Written by Milos Barutciski and Adam Kalbfleisch

On December 19, 2016, the Canadian Government released new Guidelines on the National Security Review of Investments under the Investment Canada Act (the “Act”) increasing review transparency in an effort to bolster foreign investment.

The Guidelines seek to provide important information to investors about the administration of the Act's national security review process. The Guidelines include factors that the government will consider when assessing whether an investment poses a national security risk.

Specifically, the Act requires non-Canadian investors to file an application for review for any reviewable investments, prior to their implementation. In assessing proposed or implemented investments under the national security provisions of the Act, the government may take into account factors including but not limited to the following, as they relate to national security:

• the potential effects of the investment on Canada's defence capabilities and interests;
• the potential effects of the investment on the transfer of sensitive technology or know-how outside of Canada;
• involvement in the research, manufacture or sale of goods/technology identified in Section 35 of the Defence Production Act;
• the potential impact of the investment on the security of Canada's critical infrastructure;
• the potential impact of the investment on the supply of critical goods and services to Canadians, or the supply of goods and services to the Government of Canada;
• the potential of the investment to enable foreign surveillance or espionage;
• the potential of the investment to hinder current or future intelligence or law enforcement operations;
• the potential impact of the investment on Canada's international interests, including foreign relationships; and
• the potential of the investment to involve or facilitate the activities of illicit actors, such as terrorists, terrorist organizations or organized crime.

The Guidelines confirm that the potential scope of national security review is considerably broader than national defence, critical infrastructure and intelligence and counter-intelligence matters, and includes issues supply of goods and services to Canadians and the Government of Canada, as well as international relationships more generally.

Notably, the Guidelines also encourage investors to contact the government "at the earliest stages of the development of their investment projects to discuss their investment", particularly where the factors listed above are present. Similarly, where transactions are not reviewable but only notifiable, the Guidelines encourage investors to file prior to closing, rather than after, if there are potential national security issues. This reflects a trend that has already seen many investors file notifications prior to closing (even where the strict statutory requirement was only to file within 30 days after closing) in order to obtain comfort that no national security review would be ordered.

As had previously been announced in the government's 2016 Fall Economic Statement, the government will also amend the Act to increase the threshold that triggers a review of investments under its net benefit provisions. The threshold will be raised to $1 billion in enterprise value from the existing amount of $600 million. This legislative amendment will take place in 2017—two years earlier than scheduled. The threshold is based on the "enterprise value" of the Canadian business; lower thresholds will continue to apply to investments in "cultural businesses" and investments by state-owned enterprises and non-WTO investors.

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