National Security Review Guidelines Highlight Amorphous Nature of “National Security”

The Minister of Innovation, Science and Economic Development has just released Guidelines on the National Security Review of Investments. The Guidelines are intended to provide information to foreign investors regarding both (i) the national security review process under the Investment Canada Act (the ICA) and (ii) the factors to be considered in determining whether an investment could raise national security issues. 

While Canada’s national security review process is reasonably well-understood by lawyers who practice in the foreign investment review area, the Guidelines provide a concise overview that is accessible to business people. 

The Guidelines also provide a comprehensive (but not exhaustive) list of the factors that will be taken into account when considering whether a proposed investment by foreign entities could raise possible national security concerns. The factors set out in the Guidelines are very broad and include assessing the investment’s impact on:

  1. Canada’s defence capabilities and interests;
  2. The transfer of sensitive technology/know-how outside of Canada;
  3. The research, manufacture or sale of goods/technologies set out in section 35 of the Defence Production Act;
  4. The supply of critical goods and services to Canadians or the Government of Canada;
  5. The enabling of foreign surveillance or espionage;
  6. Canada’s international interests, including foreign relationships; 
  7. The facilitating of illicit activities, such as terrorism, terrorist organizations or organized crime; and
  8. Canada’s critical infrastructure, which encompasses a broad range of activities that could be viewed as being “essential to the health, safety, security or economic well-being of Canadians and the effective functioning of government”.

The Guidelines state that, when considering what constitutes “critical infrastructure” investors should consider the National Strategy for Critical Infrastructure and Action Plan For Critical Infrastructure. These documents take a very expansive view as to what could constitute “critical infrastructure”, including many very broad sectors such as energy, finance, food, transportation, government, information and communication technology, health, water, safety and manufacturing.

In short, while the Guidelines are helpful in that they provide insight into the factors that will be considered in determining whether an investment could raise national security issues, the breadth of these factors and potentially relevant economic sectors likely means that they are of little practical utility. This is not surprising given that what could constitute a national security issue is amorphous and the government needs to retain the discretion to take action in a world where technologies and potential threats are continually changing. 

The key takeaway is that foreign entities contemplating the purchase of Canadian businesses (including Canadian subsidiaries of foreign companies) will continue to need to assess whether a particular investment could raise national security issues based interpretation of the concept of “national security”. This assessment should be done as early as possible so that potential issues can be addressed proactively and do not impact transaction timing.

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To view the statement regarding the release of the Guidelines, click here.

To view the Guidelines, click here.

To view the National Strategy for Critical Infrastructure, click here.