How Canada's updated national security rules will impact foreign investment in 2024

Stricter foreign investment rules will require enhanced compliance, says Donald B. Johnston

Donald B. Johnston, partner and member of the National Security Group at Aird & Berlis, discusses the evolving impact of Canadian national security regulations on foreign investment, highlighting increased scrutiny and compliance challenges under the modernized Investment Canada Act.

Yes, Virginia, there are spies under the bed. That’s because they are everywhere. In an age where surveillance is both easy to conduct and hard to detect, the concern of governments over national security has never been keener. The potential for technologies, foreign operators, foreign governments and other actors to negatively influence national economies (and even national elections) is perceived as a threat, worldwide. Investment in sensitive businesses is therefore a serious concern for most governments who recognize that investment, while welcome, can also be a danger.

Canada is currently perceived as one of the good and safe countries in which to invest. However, the Canadian government has been concerned for many years – or at least since the enactment in 1973 of the Foreign Investment Review Act (Canada) and the institution of the Foreign Investment Review Agency (FIRA) – over the impact of foreign investment in Canada. In 1985, the Canadian government enacted the Investment Canada Act (Canada) to replace the Foreign Investment Review Act, and the name of the Foreign Investment Review Agency was changed to the somewhat jollier-sounding “Investment Canada.” However, the concern was the same: foreign control and influence of Canadian business was perceived as a potential threat that the federal government has wanted to control.

The Investment Canada Act purports to regulate direct investment in the country by foreign persons. Foreign ownership or control of new and existing businesses in Canada is within its scope. If a non-Canadian wants to make a direct investment in, or establish, a Canadian business, they must submit a notice of intention to invest or file an application for review of the investment. If the review of the proposed (or actual) investment is negative, the investment could be blocked, made subject to conditions, or required to be divested after-the-fact. Among the factors considered in the review are the extent to which the proposed investment benefits the Canadian economy, the job market and, as one would expect, the size of the investment – the level of which changes from year to year.

Regulatory evolution and impact

In 2009, several changes to the Investment Canada Act were enacted to factor in whether or not any particular investment could be “injurious to national security” and therefore be subject to being blocked – to conditions or to divestiture. However, neither the investment community nor lawyers knew with certainty what “injurious to national security” meant. That uncertainty was alleged to have had a chilling effect on investment.

Consequently, in 2016, the government published guidelines for the purpose of providing the investment community with more certainty as to the meaning of “injurious to national security.” Those guidelines clarified the factors for determination of “injury” to national security. They included the nature of the business activities, the sector of the economy, the products made and distributed, the potential for the leakage of “sensitive information” (defence, international relations, intelligence) to non-Canadians, and the overall “impact of the investment.” In particular, the impact of the investment on Canadian critical infrastructure, on Canadian intelligence activities and law enforcement, on foreign relationships, on the activities of terrorists, criminals and organized crime, and on the availability of goods and services in Canada (among others) would be factored into the decision.

In 2021, the guidelines were updated to include additional “national security” factors to the decision about whether to allow, disallow or “allow with conditions” any particular investment. Those additional factors included critical minerals and their supply chains, critical infrastructure (e.g., telecommunications, electrical generation and distribution), access to personal information (including biometric information, geolocation and financial information) and personal information relating to key government officials – all as part of a review of “net benefits to Canada.”

That history brings us to March of 2024, which saw Bill C-34 – the National Security Review of Investments Modernization Act (Canada) – receive royal assent. The purpose of this legislation is to amend the Investment Canada Act so that it better balances the government’s goals of encouraging investment, economic growth and employment, and of interceding only when an investment is not of net benefit to Canada or would harm national security.

With these amendments, the Investment Canada Act will encompass:

i. for certain, likely sensitive business sectors to be prescribed, pre-filing before investment

ii. governmental power to extend the national security review of investments

iii. more significant penalties for non-compliance

iv. government power to impose conditions during a national security review

v. possibility of a national security review, even where there is no change of control arising from a foreign investment

vi. the potential to accept undertakings to mitigate a national security risk

vii. enhanced information sharing with other countries

viii. enhanced protection of information disclosed during the course of judicial review

ix. governmental power to review any state-owned enterprise investment for “net benefit to Canada” purposes, and clarification on the net benefit review factors

x. ability to determine that there is a de facto national security injury if the potential investor has been convicted anywhere of corruption

xi. extension of a national security review to acquisition of assets (e.g., intellectual property, as opposed to an enterprise), and

xii. transparency of the national security review process.

Stricter compliance ahead

While the modernization of the Investment Canada Act will include additional transparency as to the process, certain requirements will be stricter. For example, for sensitive sectors of the economy, filing before investment will be required. Public companies will be required to watch for the accumulation of equity shares or other means of control by foreign entities, since possible divestiture can cause market value fluctuations in shares. Multinational corporations with a presence in Canada will be subject to the new regulations.

Even where only a small percentage of such a company’s operations is situated in Canada, factors such as foreign ownership, influence or control could trigger a national security audit and the potential for divestiture. Corporate chief compliance officers in sensitive businesses – already busy enough with tax, securities, anti-money laundering, financial reporting, environmental and privacy compliance – must now also keep a watchful eye on national security compliance.


The Investment Canada Act is a bit of a blunt instrument for the protection of national security in Canada. However, its heart is in the right place. The described changes to the rules will have the benefit of bringing clarity of process to foreign investors considering investing in Canadian enterprises or infrastructure – even though compliance will be more difficult. These changes will also allow the Canadian government to keep a more watchful eye on who is influencing or learning about the development of technologies and critical infrastructure in Canada.

Sadly, the new rules are unlikely to dislodge any of the spies hiding under the bed – but having them there makes it uncharacteristically exciting to be Canadian. Imagine that!


Donald B. Johnston is a partner in the National Security Group at Aird & Berlis. This team provides pragmatic solutions to help companies, governments and individuals deal with the unpredictability and complexity of national security matters.