign investments in business sectors to be prescribed in regulations
2. Authorize the Minister, in consultation with the Minister of Public Safety, to extend the national security review of investments
3. Update penalties for non-compliance and introduce a new financial penalty for failing to comply with pre-implementation filing requirements
4. Authorize the Minister to impose interim conditions during a national security review to reduce the risk of national security injury taking place during the course of the review itself
5. Authorize the Minister to accept undertakings to mitigate national security risk that would result from the investment, including for example governmental approval for proposed business locations to avoid proximity to sensitive Canadian assets, creating approved corporate security protocols to safeguard information and access to a site, or granting facility access for compliance inspection
6. Permit the Minister to disclose information about an investor to Canada's allies in order to support their foreign investment review and national security assessments on terms and conditions that the Minister deems appropriate
7. Introduce new rules to protect sensitive information from disclosure during the course of judicial review

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_{¹ As Canada currently has a minority government, there is also the possibility that the government could fall before the legislation is finally adopted, though we expect that amendments focused on strengthening national security are likely to attract broad parliamentary support for adoption.}