Major modifications to canada investment law (ICA) became law on 22 March 2024 with the passage of Bill C-34. National Security Review of the Investment Modernization Act. These amendments have been under consideration for a long time and are expected to come into force on a date set by the Cabinet. Certain amendments may become effective in a relatively short period of time, while others requiring implementation of the regulations may not become effective until late 2024 or early 2025.
The amendments to the ICA are the most significant since the introduction of the national security regime in 2009 and are in line with the government's increased national security oversight of foreign investment. It also signals to Canada's allies that it is modernizing its national security review process to work more closely with counterpart administrations in like-minded countries such as the United States and the United Kingdom.
Main aspects of the amendment
New pre-closing applications for investments in certain sensitive sectors
Investments in certain sensitive sectors are subject to new pre-closing filing and moratorium obligations under the ICA, even if they fall below the mandatory net income review threshold. A new pre-closing declaration regime will require foreign investors making investments in sensitive sectors to notify the government in advance, including certain investments in acquisitions that are not under their control. Currently, notification is required within 30 days of completion of the transaction only if the acquisition of a controlling interest in a Canadian company by a non-Canadian falls below the net income test threshold, and acquisitions of less than controlling interest are not subject to mandatory notification .
Such investments in sensitive sectors will be prohibited from closing until the review period has passed or closed. Investors who fail to comply with pre-closing filing requirements are subject to fines of up to C$500,000. Regulations defining the sensitive areas and types of investments to which the new reporting requirements apply have not yet been published. However, during consideration of the bill in a Senate committee, government officials provided a non-exhaustive list of technical areas that may be considered sensitive for purposes of consideration under the National Security Amendments. This includes:
- Advanced materials and manufacturing
- advanced marine technology
- Advanced sensing and monitoring
- advanced weapons
- Aerospace
- artificial intelligence
- biotechnology
- Energy generation, storage and transfer
- medical technology
- Neurotechnology and human-machine integration
- Next generation computing and digital infrastructure
- location, navigation, and timing. quantum science.Robotics and autonomous systems
- space technology
The final list of sensitive sectors could be even broader and could include critical minerals, interactive digital media, and pharmaceuticals, among others. The draft regulations will be released for public comment before being finalized. Implementation of the regulations and pre-closing filing regime is expected to occur by the end of 2024 or early 2025.
Increased fines for violations
In addition to fines of up to C$500,000 for failure to comply with new pre-closing filing requirements for investments in sensitive sectors, the amendments now increase the maximum fine for ICA non-compliance to C$10,000 per day. The fee will be increased from US$25,000 to C$25,000. Day.
Strengthening ministerial authority
The amendments would allow the Minister to enter into a national security extension review under the ICA, and by allowing the Minister to accept binding commitments from investors during the period. , specific administrative powers will be delegated to the Minister of Innovation, Science and Industry (Minister). review process. These amendments are intended to facilitate the more efficient operation of Canada's national security review process, which currently only has the power to order reviews and accept binding undertakings vested in Cabinet as a whole. . Additionally, the amendments would allow (but would not require) the Minister to publicly disclose the identity of non-Canadian investors who are subject to orders based on national security reviews.
The Minister also has the power to unilaterally impose interim conditions on an investor while a national security review is ongoing (for example, by issuing a “severance hold” order even after the investment has been made) and to impose conditions on an investor's confidential intellectual property. They will also have the authority to restrict access. and data for Canadian companies awaiting review results. The new regime also provides that if a non-Canadian is convicted of a crime involving corruption within or outside of Canada, this will be sufficient basis for the Minister to initiate a national security review of an investment in a Canadian company. It's clear. That non-Canadian business.
Expanding the scope of national security provisions
This proposed amendment closes a loophole that appears to fall within the jurisdiction of the National Security Arrangement Regulations. Previously, there was ambiguity as to whether the national security review provisions were applicable to certain asset acquisitions, particularly those with limited ties to Canada. This legislative change explicitly provides that the ICA national security review provisions apply to acquisitions of assets of Canadian companies by non-Canadian state-owned enterprises (SOEs), and by implication also includes assets that are not located in Canada. Included in Additionally, national security review provisions already apply to investments by non-Canadians to acquire entities that conduct all or part of their operations in Canada, but only if that entity has a location that: only if (b) a person in Canada employed or self-employed in connection with the entity's business, or (c) Canadian property used in carrying out the entity's business. The amendment clarifies that the provisions apply if Investments to acquire all or part of the assets of such entities.
These amendments are consistent with the government's intention to assert ICA national security review jurisdiction over investments in companies with limited ties to Canada, particularly in the critical mineral sector.
Information sharing with foreign investors regarding foreign investors
This change allows information about an investor obtained through the foreign investment review process to be transferred to another jurisdiction's foreign investment review process to facilitate national security reviews, for example, where a common national security interest exists. It will be possible to share it with the authorities. However, the Canadian government has stated that Canada does not share such information “where there are confidentiality or other concerns,” meaning it only shares such information with trusted jurisdictions and, in turn, It may indicate an intention to protect the confidentiality of such information.
New rules to protect confidential information in court proceedings
The amendments allow the Minister to ensure that confidential information is protected from disclosure in legal proceedings arising from enforcement actions under the ICA, such as judicial review of orders blocking or conditioning investments for national security purposes etc.). reason.
Bill C-34 also includes additional amendments affecting the ICA's net profit review regime. Fixes:
I. Set out the government's priorities for the review of net income under the ICA. In considering the net benefits, the Minister may consider the impact of an investment in rights relating to intellectual property whose development has been funded in whole or in part by the Government of Canada, and the impact that investment has on society. Desired. Use and protection of personal information about Canadians.
ii. Expanding the scope of scrutiny of state-owned enterprise investments. The amendments will order a net income review for notifiable investments (i.e., the acquisition of a controlling interest in a Canadian business that does not meet the mandatory net income review criteria) by an investor (including a controlled entity) that is a state-owned entity. Power is vested in the Minister. or foreign-influenced) unless the state-owned enterprise is a “trade agreement investor.” A trade agreement investor is an investor that is ultimately controlled by a national of a country that has a trade agreement with Canada. Currently, the list of investor countries in the trade agreement includes the United States, the United Kingdom, the European Union and its member states, Australia, Japan, New Zealand, Singapore, Vietnam, Malaysia, Brunei, Chile, Colombia, Honduras, Mexico and Panama. Masu. , Peru, and South Korea. In particular, state-owned enterprise investors in countries that have historically been more likely to be subject to national security enforcement under the ICA, such as China and Russia, are not investors in trade agreements and are therefore exempt from this new net profit review right. There is a possibility that it will be targeted.
Please read our previous bulletin for details on what these fixes include.
what it means
The proposed amendments would give the government more powers to enforce national security reviews, but at the same time provide welcome additional flexibility that could be beneficial to foreign investors. For example, by empowering ministers to accept commitments without referring matters to cabinet, parties can gain greater certainty about remedies and mitigation measures earlier in the review process, and a broader range of remedies. You may have the opportunity to negotiate. .
Furthermore, in the past, in many transactions, foreign investors deferred participation in the ICA process until after the transaction was completed. Given the changes brought about by this bill, including the upcoming pre-closing notification system and increased government national security oversight of foreign investments in general, foreign investors and their lawyers should Therefore, it will be important to consider this more thoroughly and at an early stage. ICA process.
