In 2009, the Investment Canada Act (ICA) was amended to permit the Canadian government to undertake national security reviews in respect of Canadian-related investments proposed or made by non-Canadians. For such a review to occur, the Minister responsible for the ICA must have reasonable grounds to believe that the investment could be “injurious to national security” and the Governor in Council (i.e., the federal Cabinet), on the Minister’s recommendation, must make an order to conduct such a review.
Interestingly, “national security” concerns had already appeared to play a significant role in the review of a foreign investment proposal that pre-dated this amendment to the ICA. In May 2008, then Industry Minister Jim Prentice rejected Alliant Techsystems Inc.’s application for approval under the ICA for its proposed takeover of MacDonald Dettwiler and Associates Ltd. (MDA). Following that rejection, a number of informed observers expressed the view that national security concerns, in part, had likely contributed to the rejection possibly due to MDA’s ownership of Radarsat 2, a Canadian government financed remote sensing satellite permitting observation of the Canadian Arctic. This rejection occurred despite the fact that, at that time, national security was not expressly stated in the ICA to be a factor that the Canadian government should take into consideration in making its ICA decisions.
The term “national security” is not a defined term in the ICA or its regulations. Further, the ICA does not indicate whether foreign investments involving certain industries are likely to raise concerns in relation to national security or specify the types or origin of investors that are more likely to be subject to the national security provisions. Unfortunately for foreign investors, the entire national security review process seems to be shrouded in a cloak of secrecy. In response to questions about the review process, the general response of Canadian government representatives has been that the confidentiality provisions of the ICA prohibit them from publicly discussing or disclosing information related to these matters and accordingly the government repeatedly refused requests to even provide a level of clarification comparable to that provided by the Committee on Foreign Investment in the United States (CFIUS) in respect of its review processes – these confidentiality restrictions even extended to providing simple statistical information about how many national security related notices had been issued under the ICA.
In response to this situation, in July, 2013 Fasken Martineau submitted an access to information request to Industry Canada requesting that it disclose information regarding the number of notices and orders issued under national security provisions of the ICA for the time period between April 1, 2009 to March 31, 2013 and provide redacted copies of such notices and/or orders. In August, 2013, Industry Canada refused that request on the basis that, after an examination of its records, it had concluded that all of the requested information was subject to the confidentiality provisions in section 36 of the ICA and, as such, the requested information was entirely exempt from disclosure pursuant to subsection 24(1) of the Access to Information Act (AIA).
In response to this refusal, a complaint under the AIA was filed in September, 2013 with the Office of the Information Commissioner of Canada. This complaint ultimately resulted in the issuance of the requested information in May, 2016.
Although extensively, and it appears appropriately, redacted to preserve confidentiality, the information released by Industry Canada confirms that, during the first 3 years following the introduction of the “national security” review regime, the Industry Minister issued only 3 section 25.2(1) notices stating that he had reasonable grounds to believe that an investment could be “injurious to national security”. A foreign investor who receives such a notice may not implement its investment until such time as it is expressly permitted to do so under the ICA.
Additionally, the Industry Canada disclosure revealed that only 2 orders for review had been made by the Governor in Council in respect of proposed investments and that only 1 of those 2 orders appeared to have resulted in a section 25.4(1)(a) order of the Governor in Council directing that the non-Canadian not implement its proposed investment.
This information appears consistent with what many outside observers had already noted as having occurred.
In 2009, the Canadian government took steps to prohibit George Forrest International Afrique (GFI) from completing its acquisition of Forsys Metals Corp. (Forsys), a Canadian publicly traded company with uranium interests in Africa, until the government had an opportunity to review that proposed investment. Forsys which was at the last stage of a proposed plan of arrangement that would result in it being acquired by non-Canadian controlled GFI unexpectedly announced that GFI had received an unsolicited letter from Industry Canada advising GFI that it was prohibited from implementing the transaction pending further notice from Industry Canada. In comments to the press, GFI indicated that it would be meeting with the Canadian government in response to the prohibition letter. However, Forsys subsequently announced that it had terminated the C$579 million takeover after GFI failed to transfer funds to complete the deal and, as such, no national security review was likely undertaken with respect to that transaction.
As the GFI/Forsys transaction appeared to fall below the monetary threshold that required mandatory pre-merger approval under the ICA, the power upon which the Canadian government relied to delay the closing remained unclear. In response to press enquiries, Industry Canada declined to comment on why it had taken this action. At the time, it was theorized that the letter was the first public exercise of the Minister’s right under section 25.2 of the ICA to prohibit a transaction from closing until the Canadian government had had an opportunity to consider the potential impact of the transaction under the national security provisions of the ICA.
In June 2013, Orascom Telecom Holding S.A.E. (Orascom), a subsidiary of Vimpelcom Ltd., announced that it was withdrawing its application under the ICA to acquire control of Globalive Wireless Management Corp. and its subsidiary, Wind Mobile. Although Orascom gave no specific reason for its withdrawal and the Minister did not issue a final decision under the ICA, media reports suggested that the proposed transaction had been abandoned because it had become subject to a national security review.
In October 2013, then Industry Minister James Moore formally rejected Accelero Capital Holdings’ proposed acquisition of the Allstream division of Manitoba Telecom Services Inc. Minister Moore provided the following statement as the reason for the rejection:
“MTS Allstream operates a national fibre optic network that provided critical telecommunications services to businesses and governments, including the Government of Canada”.
This represented the first transaction to be expressly disallowed on national security grounds since the creation of the national security regime in 2009.
Since 2013, there have been a small number of other transactions that have raised national security concerns. Additionally, presumably all filings made under the ICA, both applications for review and notifications, are subjected to some form of basic national security audit to confirm that no national security concern exists that would be sufficient to permit the Minister to issue a 25.2(1) notice. Based on the information provided by Industry Canada to Fasken Martineau, it appears likely that the only substantive national security actions that Industry Canada undertook during the April 1, 2009 to March 31, 2013 time period were those which the public was already generally aware of suggesting that the Canadian government during the referenced time period had not made repeated use of its new “national security” review powers.