OTTAWA — The federal government will consider intervening in deals that could give foreign investors access to critical minerals used in emerging technologies or to Canadians’ sensitive personal information, or that could see innovations in fields like AI and quantum transferred out of the country.

On Wednesday, Innovation Minister François-Philippe Champagne released new guidelines for national security reviews under the Investment Canada Act. The first significant revisions since December 2016, they signal that dealmakers in Canada’s innovation economy should expect closer government scrutiny, and follow a similar move in the U.S.

The Investment Canada Act allows Ottawa to step in on national security grounds when foreign entities seek to set up, buy control of or acquire a domestic operation. After looking into the deal, cabinet can choose to block it, attach conditions to it or order the firm to divest its Canadian holding. In the 2018–2019 fiscal year, it reviewed seven investments, ordering two unwound.

The guidelines indicate to foreign investors what Ottawa means by “national security,” since its power to review deals on those grounds is broad, said Subrata Bhattacharjee, national co-chair of law firm BLG’s competition and foreign investment review group. Wednesday’s update adds several new innovation-economy factors to the list that the innovation minister and cabinet may consider when deciding whether to look into or take action on a deal—regardless of its size.

Ottawa signalled it will consider whether an investment could “enable access to sensitive personal data” such as biometric, health or financial information, or private communications. It also cited potential threats to the country’s supply chain of critical minerals like cobalt, lithium and rare-earth elements, Canadian deposits of which have attracted the interest of the U.S. government as it seeks to reduce imports from China.

The original 2016 guidelines already included the “transfer of sensitive technology or know-how outside of Canada” as a review consideration. But Wednesday’s update sets out a non-exhaustive list of technologies about which Ottawa is particularly concerned, such as AI, quantum science, aerospace, biotech and robotics.

The new direction confirms what the federal government has already been doing in practice, according to Bhattacharjee, who said he’s worked on “national security reviews involving at least a number of technologies that are identified in [the new] list.” 

Wednesday’s update does not require new authorities in the form of legislation or regulation, but signals Ottawa’s priorities and focus in deals involving the innovation economy, said a federal government official, who requested anonymity because they were not authorized to speak publicly.

The move comes amid a fresh round of industry concern over foreign technology firms acquiring Canadian scale-ups, and the IP and data they’ve created. Ottawa-backed augmented-reality company North sold to Google in June 2020. In November 2020, Nasdaq acquired St. John’s-based fintech Verafin for US$2.75 billion. Santa Clara, Calif.-based ServiceNow bought Montreal’s Element AI the same month. That December, then-innovation minister Navdeep Bains told the Financial Post he was “keeping an eye” on such transactions, noting he wanted to “protect those Canadian companies” so they can “scale here in Canada.”  

The House of Commons industry committee is currently studying the Investment Canada Act. In June 2020, Council of Canadian Innovators chair Jim Balsillie told MPs that Ottawa should automatically review deals involving companies with IP in fields including AI, quantum computing, fintech and space technology. The new guidelines are “a meaningful update to our investment regime, and I am pleased to see a pathway that helps Canada protect our valuable intangible assets, such as IP and data,” he told The Logic Wednesday. “Many of today’s technologies are dual use and it’s vital that our policymakers have tools to support our economy and protect the public interest.”

Other countries have made similar moves to focus on overseas buyers or funders operating in disruptive technology fields. In February 2020, the Committee on Foreign Investment in the United States (CFIUS) got new powers to review deals involving critical technologies and sensitive personal data. In March 2020, Beijing Kunlun Tech agreed to sell Grindr after the panel asked it to divest the dating app.

“There’s no question that CFIUS has been used to target Chinese investment, especially in technology,” said Bhattacharjee, adding that Ottawa’s clarification of what it considers sensitive technology is “broadly similar” to the sectors on which the panel has focused. He also noted that Wednesday’s guidelines cite concerns over state-owned enterprises; in April 2020, Ottawa issued temporary, COVID-19-influenced directions indicating it would particularly scrutinize investments from companies closely tied to foreign governments, and all foreign-led deals in public health.

The new guidance is still “missing … similar strategies for taxpayer-funded research, akin to what our Five Eyes allies have already implemented,” Balsillie said. For example, Australia’s Foreign Relations Bill requires public universities to notify the federal government of any new arrangements with international entities, which it can veto or alter. Balsillie and other policy observers have expressed concern over Canadian research institutions’ partnerships with Chinese telecom giant Huawei, among others. 

In a separate statement Wednesday, Champagne and other cabinet ministers said the federal granting councils that fund many research projects are “reviewing their security policies and procedures, with the goal of better integrating national security considerations into their activities.” They also called for researchers to “take extra precautions to protect the security of their research, intellectual property, and knowledge development.”