Bill C-34

National Security Review of Investments Modernization Act

An Act to amend the Investment Canada Act

This enactment amends the Investment Canada Act to, among other things,
(a) require notice of certain investments to be given prior to their implementation;
(b) authorize the Minister of Industry, after consultation with the Minister of Public Safety and Emergency Preparedness, to impose interim conditions in respect of investments in order to prevent injury to national security that could arise during the review;
(c) require, in certain cases, the Minister of Industry to make an order for the further review of investments under Part IV.1;
(d) allow written undertakings to be submitted to the Minister of Industry to address risks of injury to national security and allow that Minister, with the concurrence of the Minister of Public Safety and Emergency Preparedness, to complete consideration of an investment because of the undertakings;
(e) introduce rules for the protection of information in the course of judicial review proceedings in relation to decisions and orders under Part IV.1;
(f) authorize the Minister of Industry to disclose information that is otherwise privileged under the Act to foreign states for the purposes of foreign investment reviews;
(g) establish a penalty not exceeding the greater of $500,000 and any prescribed amount, for failure to give notice of, or file applications with respect to, certain investments; and
(h) increase the penalty for other contraventions of the Act or the regulations to the greater of $25,000 and any prescribed amount for each day of the contravention.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

Okay.

This question is open to anyone.

In June 2020, in his testimony before this committee—he also recently appeared—Charles Burton from the Macdonald-Laurier Institute stated that some enterprises controlled or owned by a foreign state “use multiple firms with multiple investments to get under the wire of our thresholds, but they actually violate what I would regard as the intention of our act.”

Do the amendments to the Investment Canada Act address the concerns raised at that meeting, yes or no? Why or why not?

How would the enactment of Bill C-34 affect prospective acquisitions of Canadian businesses by foreign state-owned or state-controlled enterprises?

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

I have one more question for all members here.

Would the amendments in Bill C-34 adequately protect us regarding intangible assets such as intellectual property as well as from foreign investments that could be injurious to national security? If not, what recommendations would you make to compensate for that?

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you, Mr. Chair.

Thank you to all of the witnesses, who are extremely knowledgeable.

One of the issues contained in the bill C-34, An Act to amend the Investment Canada Act lies close to my heart. I'll provide some context with the example of a transaction that was very significant for Quebec, namely the acquisition of Rona by Lowe's.

In fact, the minister had set conditions, but in the end, five years later, we realized that there was not much left of the company in Quebec. For example, Garant shovels can't always be found in Rona stores anymore. Before the transaction, the supply chain of Rona's suppliers included a Quebec ecosystem. In addition, the head office was located in Quebec, of course.

I would like each witness to answer my question in turn.

Do you feel that the conditions put forward by the minister, in terms of accountability and transparency, are an improvement? Should we go even further? Of course, we also have to think about national security.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you.

Mr. Krane, we've talked about a list of certain critical technologies we want to protect in Canada. Certainly, we want to see maximum investment in that. Are there any changes you could recommend for Bill C-34 and the legislation, or anything you think needs to be removed, to maximize that?

[Ryan Williams, Conservative, Bay of Quinte, ON]

On that note, would you have a recommendation on where that kind of wording would live in Bill C-34, as a change?

[Ryan Williams, Conservative, Bay of Quinte, ON]

That would be great.

Mr. Hersh, the other thing we talked about is the department looking after this. CFIUS is multi-agency. It's not just one. It's not Economic Development. It's across the whole spectrum. This legislation, Bill C-34, and RDI are only for ISED itself.

Do you think there's a recommendation that we need to expand that, just like CFIUS does, or is it okay for it to sit within ISED?

[Ryan Williams, Conservative, Bay of Quinte, ON]

Do you have a recommendation for specific wording? What section of Bill C-34 would you make recommendations on based on that?

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you very much, Mr. Chair.

Thank you to all of our witnesses for joining us today.

This is actually great. Mr. Bhattacharjee and Mr. Hersh, you're right on our wavelength. You must have been listening intently to our discussions at our last meeting on these lists, on who manages the lists and on how we make the recommended changes in legislation to ensure that, when Bill C-34 is passed in the House, we're doing the bare minimum—what CFIUS and the U.K. are doing—but making it great for Canada. Mr. Krane, you touched on a important part: How do we ensure that we also maintain the maximum investment we can in Canada?

I want to focus, Mr. Bhattacharjee, on the comments you were making.

I agree with you to have a list that isn't baked into legislation and that couldn't be reopened in 22 years. I agree with you that we need to look at ways to make it flexible. What recommendations could you make, from a legal perspective, for the legislation that would allow at least a review of that list maybe once every three years? You could tell me if you feel it's different. What we heard before was to have that done.... I'm trying to remember the term right now. It wasn't “in council”. Perhaps it was “in governance”.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Gaheer.

If there are no other questions, that concludes our two hours of committee work for today.

Before we adjourn, I want to thank our witnesses. It's been very interesting. I speak on behalf of all members when I say that was an enlightening conversation. We appreciate your taking the time, and for some of you, it was at the very last minute. We appreciate your presence here this afternoon.

Before we adjourn, though, members, we have budgets to adopt.

You have received the relevant material from the clerk.

I therefore move the adoption of the budgets for the consideration of Bills C‑34 and C‑27. Is there unanimous consent to adopt these budgets?

[Dr. Patrick Leblond]

The issue—and I've said this in other instances—is that sometimes the ownership itself is not the problem. It's the risks associated with that ownership. Obviously, on national security grounds, people will say, “A state-owned enterprise that buys a lobster company or the freight forwarding is not really a national security issue,” although maybe in Nova Scotia it might be considered national security, and I respect that. However, to me this case seems to be much more of a competition issue.

The big question, as you mentioned, in terms of SOEs or others is that, obviously, the thresholds create this kind of problem. If we think that SOEs are a problem—again, what kinds of SOEs are we talking about?—then it's a little bit like the bill here, Bill C-34. We think that anything in terms of either assets or technical information that might be a risk to national security needs to be notified. Ultimately, the minister has to decide whether this flies or not.

Now, if we think that state-owned enterprises in and of themselves are a menace to our economy or to our national security, the same logic should apply. Any state-owned enterprise, regardless of where it's from in the world, should notify an acquisition to the minister. The minister should then decide whether this flies or not, and again be able to justify, if there is a decision, to not investigate or to allow the acquisition to go through.

If the risk is there, why the threshold? You're absolutely right. They might say, “We'll just buy below the threshold and end up exactly where we want to be.”

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

We know that Bill C-34 will also amend the ICA to allow Canada to share case-specific information with international counterparts.

Can you talk to the committee about how this step will facilitate international collaboration and information exchange to potentially address areas where there are common national security threats?

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

My question is again for Mr. Bruce.

We know that companies often hold significant value in IP, intangible assets. The interim conditions that are proposed in Bill C-34 would block access to those assets in order to address the risk of national security injury that could arise during the course of the review of that investment, thereby reducing the threat to national security, while Canadian businesses can continue to operate with minimal impact and continue to review.

Can you talk a little more to the committee about the benefit of having these interim conditions and what sort of interim conditions you'd like to see?

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you, Mr. Chair.

Mr. Leblond, when you appeared before this committee in 2020, you said we needed to distinguish between what is strategic and what is not. You said that the Investment Canada Act has to be robust in the long term and that its mission is twofold: attracting foreign investors and businesses, but also protecting national security. Do you feel that Bill C‑34, which we are considering today, does a good job of answering those questions?

[Dr. Patrick Leblond]

I'd like to say first that I'm not a lawyer and certainly not a legal expert on the Investment Canada Act.

Certainly, as I was reading Bill C-34, I was surprised with this focus on the unit—in French, unité exploitée—which to me refers much more to the legal entity, the enterprise. Then I was thinking, “Okay, is it the enterprise itself that potentially poses the risk in terms of national security?” No. In fact, the bill talks about important assets or important technical information that is not public. If these are the issues and a foreign company decides to buy these assets or this technical information, bypassing the company itself, does it have an obligation to notify? In terms of my reading, it's not clear, which is why I raise the question.

Then, in terms of a solution, instead of talking about the entity, the unité exploitée, why not talk directly about assets and technical information? Why not make that the focus in terms of national security so that any foreigner who buys these assets—whether through a company, an enterprise or whatever or on its own—should notify the government? Then it's up to the government to decide whether there is a national security implication or not. It would be the same for these technical....

Why have this intermediate step focusing on the entity itself? You know, you could strip it and then say, “Oh, well, there's nothing there,” so the transaction goes on and the national security risk remains.

[Dr. Patrick Leblond, Associate Professor, Graduate School of Public and International Affairs, Faculty of Social Sciences, University of Ottawa, As an Individual]

Thank you, Mr. Chair.

Good afternoon, members of the committee. Thank you for the invitation to discuss Bill C‑34 with you. I will be giving my presentation in French.

However, please feel free to ask questions in English afterwards.

To begin, I would like to discuss three important aspects of the bill: the nature of an investment that threatens Canada's national security, sanctions for failure to comply with undertakings given by a non-Canadian investor, and transparency.

I will start with the nature of an investment that threatens Canada's national security. Subclause 2(1) of the bill, which amends section 11 of the Act by adding a paragraph (c), refers to “an entity carrying on all or any part of its operations in Canada and that has a place of operations in Canada ... or assets in Canada used in carrying on the entity’s operations.” The bill uses the expressions “material assets” and “material non-public technical information.”

What I wonder about is this: what happens if that non-Canadian investor acquires those material assets or that material technical information directly, without acquiring the entity in question that owns the assets or information? For example, what if the investor buys a bank of personal data about Canadians or the source code of the algorithm for an application associated with critical infrastructure? Is the investor required to give a notice in accordance with the procedure proposed in the bill? Is the acquisition covered by the bill?

If the answer is no, there is a risk that an investor that wishes to use the assets or technical information for legitimate commercial purposes will decide, instead, to acquire them directly from the Canadian entity that owns them, rather than acquire the entity itself and risk having the acquisition blocked by the minister for national security reasons. The same reasoning applies to the owners of a Canadian entity who wish to maximize the value of their assets and technical information: they could put the assets or information up for sale, rather than the entity itself.

In that scenario, the threat to national security is still present. If the Investment Canada Act does not apply to a scenario in which the assets or technical information itself is purchased, and not the entity, such as a business, the acquisition of assets or information needs to be covered by another act or acts. What act or acts would that be? To my knowledge, there are none.

That is the first thing I wonder about regarding the bill, given the intangible nature of some assets, whether they are data or technical information. It is therefore easy to acquire them without necessarily acquiring the business that owns them.

I will now move on to the sanctions for non-compliance with undertakings given by a non-Canadian investor. The bill provides that the minister may approve an investment if the non-Canadian investor gives certain undertakings to limit or reduce the risks of injury to national security. What happens if the investor does not honour their undertakings?

The bill provides a maximum penalty of $500,000. If that penalty applies only once, it seems to me to be very little. We need only think of the millions in profit that material assets or technical information can generate. Is a single penalty of $500,000—because the bill does not provide that it be every day or every year—therefore sufficient to encourage, if not compel, a non-Canadian investor to honour their undertakings? At that point, is it not really just an operating cost?

I wonder why a higher penalty is not being considered, such as the one provided in Bill C‑27? That bill talks about a penalty of the higher of 5% of global revenue and $25 million. Why does Bill C‑34 talk only about a penalty of $500,000? On the one hand, personal information is considered to be so important that the penalty can be millions of dollars and possibly as much as 5% of global revenue. On the other hand, however, when we are talking about national security in connection with what may be the same data, the economic sanction is a mere half million dollars. Does this mean that threats to national security are less important? That is my question to you.

In addition, what is to be done if the investor pays the penalty and continues not honouring their undertakings? Does the minister have the power to stop the investment? Although I am not a lawyer, my reading of the act and the bill suggest to me that the minister does not seem to have that power, unlike in the United States, where it is possible to stop an investment retroactively. Would that be the case here? That is what I wonder when I read the bill.

On the subject of transparency, the bill could increase uncertainty on the part of non-Canadian investors who want to invest in Canada and also Canadians who want to sell all or part of their businesses to non-Canadians or obtain financing from non-Canadians. There is therefore a risk that businesses that have or believe they have material assets or material non-public technical information may decide to move their decision-making centre or headquarters out of the country, to the United States in particular.

The greater the uncertainty regarding the application of the act, the higher the risk of a move happening will be. To reduce the uncertainty, there therefore has to be a degree of transparency in the minister's decisions and the undertakings given by non-Canadian investors, without that necessarily meaning that state secrets or trade secrets would be disclosed. Even if the decisions are made on a case by case basis, there have to be clear guidelines, and those guidelines have to be observed. Simply providing a list of material assets or material technical information does not seem to be adequate.

I will stop there. Thank you.