CHAPTER 06 Foreign Investment
The national security review is carried out by the Minister in consultation with the Minister of Public Safety and Emergency Preparedness. The Minister has 45 days following the filing of a notification or an application for review, or up to five years following the implementation of a transaction not subject to notification or review (e.g., minority investments for which no voluntary notification was filed), to issue a notice to a non-Canadian that its proposed investment may be subject to a national security review. (Alternatively, a national security review can be initiated within the same time period without a notice first being sent.) The entire review process can take 200 days, or more if the review period is extended. For investments that are also subject to net benefit review, if a national security review is initiated under the ICA, the net benefit review will be paused until the national security review is completed. Prohibitions and Remedies Non-Canadians who implement a reviewable investment in contravention of the ICA may be ordered to divest themselves of control of the acquired Canadian business. Generally, the ICA prohibits the implementation of an investment until the completion of the Minister’s net benefit review, but this prohibition does not apply in some circumstances, including an acquisition of control of a corporation incorporated outside Canada (i.e., an indirect acquisition of a Canadian business) or if the Minister is satisfied that the delay in implementing the acquisition would result in undue hardship. However, if closing before completion of the review is permitted, subsequent divestiture could be required if the Minister is not ultimately satisfied that the transaction is likely to be of net benefit to Canada. If a CUSMA investor has acquired a cultural business that is required to be disposed of under the ICA, the federal government may acquire all or part of the cultural business.
If a national security review is initiated and the Minister is satisfied following the review that the investment would be injurious to national security, the federal Cabinet is authorized to take any measures that it considers advisable to protect national security, including imposing conditions on the investment or the outright prohibition of a proposed investment (or divestiture in the case of a completed investment). Specific IRD Policies The Canadian government has issued policies governing certain categories of investments and investors, including the following: – A policy statement regarding the application of the net benefit review criteria to foreign SOE investment in the Canadian oil sands industry. Owing to the inherent risks posed by foreign SOE acquisitions in the oil sands industry, only on an exceptional basis would the Minister find a foreign SOE’s acquisition of control of a Canadian oil sands business to be of net benefit to Canada. The policy further provides that the Minister will carefully monitor SOE transactions throughout the Canadian economy. – A policy statement issued at the outset of the COVID-19 pandemic providing that all foreign investments by SOEs or private investors assessed as being closely tied to or subject to direction from foreign governments will be subject to enhanced scrutiny (because depressed valuations of Canadian businesses might “lead to opportunistic investment behaviour.” Although the initial policy was in place only until the Canadian economy recovered from the effects of the COVID-19 pandemic, a 2021 update to the Guidelines on the National Security Review of Investments confirmed that all foreign investments by SOEs, or private investors assessed as being closely tied to or subject to direction from foreign governments, will be subject to enhanced scrutiny under the national security review process in the future.
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