Industry Committee on June 18th, 2020

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

That was not helpful.

I guess the problem here is that there seem to be gaps in how we screen versus review, and we don't have department officials who are prepared to answer those questions.

[Mitch Davies]

Madam Chair—

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

I guess we'll just have to recommend policy to the contrary.

I know my time is up. It's difficult. Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

The next round of questions goes to MP Longfield.

You have the floor for six minutes.

[Lloyd Longfield, Liberal, Guelph, ON]

Thanks, Madam Chair.

Thank you for the great presentations from our witnesses.

I'm going to start with Mr. Rochon.

I've been looking at the ICA annual report. On page 5, it talks about the national security provisions, which allow for a broad review that could be considered national security. Is this in line with comparator jurisdictions, or do they not have a provision and they might want to introduce broader terms in terms of being fluid to risks?

[Dominic Rochon]

I'll allow my colleague from ISED to weigh in, in terms of comparators, on what we're seeing in other countries.

If I understand your question, I feel that the review process we have.... I guess I would need more specificity in terms of what you're after. When you're saying “broad review”, I feel like, the way the provisions are set up in Canada, we certainly have leeway to look at every aspect of national security. Could you provide further specificity of what you're after?

[Lloyd Longfield, Liberal, Guelph, ON]

Sure. I'm thinking of the thresholds that might trigger a review, either a percentage of ownership or the value of the investment to broaden the sector coverage of a review. What I'm saying is that the more specificity we put, the more we limit the type of review we would be doing, and whether that compares to....

Mr. Davies, if you have a comment, that would be great.

[Mitch Davies]

Yes, I do.

I've just made clear that, with regard to the national security review provisions, we're talking about a very broad set of provisions where there is no dollar value. The definition of “national security” is left to the discretion of the government to assess based on the evolution of events, taking full account of current circumstances, which is an integral part of the act.

The other thing is that it's really on a case-by-case basis. The notification process also provides for information to come into our system on all new businesses that are established and all control takeovers that are initiated. Then we can also reach out and look into any investment that may well be under the scope of the act and pull those investments in for scrutiny.

It's quite a broad base. In fact, a number of countries are moving towards this model, which provides quite a wide aperture in order to screen investments across a range of different types of investments. There's no sectoral restriction in this regard. It's wide open in that sense.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you.

Really, what I am wondering and want to get testimony on is in terms of keeping our options open for emerging threats that may not be included if we get too specific.

Mr. Davies, I'll stay with you, if I could. What actually happens, then, if a state-owned enterprise is in violation of the agreement by not being transparent, or in violation of the guidelines or the net benefit assessment? What happens on the other side, if it's able to get through the process but then is in contradiction of what it said it was going to be doing?

[Mitch Davies]

In general, I would describe the process as providing.... That depends on the net benefit or the national security process in the act, because the state-owned enterprise guidelines apply to both, but of course there are also different considerations.

In terms of net benefit, the matter that is looked at is the corporate practices, the transparency and the commercial orientation of the businesses. That can be assessed in cases where we're looking at net benefit to Canada for the economy. If an investment is allowed to proceed and the minister wishes to allow it, we can secure commitments, and then those are enforceable.

In terms of national security, of course, it is much broader in the degree to which different considerations are brought to bear. Those investments, if they are allowed—and this is the question—could be allowed on the basis of a variety of mitigating measures that would be enforceable on the investor on an ongoing basis. The act provides for the upfront process of review and engagement with the investor, and then also subsequent processes to follow up on adherence to commitments, if commitments have been accepted as part of the process.

[Lloyd Longfield, Liberal, Guelph, ON]

Right, and that could include shell companies or other things that could be used to try to hide information.

[Mitch Davies]

I would like to add to an answer that was previously given, as we're talking about shell companies.

The minister has the authority, and does exercise it, to seek full disclosure of the ultimate controller of any investor. That is to say, we will look at the party that's initiating the investment or the act. We always look up all the way through the chain of control to the ultimate owner. In fact, the minister's determinations as to the control of an enterprise, whether or not it is a state-owned enterprise, can look into that in a very expansive way.

I think that should help with some of the information that's been provided so far.

[Lloyd Longfield, Liberal, Guelph, ON]

Great. Thank you.

I'll stay with you, Mr. Davies. We have about a minute left.

The annual report talks about improvements in 2016 and 2017 to the national security review. What were these improvements? Were they for increasing transparency or review methods, or both?

[Mitch Davies]

In legislative terms, regulatory changes have been made to allow for longer review periods, so the 200-day maximum for a national security review. We also added disclosures in the public reporting on which reviews have been undertaken, the country of origin and the outcome of those reviews, to provide more information.

[The Chair, Liberal, Sherry Romanado]

Thank you very much. Unfortunately, that is it for your time.

We'll begin the next round of questions.

Mr. Lemire, you have the floor for six minutes.

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

Thank you, Madam Chair.

I'd also like to thank the witnesses for being with us. As a new member of Parliament, I must say that I found their presentations very informative and the exercise very interesting. I also took a lot of notes.

Mr. Davies, you first reviewed the thresholds, and then added that governments have raised those trigger levels over the years.

I am concerned about the value of our businesses in the current context of the COVID-19 pandemic. If there were a decline in the value of companies at current thresholds, would our companies be at greater risk?

Wouldn't it be appropriate, in the current context, to revise these thresholds downward to ensure that the interests of Canadian businesses are protected?

[Mitch Davies]

I'll offer a distinction. The dollar thresholds in the act apply to the net benefit provisions and do not apply to the national security provisions. Any dollar value investment can be examined under those provisions, so no change in the market valuation of any Canadian business would affect the national security review process at all.

As for the other provisions, if it's an investment by a state-owned enterprise, recall that it is reviewable over $428 million, based on asset value, and this is not revised off the books of the company. Even in the current circumstances, changes in asset values would not change the threshold in any real terms.

I mention this in reference to the concern that the honourable member has raised.

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

Thank you.

Mr. Hahlweg, what criteria or mechanisms trigger your intervention?

In your opinion, is the current law sufficient or should it be given more teeth and more power to protect our businesses and our economy?

[Tim Hahlweg]

CSIS's involvement is triggered if something comes to light that is a national security concern. As I mentioned at the outset in my opening comments, from a national security perspective, the lens keeps changing, and right now we're quite concerned with the state-owned enterprises that are linked directly to certain countries and/or their respective intelligence organizations. Those can hit on sectors of concern. Again, those threat landscapes change as well, but we're talking about critical infrastructure, emerging technologies and organizations that hold significant amounts of personal information on Canadians, such as financial and health records. The combination of two, from a service perspective, is worrisome from a national security perspective.

As for whether or not we need to be bolstered more, from a security perspective, to do more, I would say that as a prescriptive organization in the ICA process that does the investigations, we do not comment on policy and/or make policy recommendations. We're strictly focused on the security aspects and conducting investigations to inform government.

I would defer your second question to my colleagues from ISED or Public Safety Canada, but thank you for your question.

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

My next question is for Mr. Davies, firstly.

Mr. Davies, in the context of the review of the act, I think it would be beneficial to strengthen the stakeholder aspect of the act by including shareholders, employees, suppliers, creditors, consumers, government and the environment.

At the last meeting, Mr. Jim Balsillie raised an interesting point about the importance of also including a framework for patents, innovation and strategic technologies, since he believes that today's economy is based on intellectual property and data.

What mechanisms could we insert in this legislation to ensure that we protect the modern economy of Canada and Quebec?

[Mitch Davies]

Thank you, Madam Chair.

In reference to the question and the earlier testimony, which we did note, I think it's important to take into consideration the changes made under the Investment Canada Act, after a previous review changed the basis for evaluation to “enterprise value”. What that does is capture the market value of the intellectual property of the business. Previously, an asset-based threshold only would not capture that. Now, in fact, the type of enterprise that is largely valued-based on its IP...that obviously, then, can see that there's a net benefit review conducted in certain circumstances where the threshold is exceeded.

In terms of national security, of course, all matters that might relate to important intellectual property and any national security-related risks around that can be assessed by the investigative agencies as part of a review, notwithstanding the extent of the investment or the dollar value.

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

Thank you, Mr. Davies.

My last question is for Mr. Rochon.

Mr. Rochon, you say there are two options: give the green light to the investment and impose mitigation measures, or prohibit the investment.

Wouldn't it be better to be more transparent in the interest of Canadians?

[Dominic Rochon]

Thank you for the question.

I think we have enough transparency in place with regard to reporting on decisions that are being made through annual reporting and such. Obviously, national security matters have a certain level of classification that needs to be respected.

[The Chair, Liberal, Sherry Romanado]

Thank you.

Our next round of questions goes to MP Masse.

You have the floor for six minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Madam Chair.

I'm hoping that this microphone is good for our interpreters. Thank you to the House of Commons services, as quick as they are.

My first question is for CSIS.

With regard to investments in Canada, we have a good chart here from our researchers, which shows that the vast majority comes from the United States, then the Netherlands. Luxembourg is third on the list, and there are a few others. I'm curious as to whether any screening is done in general about where the investment is coming from—and I have a subsequent question to that—but do you look at nation-states as well?

I'm surprised that Luxembourg is third. I'm wondering whether there's also a lens beyond the person, as to where they come from, in terms of the company.