Canada: Canadian Government Announces Increased Scrutiny of Foreign Investment Due to COVID-19

In brief

As the impact of the COVID-19 pandemic restrictions continues to evolve, the Canadian government, consistent with other governments around the world, has announced an enhanced policy for the regulation of certain foreign investments.

Effective immediately, the policy applies to investments of any value related to public health or critical goods and services, or by state-owned enterprises or private investors subject to foreign government influence.

The policy signals that existing screening and review powers will be used to conduct more in-depth examination of proposed transactions, likely leading to more information requests and lengthier review timelines, and potentially impacting many industry sectors.


  • On April 18, 2020, the Canadian Minister of Innovation, Science and Industry issued a policy statement announcing that certain foreign investments will immediately be subject to enhanced scrutiny under the Investment Canada Act (ICA). The new policy will stay in place indefinitely, which the statement indicates will be at least until the economy recovers from the effects of the COVID-19 pandemic.
  • As many Canadian businesses have seen their valuations decline as a result of the pandemic, the Canadian government has announced the new policy as a proactive step to prevent opportunistic investment behaviour and protect Canadian interests, given the heightened risk during the pandemic of certain investments being motivated by “non-commercial imperatives”.
  • The new policy is aimed at ensuring that foreign investments do not introduce new risks to the Canadian economy or national security, and focuses attention on foreign direct investments of any value (controlling or not) in Canadian businesses or entities, or the establishment of new Canadian businesses or entities, that are related to public health or the supply of critical goods and services to Canadians or to the Canadian government. Special scrutiny will also apply to any foreign investment by state-owned investors or private investors considered to be closely tied to, or subject to direction from, foreign governments.
  • The policy statement indicates that heightened scrutiny may involve additional information requests or statutory extensions of time periods for screening or review under the ICA. In principle, this could also lead to an increased risk that investments will be found to present national security concerns and be subject to more onerous conditions for approval.
  • The policy applies to the existing foreign investment framework under the ICA. The ICA currently requires pre-closing review and approval on “net benefit to Canada” grounds of direct acquisitions of control that exceed a financial threshold based on either the enterprise value or the book value of assets of a business. Investors making investments below the financial thresholds or indirect acquisitions of control are only required to file a notification. The new policy does not result in any changes to the applicable thresholds for net benefit review.
  • Since 2009, the ICA has also provided for broad powers to review, conditionally approve, block or dismantle investments that raise national security concerns or are determined to be injurious to Canada’s national security – with no minimum financial threshold for review, and no requirement that the investor acquire control. Pre-existing guidance on these provisions defines the involvement of a target business or entity involved in critical infrastructure, and state influence on a purchaser as factors that may give rise to heightened potential for national security concerns.
  • Given the wide scope of “critical infrastructure” under existing guidance and regulation (it encompasses 10 broad sectors – energy and utilities, information and communication technologies, finance, health, food, water, transportation, safety, government, and manufacturing) and “critical” goods and services in the context of COVID-19 (the Canadian government has published an extensive and non-exhaustive list of essential services and functions), the concept of critical goods and services under the new policy is likely to be interpreted very broadly.
  • Similarly, given the definition of a “state-own enterprise” in current guidance (i.e., an enterprise that is owned, controlled or influenced, directly or indirectly, by a foreign government), what constitutes state ties or direction is likely to be interpreted broadly.
  • The policy follows similar announcements in Australia, Italy, France and Germany,   where governments have also taken steps to protect national interests and strategic companies by scrutinizing and/or curtailing foreign investment. 
  • Despite the issuance of the policy, Canada remains open for business and the government is unlikely to ultimately block transactions that have a strong commercial rationale and that it is satisfied do not raise national security concerns that cannot be overcome through conditions on implementation.  

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