Protecting Canada's National and Economic Security Interests: Bill C-34 - The National Security Review of Investments Modernization Act

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As we reported in a prior article (here) the Minister of Innovation, Science and Economic Development Canada (Minister) strongly signaled in the 2021-2022 Investment Canada Act Annual Report (2022 ICA Annual Report) that today's global environment continues to require Canada to have a heightened emphasis on its national and economic security. According to the 2022 ICA Annual Report, 70% of the national security reviews that have been undertaken in the past 5 years have occurred in the last 2 years alone, with 23 national security reviews undertaken in the 2020/2021 period and 24 national security reviews undertaken in the 2021/2022 period. 

In addition, this elevated national security risk was addressed in two important policy statements issued by the Minister in 2022: (i) the Russia policy statement issued on March 8, 2022, and (ii) the critical minerals policy statement issued on October 28, 2022.  The critical minerals policy statement was quickly followed on November 2, 2022 by an announcement that that Government of Canada had ordered the divestiture of investments by Chinese foreign investors in three Canadian critical mineral companies, Power Metals Corp., Lithium Chile Inc. and Ultra Lithium Inc. Notably, and for the first time, the Government of Canada's divestment order was issued in respect of a Canadian critical mineral company whose only base of operations was in Chile. 

On December 2, 2022, the Government of Canada introduced "An Act to Amend the Investment Canada Act" (also known as "The National Security Review of Investments Modernization Act") ("Bill C-34") for first reading in the House of Commons. The backgrounder to Bill C-34 notes that the "Government of Canada has committed to promote economic security and combat foreign interference by modernizing the ICA to strengthen the national security review process and better mitigate economic security threats", and highlights that the proposed amendments to the Investment Canada Act (ICA) and its administration, represent the most significant update to the ICA since 2009.

Bill C-34

In this article, we highlight three of the most significant proposed amendments to the ICA: (i) the new mandatory pre-implementation filing requirements for investments in certain prescribed business activities, (ii) significantly increased Ministerial authority to conduct the national security review process, impose conditions and accept undertakings to mitigate national security risks, and (iii) significantly increased penalties for non-compliance.

(i) New mandatory pre-implementation filing requirement

Under the ICA, foreign investors that acquire control of a Canadian business that is not subject to review and approval of the Minister, can file a notification of their investments prior to or within 30 days after completing their investment. Bill C-34 amends the notice provisions of the ICA to require foreign investors to file a pre-implementation notification in respect of a proposed acquisition of control of a Canadian business if three conditions are met:

  1. the Canadian business is engaged in prescribed business activities;
  2. the non-Canadian could have direct or indirect access to or use of material non-public technical information or material assets; and
  3. the non-Canadian will have the power to appoint or nominate a person to a position that has the capacity to direct the business and affairs of the entity, such as the board of director, a senior management position or a trustee.

The "business activities" that will be the subject of the mandatory pre-implementation filing requirements will be prescribed by regulation, likely after Bill C-34 is enacted. We anticipate they will include the types of activities that currently give rise to national security concerns, such as activities that provide access to sensitive personal data, certain sensitive technology areas and critical minerals. However, both the scope of "prescribed business activities" and how narrowly or broadly these types of activities will be defined remains to be seen.

The meaning of the terms "material assets" and "material non-public technical information" is less clear. Bill C-34 provides only that the Governor-in Council may make regulations defining "material assets" and "material non-public technical information". These are not well understood business or legal "terms of art", and given the increased penalties for failing to comply with the mandatory pre-implementation filing obligations outlined below, a failure by the Governor in Council to enact regulations defining these terms will likely result in foreign investors filing pre-implementation notifications based solely on meeting the conditions in (a) and (c) and without regard for whether or not the foreign investor will have direct or indirect access to or use of material non-public technical information or material assets.

(ii) Significantly increased Ministerial authority

Bill C-34 gives the Minister new authorities to extend the timeline for national security reviews, impose interim conditions and accept undertakings as a condition of permitting the foreign investment to proceed. The over-all objective of these provisions is to "ensure that Canada has strong authorities to take action quickly and where required" in that, in many cases, they will obviate the need to submit the investment to the Governor-in Council for further review and approval.  

Ministerial authority to extend the timeline for national security review

Under the ICA, only the Governor-in Council can extend the time for Ministerial review of a foreign investment.  Bill C-34 now permits the Minister, after consultation with the Minister of Public Safety and Emergency Preparedness, to make an order for further review of the investment for a prescribed period (yet to be defined by regulations).  This further review can also be extended for "prescribed periods" (also yet to be defined by regulation) or any further period that the Minister and the foreign investor may agree upon.  

Ministerial authority to impose interim conditions during a national security review

Bill C-34 gives the Minister the right, by order, to impose and amend interim conditions in respect of an investment during the national security review if the Minister, after consultation with the Minister of Public Safety and Emergency Preparedness, determines such conditions are necessary to prevent injury to national security. These conditions are most likely to impact due diligence and/or integration planning activities the foreign investor would, in the absence of any such order, be undertaking as part of the normal sales process. The Investment Review Division shared the example of a foreign investment in a Canadian business that makes sensitive technology. In such event, the Minister could impose a condition prohibiting the foreign investor from having access to the technology while the review is ongoing. If the transaction is permitted to proceed, these conditions could be removed or modified and retained as written undertakings. The impositions of these types of conditions could, however, result in a foreign investor walking away from the transaction. Many investors may not be prepared to go forward with a significant transaction if their due diligence and integration planning are impeded. 

Ministerial authority to accept undertakings to mitigate national security risk

In addition to a foreign investor's right to make representations to the Minister, Bill C-34 now gives the foreign investor the right to submit undertakings to the Minister. The Minister is given a corresponding right to accept written undertakings from a foreign investor, with the concurrence of the Minister of Public Safety and Emergency Preparedness, if required, to satisfy the Minister that the investment will not be injurious to national security. The Minister also has the power, with the concurrence of the Minister of Public Safety and Emergency Preparedness, to release the foreign investor from any such written undertakings if they are no longer necessary to address the risks originally identified. 

(iii) Stronger penalties for non-compliance

Under the ICA, if the Minister believes that a foreign investor has failed to comply with the ICA, the regulations, or any order or undertaking, the Minister can send a demand to the foreign investor to cease contravention, remedy the defect or show cause why there is no contravention. Currently, if the non-Canadian fails to comply with the demand, the Minister can apply to court for an order directing, among other things, the imposition of a financial penalty not exceeding $10,000 for each day the foreign investor is in contravention. Bill C-34 increases that amount to $25,000 per day (subject to change by regulation) and includes a new, discretionary penalty for failing to make a mandatory pre-implementation filing equal to the greater of $500,000 or an amount set out in the regulations.


The sweeping changes to Canada's foreign investment regime set out in Bill C-34 have been made in response to a number of significant geopolitical and economic changes affecting the world order generally.  Granting a much higher level of Ministerial discretion to address national security risks will certainly allow the Government of Canada to act more quickly, efficiently and flexibly. However, only experience with the new regime will allow us to determine whether or not Canada has struck the "right balance" between promoting foreign direct investment, and protecting Canada's interests. 

If you have any questions about national security reviews or foreign investment in Canada generally, please reach out to any member of our Competition and Foreign Investment Group.