Shhh: Canada to review foreign investments

Not so secret panel on Canadian security

The Canadian government has created a secret committee of senior officials to review foreign investment for risks to national security, according to three people familiar with the matter.

The chairman of the committee is Public Safety Deputy Minister Francois Guimont, and it includes the heads of Canada’s two spy agencies as well as Prime Minister Stephen Harper’s National Security Adviser Stephen Rigby, according to one of the people, who asked not to be identified because the information is confidential.

The existence of the shadow panel shows the Harper government’s growing preoccupation with national-security concerns, adding complexity to a foreign-investment review process that investors have complained is already too opaque. The government amended its foreign-takeover law in 2009 to add national security to the list of issues that can trigger a review, and while it has outlined some steps in the process, it hasn’t revealed the committee or described how it weighs risks.

“We don’t have to date any real sense of the approach the government is taking,” said Peter Glossop, a lawyer who advises on foreign takeovers at Osler, Hoskin & Harcourt LLP in Toronto. “It leaves us unable to provide advice that clients can base their decision-making on.”

Canada cited security concerns in October in rejecting Manitoba Telecom Services Inc.’s C$520 million ($477 million) sale of its Allstream unit to an investment firm co-founded by Egyptian billionaire Naguib Sawiris. The panel was set up after the rejection, one of the people said.

“Foreign investment, regardless of its dollar value, may be subject to a national security review if a potential security threat is identified,” said Industry Canada spokesman Michel Cimpaye, in an e-mail in response to questions about the committee. Josee Picard, a spokeswoman for the Public Safety department, referred questions to Industry Canada.

State-Owned Enterprises

The government’s attention to national security has increased since the middle of last decade, when state-owned enterprises became more active in seeking acquisitions abroad, said Dany Assaf, co-chairman of the competition and foreign- investment group at legal firm Torys LLP in Toronto. He called the current process for national-security reviews “time consuming” and “opaque.”

Government officials appear to be keenly interested in transactions that affect telecommunications networks or resource assets such as pipelines, he said, adding that Burger King Worldwide Inc.’s C$12.5 billion purchase of Tim Hortons Inc. is unlikely to trigger a security review.

Security Threat

The Canadian Security Intelligence Service warned in 2012 that some foreign state-owned enterprises may represent a threat to national security. Later that year, Canada banned state-owned enterprises from acquiring businesses in the nation’s oil sands outside of “exceptional circumstances,” after approving Beijing-based Cnooc Ltd.’s purchase of Nexen Inc. of Calgary. At the time, the government said it would also “carefully monitor” transactions involving foreign state-owned firms throughout the economy.

The Canadian committee contrasts with the Committee on Foreign Investment in the United States, which is headed by Treasury Secretary Jacob J. Lew and discloses the government agencies that are represented on it. CFIUS also publishes an annual report that provides details including the number of cases in which investors agreed to measures to mitigate security concerns. CFIUS doesn’t disclose information on specific cases, because it’s prevented by law from doing so, according to Treasury spokeswoman Holly Shulman.

One of the people familiar with the Canadian committee’s operations said that while Canada is using CFIUS as a model, the government wants to retain discretion to accept or reject each case, limiting the amount of information it is willing to disclose.

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