Written By Adam Kalbfleisch and Pavan Virdee
On March 8, 2022, the Honourable François-Philippe Champagne, Minister of Innovation, Science and Industry issued a policy statement advising non-Canadian investors and Canadian businesses to review their investment plans involving potential connections to Russian investors and entities, including controlling and minority interests.
Citing an "environment of elevated national security and economic risk to Canada," Minister Champagne's statement has implications for investments in Canada that have ties to Russian entities or investors. Effective immediately, such investments will be subject to heightened scrutiny under the net benefit review and national security review mechanisms under the Investment Canada Act (ICA).
Impact on Net Benefit Reviews
In certain cases (i.e., where an investment meets the relevant threshold for review), an acquisition of control of a Canadian business by a non-Canadian investor will be reviewable under the ICA. Before such an investment may be completed, it must undergo a "net benefit review." The investor is required to prove to the Minister of Innovation, Science and Industry (the Minister) that the proposed investment is likely to be of net benefit to Canada. The Minister must consider several factors in making his determination as to whether the investment may be completed.
Pursuant to the new policy statement, reviewable investments by direct or indirect Russian investors will be found to be of net benefit to Canada on an exceptional basis only.
Impact on National Security Reviews
The ICA contains a national security review mechanism that allows the Canadian government to review, prohibit, or impose conditions on an investment on the basis of national security concerns. Any investment, regardless of the size of the target or of the investment, can be reviewed under the national security provisions of the ICA to determine if it could be injurious to Canada's national security. In making such a finding, the Minister may take into account several factors, which are outlined in the Government of Canada's National Security Guidelines.
Following the new policy statement, the fact that an investment has indirect or direct ties to an individual or entity associated with, controlled by or subject to influence by the Russian state will support a finding by the Minister that there are reasonable grounds to believe that the investment could be injurious to Canada's national security.
Practical Considerations for Investing in Canada
Non-Canadian investors should consider how Minister Champagne's statement might affect their investment plans. For example, these new measures may result in extended due diligence and lengthier-than-normal review periods.
The Canadian government advises non-Canadian investors to closely review and proactively identify any indirect or direct ties to Russian entities or individuals that proposed transactions, which are subject to either the net benefit review or national security review provisions of the ICA, may have.
The new policy statement is applicable until further notice.