Industry Committee on June 18th, 2020

[Tim Hahlweg]

Thank you very much for the question.

I can tell you that regardless of where it comes from, if there's any security threat or any suspected impact on our national security, then we will review it in that lens and bring all of our investigative efforts to bear on that. It really doesn't matter where the investment comes from. For us, as one of the investigative bodies, it's the potential injurious impact of that threat actor.

I can tell you that in the foreign interference space and economic espionage space, I'm often quoted as saying that our best defence is education. That's why I'm super proud of the service and our outreach efforts, especially in the pandemic space. We're getting out there and being proactive with companies in the biopharmaceutical space and the health sciences space. We're actually giving them information on what threat actors might come at them so they can put their own mitigation efforts in place. That's been very successful.

As a matter of fact, I think it was two weeks ago that we had a talk with BIOTECanada, which represents a lot of the biopharma industry. That was very well received. We will continue with those outreach efforts as much as we can.

[Brian Masse, NDP, Windsor West, ON]

That kind of answers my question, but there's still a little more to it.

If we go down the list a little further, we have the United Kingdom, Switzerland, Japan, Hong Kong, China, Bermuda and Brazil. Given what's taking place in Hong Kong and China right now.... They are respectively sixth and seventh on the list, but if you add them together, they move up. Would there be further work done...? Say, for example, an investment is coming from Hong Kong. With the state of affairs there, would there be extra analysis? The second-largest after that is China. That would cause me concern. Is there fieldwork or anything you can highlight?

Bermuda is really interesting. I'm willing to bet that we're getting a lot of Bermuda money coming in because it's a tax haven. That's aside from Hong Kong. With respect to Hong Kong, perhaps you could answer that.

[Tim Hahlweg]

As I mentioned, I can't get into specific operational reasons. In this secure space, I'm very glad that we have your NSICOP colleagues that we engage with to talk about these specific threat actors. I did mention China and Russia specifically as they have been noted in the public forum before, but I can tell you that the nature of the threat prescribes how much effort we put against looking at this from an investigative perspective and then providing that advice to the government, which then ultimately takes the decision.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

Mr. Rochon, one of the biggest buyouts that we have had in Canada is in our manufacturing sector. We saw the response with COVID-19. Where I'm from, the auto sector has diminished quite a bit, but we still have capacity there. One of the plants that is now producing PPE is one that we actually had to fight to keep open a number of years ago.

Is there any kind of a lens happening now on our manufacturing or an analysis of it? It's been shrinking significantly as part of our economy over the last number of years. It's pretty much vulnerable. Also, what we have left over are often branch plants that are owned, operated and managed for the most part for product realignment from other countries. Is there anything related to this that is being determined or at least re-examined in the lens of not having decision-making for PPE?

[Dominic Rochon]

Thank you for the question.

What I would say from a national security threat perspective sort of dovetails to the question you were referring to my CSIS colleagues a moment ago. Obviously, national security covers a broad swath of areas.

In light of the pandemic that we just went through, all of a sudden issues of manufacturing in personal protective equipment, or indeed biopharma, have increased in terms of interest. Analysis is being done when it comes to investment in those areas, absolutely. That comes to bear in terms of our analysis when we're looking at various investments to decide whether or not they pose a threat to supply chains or things of that nature.

[Brian Masse, NDP, Windsor West, ON]

Does that also include a bit of a competition lens? I've often advocated updating our competition laws. Is there a bit of a competition lens put on that? We maybe could have a lack of movement to produce things because they don't want to increase competition if it's a foreign subsidiary operation.

[Dominic Rochon]

From a competition perspective, I think I will defer to my colleague at ISED, Mr. Davies.

[Mitch Davies]

Madam Chair, I think it's an important question on the role of manufacturing.

Obviously, we count on our manufacturers to help produce this critical equipment in this particular time. I would say also, just in terms of the foreign investment, that we do have to realize that some of those large foreign investments are anchoring our supply base as well, our small businesses, and came more or less to our rescue to produce necessary equipment. There's a relationship between these things.

[The Chair, Liberal, Sherry Romanado]

Thank you so much.

We'll now move to the second round. I offer a gentle reminder—we're very tight on time—to respect the cards.

MP Gray, you have five minutes.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Thank you, Madam Chair.

My questions today are for CSIS.

In 2016, concerns were raised about the purchase of InnVest Real Estate by a company called Bluesky. The Financial Post reported that Bluesky may have connections to a Chinese state-owned enterprise, Anbang. The Financial Post also stated that the CEO of Bluesky said that she was representing Anbang but “it didn't want to be named as the buyer”.

Mr. Hahlweg, do you think transparency in the use of intermediaries in these acquisitions is a gap that should be better addressed by the Investment Canada Act?

[Tim Hahlweg]

It's a great question. I'm going to have to defer part of that question to my colleagues from ISED and, potentially, Public Safety.

I can say that it is obviously a concern from a national security lens if people are trying to obfuscate their original intent or their goals in this area. This is why we put in a lot of efforts from a service perspective in investigating these types of things.

I would defer to my colleagues from ISED regarding the other part of your question, because I cannot speak to any specific transaction.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Fair enough. If I may, actually, just because I have a limited amount of time, I'll go thorough a couple of other questions first, rather than flipping back and forth, because that does eat up time.

Does CSIS consider keeping Canadians' data stored within Canada versus companies storing that abroad? What is your opinion on that with respect to national security?

[Tim Hahlweg]

I'm not sure I fully understand the scope of your question. Obviously, protecting Canadian data is hugely important for national security, and as I mentioned in my opening remarks, that is a concern for us that we highlight in all our public reports and in all our talk on economic espionage. It's one of the primary sectors we want to protect.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Thank you.

I think part of this context is when we're talking about hotels potentially, the data owned by a hotel, and if that hotel is owned by an SOE, would that be more at risk for espionage.

[Tim Hahlweg]

I'm not sure if it would be more specifically at risk. It would depend on the circumstances. But going back to my original comments, having a broad range of Canadian data going to an SOE, which is linked to another country's intelligence organization, is problematic from a national security perspective.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

In your 2019 report, CSIS touched on potential risks to control of strategic sectors. Would you consider Canada's hotel and hospitality sector strategic?

[Tim Hahlweg]

I don't know about strategic. I would turn that question to my colleague Dominic Rochon.

From our perspective and our lens, organizations that hold significant amounts of personal information on Canadians, as I mentioned, critical infrastructure including the telecommunications, transportation and energy sectors, but also emerging technologies such as artificial intelligence, quantum information processing and semiconductors, that's our principal concern right now from a service perspective.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Are there any other potential national security risks that can arise from a foreign state-owned enterprise backed corporation owning a hotel or real estate chain in Canada, for example? Do you have any thoughts on that?

[Tim Hahlweg]

I couldn't speak to those specific operational areas, but generally any time we have a state-owned enterprise that has its own national interest advanced and in the fore as opposed to Canadian interests, that would be problematic.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Some health experts have called on the government to start a registry for those who lobby or communicate on behalf of foreign principals to influence Canadian government policy. Would you say that implementing such a registry would be a step in the right direction for transparency?

[Tim Hahlweg]

Again, that's a policy consideration, and I would turn to my colleagues in ISED for that

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Do you have any recommendations for us today on the Investment Canada Act?

[Tim Hahlweg]

Absolutely, thank you very much.

The recommendation, as I indicated, is that we will continue to investigate. We are very engaged, very active, with our domestic and our foreign partners in this space, but as I mentioned, I think getting out there proactively and educating anybody in this space and anybody in a vulnerable sector is critical.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Our next round is with MP Jowhari.

You have the floor for five minutes.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Thank you, Madam Chair.

Thank you to the witnesses.

I'm going to start with CSIS and Mr. Hahlweg.

Mr. Hahlweg, in your submission you state:

CSIS observes that technology and know-how, particularly in academia and small-to-medium enterprises, is often less protected and more vulnerable to state-sponsored espionage. The national security community and the business community have a shared interest in raising public awareness regarding the scope and nature of state-sponsored espionage against Canada and its potential effect on our economic growth and ability to innovate.

Mr. Hahlweg, I understand raising awareness is important, but how does that work into the national security review on the guideline, whether it's the review or whether it's assessment? How is what you just stated taken into account?