In response to President Putin’s invasion of Ukraine, Canada’s Minister of Innovation, Science and Industry issued a statement requesting investors and Canadian businesses to review their investment plans involving Russian investors.¹ This new policy represents another economic measure taken by the Canadian Government to respond to the Russian action.

According to the Minister, Russia’s continued attacks on Ukraine have created an environment of heightened national security and economic risk to Canada, which will affect both “net benefit to Canada” reviews and national security reviews under the Investment Canada Act (ICA), Canada’s foreign investment review law.

ICA Review Processes

Under the ICA, there are two separate review processes:

• acquisitions of control of Canadian businesses by non-Canadian investors that meet high review thresholds are subject to review and pre-closing Ministerial approval under the “net benefit to Canada” test. (Acquisitions falling below these thresholds as well as the establishment of new Canadian businesses are subject to a notification requirement, more of an administrative formality.)
• national security review of acquisitions of any size, whether minority or controlling, and of investments to establish new Canadian businesses. Such acquisitions or investments may be subject to an initial screening only or a more in-depth review following which the federal Cabinet can take measures to address national security risks related to foreign investments. Those measures include blocking the acquisition or investment in a new Canadian business or authorizing an investment subject to terms and conditions. If an investment has already been completed, the Cabinet can also order a divestiture of the business and such disposition may occur at fire sale prices.

New Considerations re Russian Investors

Pursuant to the new policy statement by Minister Champagne, changes will be made to these processes in respect of certain Russian investors:

• the Minister of Innovation, Science and Industry will only find the acquisition of control by Russian investors to be of “net benefit to Canada” on an exceptional basis.
• If an investment (whether the establishment of a new business in Canada or an acquisition), regardless of its value, has ties, direct or indirect, to an individual or entity associated with, controlled by or subject to influence by the Russian state, this will serve as support for the Minister to find there are reasonable grounds to believe that the investment “could be injurious to Canada’s national security”. The implication of such a finding is that such an investment is likely to be subject to an in-depth national security review and potentially a Cabinet order.

Due Diligence and Transparency in Investment Filings

The Canadian Government recommends that non-Canadian investors and Canadian businesses identify potential connections to Russian investors and entities that may be participating as a controlling or a minority investor. In particular, it asks investors to pro-actively identify components of proposed transactions subject to review under the ICA that have ties to Russia, including indirect entities or individuals. The Government is alerting non-Canadian investors and their Canadian targets that such reviews may require detailed and lengthy due diligence relating to corporate structure and sources of financing of direct and indirect investors, beneficial ownership and trusts. The Government cautions such investors and Canadian businesses to consider the role of Russian entities and individuals with ties to Russia. This new policy is to apply during this period of “escalated risks of national security and economic injury” linked to Russia’s attack on Ukraine.

For the latest news related to the situation in Ukraine, see our Ukraine/Russia: global support hub.

*Thank you to Camila Maldi for her assistance with this article.

¹ See https://www.ic.gc.ca/eic/site/ica-lic.nsf/eng/lk81228.html