In brief
2024 brought many changes and developments to foreign investment law in Canada. The Canadian government introduced various reforms to foreign investment policy through amendments to the Investment Canada Act (the “Act”), reframing risk in certain sensitive industries which Canada views as important for safeguarding its national security and economic interests. Geopolitical and trade tensions have also increased Canada’s use of national security reviews over foreign investments from Chinese investors, particularly in Canadian critical mineral assets where it views such investments to be potentially injurious to Canada’s national security. Looking ahead to 2025, we anticipate continued modernization efforts and robust enforcement measures targeting investments that pose potential national security risks, including investments in critical minerals from countries that the Canadian government considers to pose heightened national security risks. Additionally, the Interactive Digital Media (“IDM”) sector has seen significant policy updates, reflecting the government’s focus on safeguarding digital content and technology platforms from foreign influence.
Highlights From 2024
- Modernization of foreign investment policies for digital media. On March 1, 2024, Innovation, Science and Economic Development Canada (“ISED”) and the Department of Canadian Heritage (“Canadian Heritage”) released significant policies on IDM, which includes digital content such as video gaming (e.g., online and consoles) and technology platforms that can be used for entertaining, education, training, and e-commerce (e.g., mobile apps, virtual and/or extended reality devices). The ISED policy clarified the application of the national security provisions under the Act to IDM investments, whereas the Canadian Heritage policy detailed the net benefit review process for foreign investments in the cultural IDM sector. These policies signal the government’s broadening national security focus to include scrutiny over foreign control of industries that present risks for information manipulation, and to encourage the retention of Canadian intellectual property.
- Major changes to Canada’s national security review regime. On March 22, 2024, Bill C-34, amending legislation known as the National Security Review of Investments Modernization Act, received Royal Assent. Thee changes are the most extensive reforms to the Act in more than a decade and are intended to support Canada’s ability to screen, review and impose conditions on foreign investments where necessary for national security reasons. With its passage through Parliament, Bill C-34 creates new pre-closing national security review requirements for acquisitions made by non-Canadian investors in certain sectors. These sectors will be identified in future regulation but are expected to be substantively aligned with Canada’s current position on sensitive industries and technology areas as outlined in its Guidance on the National Security Review of Investments. Further, the Minister of Innovation, Science and Industry (the “Minister”) has new powers to take interim measures during national security reviews and accept undertakings to mitigate an investment’s potential risk to Canadian national security. While the Minister previously had consequential enforcement capabilities under the Act, Bill C-34 introduced significant increases to financial penalties (from CAD 10,000 to CAD 25,000 per day), as well as a new financial penalty of up to CAD 500,000 for missed filings. See our client alert on the key changes introduced by Bill C-34.
- Updated approach to net benefit reviews. Foreign investments meeting specific financial thresholds must undergo a pre-closing suspensory economic review (i.e., the “net benefit review”), where the Canadian government assesses the investment’s impact on economic activity, innovation, employment and competition. This requirement, which existed prior to the introduction of Bill C-34, generally remains unchanged. However, in July 2024, the Minister clarified that foreign investments resulting in a change of control in important mining companies engaged in significant critical minerals operations would only be approved under “the most exceptional of circumstances“. While it is unclear what exact scope the policy will address, the introduction of the policy clearly reflects a more restrictive approach to safeguarding Canada’s critical mineral assets and supply chains.
- Increased transparency and accountability. On June 20, 2024, Bill C-70, An Act respecting countering foreign interference, received Royal Assent. This legislation aims to counter foreign interference by amending existing laws and establishing new registration requirements. The act introduced the Foreign Influence Transparency and Accountability Act, expected to come into force in 2025, which will establish a foreign influence registry in an effort to enhance transparency and reduce foreign influence in Canadian political and governmental processes. After its implementation, Canadian representatives, including lawyers acting for state-owned foreign investors, will be required to register with the Foreign Influence Transparency Commissioner. This registry may be utilized by the government in its review of foreign investments and national security assessments.
- Regulatory authority expansion. On September 3, 2024, several key amendments to the Act came into effect that provided new ministerial authorities to extend national security reviews, impose interim conditions on investments and approve investments based on undertakings to mitigate national security risks. Additionally, the amendments expanded net benefit review factors to include the effect of an investment on intellectual property funded by the Canadian government and the effect an investment on the protection and use of personal information about Canadians.
- Extension of the Ban on Foreign Ownership of Canadian Housing. On February 4, 2024, the ban on foreign ownership of Canadian housing, initially set to expire on January 1, 2025, was extended to January 1, 2027. The ban was introduced by the passing of the Prohibition on the Purchase of Residential Property by Non-Canadians Act in 2022. This prohibition applies to foreign commercial enterprises and individuals who are not Canadian citizens or permanent residents, preventing them from purchasing residential properties with three dwelling units or less.
- Foreign investment review by the numbers. During the course of ISED’s fiscal year 2023-2024, 1,201 applications for review and notifications were certified. The total number of filings increased by 18.9% compared to the previous year. 26 investments were subject to extended review because of potential national security concerns, which is a 23.1% decrease from the all-time high of 36 seen in the 2022-2023 fiscal year. Of the investments subjected to a national security review process, two resulted in divestment orders, nine were withdrawn and 15 were permitted to proceed following an extended review period. Much like last year, investors subject to a full national security review originated from countries with heightened national security risks and a majority of business activities related to sensitive sectors such as technology (including intelligence, computer systems, and communications equipment) and critical minerals, reflecting the Government of Canada’s targeted focus on areas of heightened national security risk.
Looking Ahead to 2025
Drawing insight from foreign investment review developments in 2024, businesses should expect the following developments and impacts in 2025:
- Enhanced scrutiny of transactions for national security reasons. With increased national security powers introduced by Bill C-34, we can expect more rigorous enforcement action in 2025, as the Minister now has more authority to conduct national security reviews, impose conditions and accept undertakings to mitigate national security risks. However, as Canada increases its use of national security reviews, we may see more investors challenging the scope of the government’s jurisdiction. In July 2024, Jinteng Mining, an affiliate of China’s Zijin Mining Group, challenged the Canadian government’s jurisdiction to review its acquisition of a gold mine in Peru. While the mine did not have any mining assets in Canada, the federal government blocked the transaction because a Vancouver-based company agreed to sell its share in the mine to Jinteng Mining. However, the transaction was approved on November 6, 2024, under the Act. Additionally, on November 5, 2024, the Canadian Government issued an Order in Council requiring a social media platform to wind up its Canadian operations, citing national security concerns. The Order did not restrict the continued use of the platform in Canada but targeted the platform’s Canadian business operations specifically.
- Focus on Critical Minerals and Technology. Investments in critical minerals and sensitive technology sectors, including those with military, intelligence or dual military/civilian applications, will likely receive heightened attention from regulatory authorities. Following Bill C-34 and the Minister’s July 2024 clarification on the treatment of changes of control involving critical mineral businesses (discussed above), we expect the Canadian government to continue to scrutinize investments in critical minerals and sensitive technology. These concerns are not merely hypothetical; in May 2024, the government ordered the dissolution of two Canadian technology firms, Bluvec Technology Inc., which sold wireless anti-drone defense products, and Peguani Technology Inc., which manufactured various wireless security products, following national security reviews. Further, on July 4, 2024 the Minister issued a statement that the Government of Canada had imposed a number of strict undertakings under the net benefit review as part of its approval of Glencore plc’s acquisition of Tech Resources Ltd.’s metallurgical coal business. The extended duration and broadened scope of these measures highlight the Government’s apprehension and increasing vigilance regarding foreign investments in Canadian critical mineral assets. These updates reflect the government’s emphasis on maintaining Canadian operational control and demonstrates the government’s intention to mitigate economic and national security threats in the critical mineral and sensitive technology sectors.
The authors would like to thank Spencer Harrison, Baker McKenzie articling student, for his assistance with this publication.
