In response to President Putin’s invasion of Ukraine, Canada’s Minister of Innovation, Science and Industry issued a statement asking Canadian investors and businesses to review their investment plans involving Russian investors.1 This new policy represents another economic measure taken by the Canadian government in response 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 for Canada, which will impact both “net benefit to Canada” reviews and on national security reviews under the Investment Canada Act (LIC), Canada’s Foreign Investment Review Act.
CIA review process
Under the ICA, there are two distinct review processes:
- acquisitions of control of Canadian businesses by non-Canadian investors that meet high review thresholds are subject to pre-closing ministerial review and approval under the “net benefit to Canada” test . (Acquisitions below these thresholds as well as the creation of new Canadian companies are subject to a notification obligation, rather than an administrative formality.)
- national security review of acquisitions of any size, whether minority or majority, and investments to establish new Canadian companies. These acquisitions or investments may be subject to an initial review only or a more in-depth review following which the Federal Cabinet may take action to address the national security risks associated with foreign investment. These measures include blocking the acquisition or investment in a new Canadian business or authorizing an investment subject to conditions. If an investment has already been made, the Firm may also order a disposal of the business and such disposal may occur at bargain prices.
New considerations for Russian investors
In accordance with Minister Champagne’s new policy statement, changes will be made to these processes with respect to certain Russian investors:
- the Minister of Innovation, Science and Industry will only find the acquisition of control by Russian investors to be “to the net benefit of Canada” on an exceptional basis.
- If an investment (whether establishing a new business in Canada or an acquisition), regardless of its value, has a direct or indirect connection with an associated person or entity, controlled or subject to the influence of the Russian State, this will serve as support for the Minister to conclude that there are reasonable grounds to believe that the investment “could harm the national security of Canada”. The implication of such a finding is that such an investment is likely to be subject to extensive national security review and possible Cabinet Order.
Due Diligence and Transparency in Investment Reporting
The Canadian government recommends that non-Canadian investors and Canadian companies identify potential links with Russian investors and entities that may participate as a majority or minority investor. In particular, it asks investors to proactively identify components of proposed transactions subject to review under the ICA that have ties to Russia, including indirect entities or individuals. The government cautions non-Canadian investors and their Canadian targets that such reviews may require detailed and lengthy due diligence regarding the corporate structure and sources of funding from direct and indirect investors, beneficial owners and trusts. The government cautions these Canadian investors and companies to consider the role of Russian entities and individuals with ties to Russia. This new policy must apply during this period of “increased risks to national security and economic harm” related to Russia’s attack on Ukraine.
For the latest news related to the situation in Ukraine, see our Ukraine/Russia: Global Support Hub.
*Thank’s for Camila Maldi for his help with this article.