Regulations Amending the National Security Review of Investments Regulations: SOR/2022-124
Canada Gazette, Part II, Volume 156, Number 13
SOR/2022-124 June 3, 2022
INVESTMENT CANADA ACT
P.C. 2022-616 June 2, 2022
Her Excellency the Governor General in Council, on the recommendation of the Minister of Industry, under subsections 35(1) and (1.1)footnote a of the Investment Canada Act footnote b, makes the annexed Regulations Amending the National Security Review of Investments Regulations.
Regulations Amending the National Security Review of Investments Regulations
1 Paragraph 2(c) of the National Security Review of Investments Regulations footnote 1 is replaced by the following:
- (c) in respect of an investment referred to in paragraph 25.1(c) of the Act, the period beginning on the day on which the investment first comes to the Minister’s attention and ending on the earlier of
- (i) 45 days after the day on which the required information set out in the schedule, or reasons for the inability to provide any part of the required information, has been received by the Minister, as certified by the Minister, and
- (ii) 5 years after the day on which the investment is implemented.
2 Subparagraph 4(b)(iii) of the Regulations is replaced by the following:
- (iii) in respect of an investment referred to in paragraph 25.1(c) of the Act, the period beginning on the day on which the investment first comes to the Minister’s attention and ending on the earlier of
- (A) 45 days after the day on which the required information set out in the schedule, or reasons for the inability to provide any part of the required information, has been received by the Minister, as certified by the Minister, and
- (B) 5 years after the day on which the investment is implemented.
3 The Regulations are amended by adding, after section 9, the schedule set out in the schedule to these Regulations.
Coming into Force
4 These Regulations come into force on August 2, 2022, but if they are registered after that day, they come into force on the day on which they are registered.
(Subparagraph 2(c)(i) and clause 4(b)(iii)(A))
Information Required for Investments Referred to in Paragraph 25.1(c) of the Act
Information About Investor
1 The legal name of the investor.
2 The legal names of the members of the investor’s board of directors, the investor’s five highest-paid officers and any person or entity that owns 10% or more of the investor’s equity or voting interests.
3 The business address of the investor — other than the address of the investor’s legal counsel — and business address of any person or entity mentioned in item 2, as well as the local mailing address of any individual mentioned in that item, excluding in each case any address that is a post office box.
4 The telephone number and email address of the investor and of any person or entity mentioned in item 2 and, in the case of an individual, their date of birth.
5 The legal name and address of the investor’s ultimate controller, if any, and the manner in which control is exercised.
6 A description of the business activities carried on by the investor and by its ultimate controller, if any.
7 An indication of whether, prior to the implementation of the investment, the investor, a subsidiary of the investor, a member of the investor’s board of directors, the investor’s five highest-paid officers or any person or entity that owns 10% or more of the investor’s equity or voting interests owns or owned any equity or voting interests in the entity referred to in paragraph 25.1(c) of the Act.
8 An indication of whether the investor has the power to appoint members to the board of directors of the entity referred to in paragraph 25.1(c) of the Act and, if so, the total number of members the investor may appoint.
9 An indication of whether the investor has the power to appoint the chief executive officer or other senior management officers of the entity referred to in paragraph 25.1(c) of the Act.
10 An indication of whether the investor has authority under the law or instruments governing the entity referred to in paragraph 25.1(c) of the Act to direct its strategic or operational decision-making.
11 The country of origin of the investor’s ultimate controller, if any.
12 An indication of whether a foreign state has a direct or indirect ownership interest in the investor and, if so, the name of the state and the nature and extent of its interest in the investor.
13 An indication of whether a foreign state owns a third or more of the investor’s voting interests, and no other party has a controlling interest.
14 If a foreign state has an ownership interest or voting interests in the investor, an indication of whether a special veto or other decision-making right is attached to that interest.
15 An indication of whether a foreign state has the power to appoint members to the investor’s board of directors and, if so, the number of members the state has appointed and the total number they may appoint.
16 An indication of whether a foreign state has the power to appoint the investor’s chief executive officer or other senior management officers.
17 An indication of whether a foreign state has authority under the law or instruments governing the investor to direct its strategic or operational decision-making.
Information About Vendor
18 The legal name of the vendor and the legal name of the vendor’s ultimate controller, if any.
Information About Investment
19 An indication of whether the investment is either an acquisition, in whole or in part, or the establishment of an entity, carrying on all or any part of its operations in Canada as set out in paragraph 25.1(c) of the Act.
20 In the case of an acquisition of an entity, in whole or in part,
- (a) a description of the acquisition, including a description of the assets, ownership interests or rights being acquired;
- (b) a copy of the agreement of purchase and sale or, if not available, a description of the principal terms and conditions of the investment; and
- (c) the consideration payable for the acquisition of the entity.
21 In the case of the establishment of an entity,
- (a) the nature of the investor’s ownership interest;
- (b) a brief description of its operations;
- (c) the projected number of persons to be employed in Canada in connection with the entity at the end of the second full year of operation;
- (d) the projected total amount to be invested in the entity in Canada during the first two full years of operation; and
- (e) the projected level of sales or revenue, if any, of the entity in Canada during the second full year of operation.
22 The sources of funding for the investment.
23 The date of implementation of the investment.
Information About Entity
24 The legal name of the entity, if applicable.
25 The business address of the entity, if applicable.
26 A brief description of the operations that are or will be carried on by the entity, including a description of the products that are or will be manufactured, sold or exported, as well as the services that are or will be provided by the entity and the codes that are assigned to the products and services by the North American Industry Classification System (NAICS) Canada 2017, published by the Minister responsible for Statistics Canada, as amended from time to time.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Under the Investment Canada Act (ICA or the “Act”), the government has up to 45 calendar days to conduct an initial national security review after the implementation of an investment by a non-Canadian that does not require a filing (e.g., non-controlling or minority investments). The start of the initial review period begins when the Minister of Industry becomes aware of an investment and ends 45 calendar days after the date on which the investment was implemented. If the government does not issue a notice under subsection 25.2(1) of the ICA or a Governor in Council (GIC) order for review under subsection 25.3(1) of the ICA within this period, the non-Canadian investor has gained regulatory certainty. When detection occurs after implementation and the government decides it needs to act on an investment, investors could be faced with a divestiture order or the imposition of conditions on their investment. Non-Canadian investors with proposals that do not require a filing have no option to gain regulatory certainty under the Act prior to implementing their investments. Canada’s key trading partners provide voluntary filing as an option to foreign investors under their regimes and implement review periods for these investments that vary from five years post-implementation to indefinitely.
With respect to other investments that are subject to the Act, i.e., acquisitions of control or establishments of new Canadian businesses, non-Canadian investors are required to file an application or a notification. For these investments, the government also has a 45-calendar day initial review period in which to assess the investment and take action, but in these cases, the filing aids detection of the investment and assessment. Hence, as it currently stands, the initial review period for investments that require a filing and for investments that do not are, in number of days, equal, but with respect to tasks to be completed, different. It is necessary to provide a mechanism to facilitate regulatory pre-implementation certainty for investments for which filing is not mandatory, and to increase the length of the initial review period where no voluntary filing is received.
The ICA provides for the review of significant investments by non-Canadians to ensure their overall benefit to the Canadian economy and for the review of foreign investments of any size for national security concerns.
The Act identifies the categories of investments by non-Canadians, whether implemented or proposed, that may be subject to national security review under Part IV.1 of the ICA. These are: (a) the establishment of a new Canadian business or an entity carrying on operations in Canada; (b) the acquisition of control of a Canadian business of any dollar value; and (c) the acquisition of all or part of an entity carrying on operations in Canada. A non-Canadian proposing to establish a new Canadian business or to acquire control of an existing Canadian business must either file a notification or an application for review of the investment.
The National Security Review of Investments Regulations (the Regulations) set out the timelines of the national security review process. Currently, up to 45 calendar days after the date on which the government certifies that a notification or an application for review is complete (i.e., the “date of certification”), the Minister of Industry may decide to take no further action under the ICA or, where the Minister of Industry considers that there are reasonable grounds to believe the investment could be injurious to national security, the Minister of Industry may issue a notice that a national security review may be ordered or, where the Minister of Industry considers the investment could be injurious to national security, the Minister of Industry may recommend that the GIC order the review. The notice triggers an additional 45-calendar day period for review, by the end of which either a notice of no further action is issued or the GIC makes an order for review. The GIC order triggers up to an additional 90-calendar day (or longer with the investor consent) period for review, by the end of which either a notice of no further action is issued or a final GIC order containing measures to protect national security is made. For investments that do not require a filing, such as investments that involve the acquisition of less than a controlling interest in a Canadian business, the Minister of Industry or the GIC has up to 45 calendar days after the date on which the investment is implemented to make their decision.
If an investment is subject to a GIC order for national security review, the Minister of Industry, in consultation with the Minister of Public Safety and Emergency Preparedness, will either refer the investment to the GIC along with a report on the review and recommendations, or, if satisfied that the investment would not be injurious to national security, notify the non-Canadian that no further action will be taken. On referral of an investment, the GIC has the authority to take any measures with respect to the investment that they consider advisable to protect national security, including to:
- authorize the investment on condition that the non-Canadian give any written undertakings or enforceable commitments considered necessary; or, implement specified terms and conditions;
- disallow the investment; or,
- require the investor to divest control of the Canadian business or its investments in an entity.
To provide an option for non-Canadian investors to obtain pre-implementation regulatory certainty with respect to a national security review of investments that do not require a filing under the ICA.
To enhance the review process by increasing the initial review period for the national security review of investments for which a filing is not mandatory.
The Regulations Amending the National Security Review of Investments Regulations (the “amendments”) amend paragraph 2(c) and subparagraph 4(b)(iii) of the Regulations for the category of investments that do not require a filing as defined by paragraph 25.1(c) of the ICA, such that:
- if the non-Canadian investor provides the information set out in the Schedule in the amendments, as of a date certified as complete by the Minister of Industry, the government has up to 45 calendar days to take the first step in the initial review process, either issuing a notice under subsection 25.2(1) of the Act or make an order for national security review under subsection 25.3(1) of the Act; or
- if the non-Canadian investor does not provide the information set out in the Schedule in the amendments, the government has up to five years after the date of implementation of an investment to issue a notice under subsection 25.2(1) of the Act or make an order for national security review under subsection 25.3(1) of the Act.
The Schedule in the amendments set out the information required in the voluntary filing, such as regarding the ownership of the investor and the type of investment proposed or being implemented.
On February 12, 2022, the government launched 30 days of public consultations on amendments to the Regulations in the Canada Gazette, Part I. Over the consultation period, Innovation, Science and Economic Development Canada (ISED) received one written input from the Competition Law and Foreign Investment Review Section of the Canadian Bar Association (CBA Section). The CBA Section welcomed and endorsed the introduction of a voluntary filing mechanism for investments that do not currently require a mandatory application for review or a notification under the ICA, but which are nevertheless reviewable under Part IV.1 of the ICA (Investments Injurious to National Security). Final regulations are unchanged from those that were pre-published except for specifying a particular coming into force date.
Prior to the pre-publication period, ISED engaged in early consultations with certain members of the CBA regarding a voluntary filing mechanism. These members reiterated their previously expressed support, considering that the mechanism would be beneficial to both Canadian businesses and foreign investors. They were not opposed to lengthening the post-implementation period but proposed various length options for government consideration.
Modern treaty obligations and Indigenous engagement and consultation
In accordance with the Cabinet Directive on the Federal Approach to Modern Treaty Implementation, an analysis was undertaken to determine whether the amendments are likely to give rise to modern treaty obligations. This assessment examined the geographic scope and subject matter of the amendments in relation to modern treaties in effect. After examination, no potential implications or impacts on modern treaty obligations were identified.
Establishing a mechanism for investors to obtain regulatory certainty where a filing is not required by allowing for a voluntary filing, while enhancing the government’s ability to detect, assess and act on investments where investors do not use the voluntary mechanism, requires modifications to the information requirements and review periods set out in the Regulations. Therefore, amending the Regulations is the only available option to achieve these objectives.
Benefits and costs
Non-Canadian investors, Canadian businesses targeted by these investments, and the government are impacted by the amendments. Overall, the costs are expected to be less than $1 million annually. The impacts on all affected stakeholders are discussed qualitatively below.
Impacts on investors and businesses
Non-Canadian investors with investment proposals that do not require a filing now have the option of submitting a voluntary filing for national security review. The voluntary filing allows investors to gain regulatory certainty prior to implementation, a possibility which is not currently available to them. The five-year initial review period for investments where no filing is received will incentivize voluntary filings, for instance where investors have identified potential national security factors, or where they otherwise wish to gain regulatory certainty under the ICA.
Where a voluntary filing is submitted
Non-Canadian investors who choose to file voluntarily will benefit from the shorter time-period (45 days relative to the five-year period) for the national security assessment of their investment, as where a government action is warranted, they will be made aware through a notice or an order, potentially in advance of completing their investment. This will allow them to re-assess their investment decision and take any appropriate steps. They will either gain investment certainty and be able to proceed with the investment without conditions, or avoid the potential costs that would be associated with abiding by the government decision (e.g., divestiture, or meeting the imposed conditions necessary to implement their investments). Canadian businesses will also benefit as certainty of investment sources will be achieved more quickly.
Investors who file voluntarily will incur an incremental cost of completing and submitting a filing. The filing requirements are being kept to a minimum and, to the extent possible, follow existing forms already available on the ISED website. This incremental cost is expected to be low. Since the filing is voluntary, it is expected that it will only be completed where investors have assessed that the expected benefit of seeking investment certainty outweighs the cost of completing the filing.
Where no filing is submitted
For those non-Canadian investors who do not choose to file voluntarily, they will face a longer wait-time period (five years post-implementation) and uncertainty regarding detection and subsequent government decisions, which could result in the divestiture or the imposition of conditions on the investment. Should the investment be found to present a risk of national security injury, there will be a cost to both the investor and the Canadian business for complying with the government decision. However, this cost will not be incremental as it would be incurred whether the investment is detected under the current or the new timeline.
In sum, it is expected that the changes to the national security review time period will provide an incentive for non-Canadians to be more proactive by either filing voluntarily or by assessing their own risk tolerance in considering the criteria identified in the Guidelines on the National Security Review of Investments before making final investment decisions.
Impacts on the government
The voluntary filings will facilitate review of investments and improve detection. The longer initial review period where investors do not submit a filing will allow the government more time to detect, assess and act on those investments. The amendments may impose negligible costs on the government that will be associated with processing voluntary filings.
For fiscal year 2020-21, the government received 826 ICA filings for acquisitions of control and new establishments. The voluntary filing mechanism will lead to an increase in the number of filings that will need to be certified by the Minister of Industry or their delegate. The decision to submit a voluntary filing depends on how investors see their proposals reflected in the guidelines as well as whether they are seeking regulatory certainty. Based on the past experience of ISED, voluntary filings could represent a 20% increase in the total number of filings (i.e., an approximately additional 200 filings per year based on an average of 1,000 filings per year). On average, about 1% of mandatory filings in Canada have been subject to a national security review under subsection 25.3(1) of the Act. Assuming this average could be applied to voluntary filings, and acknowledging that there will be a degree of self-selection not present in the case of mandatory filings, it could be expected that there will be no greater than two additional national security reviews under section subsection 25.3(1) of the Act annually. National security reviews under subsection 25.3(1) are conducted on a case-by-case basis, and their numbers vary from year-to-year. With an upper limit of 200 voluntary filings, the change to the number of national security reviews under subsection 25.3(1) is expected to be well within the annual variance of cases and will be managed within existing resources.
The primary benefit for government is that a voluntary filing will provide information proactively and facilitate the national security assessment of an investment. The amendments primarily affect the timing of the government’s national security review process, as a voluntary filing will trigger earlier scrutiny. The five-year post-implementation timeline provides the government with more time to become aware of investments that do not require filings and to assess the investment environment and national security risks where no filing is received, which strengthens the national security framework.
Small business lens
The amendments do not impose any costs on Canadian small businesses. There is a benefit for some small businesses given the voluntary filing mechanism will help reduce the uncertainty and associated risk for accessing certain foreign investments. This could marginally increase the supply of available capital for these companies.
The one-for-one rule does not apply as there is no incremental change in administrative burden on Canadian businesses.
Regulatory cooperation and alignment
The amendments are not related to a work plan or commitment under a formal regulatory cooperation forum. The amendments were not prompted by comparisons with other jurisdictions, but other jurisdictions provide useful comparisons. For example, the United States, the United Kingdom and Australia have voluntary filing as an aspect of their foreign investment review frameworks. The United States allows parties to file voluntarily for national security purposes and has unlimited time to act on an investment where parties do not choose to file. The United Kingdom has five years for such action and Australia has ten years. The amendments bring Canada closer in alignment with these jurisdictions.
Strategic environmental assessment
In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.
Gender-based analysis plus
No gender-based analysis plus (GBA+) impacts have been identified for the amendments.
Implementation, compliance and enforcement, and service standards
The amendments come into force on August 2, 2022, although in the pre-published regulations, they were designed to come into force on the day of registration. This change is to accommodate technical and other modifications needed to support the coming into force of the amendments. As part of the implementation of the amendments, ISED will email key stakeholders, provide a link to the Regulations on ISED’s website, revise the “Frequently Asked Questions” section of the website, and publish a voluntary filing form, to provide support to stakeholders and raise awareness about the filing option and new timelines.
The amendments are intended to provide non-Canadian investors whose investments do not require filings an option to voluntarily provide information with regard to the investments to the Minister of Industry. Given that no mandatory requirements are imposed on those investors, no enforcement activities with respect to these specific changes are to be undertaken.
Investment Review Branch
Innovation, Science and Economic Development Canada