Ottawa extends period to review foreign takeovers for security concerns

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The Canadian government is giving itself more time to scrutinize foreign takeovers where national security may be at stake, saying it feels constrained by existing rules.

Ottawa is extending by 70 days the time it has allotted to study proposed buyouts of Canadian companies. This means it will now have up to 200 days, or nearly seven months, to investigate acquisitions by foreigners where it fears a threat to Canadian interests.

"Existing … time periods for the review process may not be sufficient to undertake a thorough review and analysis of national security concerns in the case of complex investment transactions," the federal government said in a statement explaining the change. This new "ability to extend certain time periods will allow the government to perform a more thorough evaluation of national security concerns in … cases that warrant it," it said.

Canada has grown increasingly concerned about the risks that foreign companies, controlled by their governments, are using acquisitions abroad for nefarious reasons.

In 2009, Ottawa gave itself the power to reject acquisitions by non-Canadians specifically for risks to national security.

Government officials declined to offer examples of when Ottawa felt it could have used more time to scrutinize foreign takeovers for risks to national security.

The first time Canada expressly and publicly rejected a foreign bidder on the basis of national security was October, 2013, when Industry Minister James Moore quashed an Egyptian billionaire's $520-million bid to buy a division of Manitoba Telecom Services. In nixing the deal, Mr. Moore noted the Government of Canada uses telecommunications infrastructure operated by MTS Allstream, the target company's business services division.

Ottawa has rejected more than one foreign takeover on national security grounds, but not all of these have been made public.

"Since the creation of the new national security review regime, the Canadian government has exercised its powers to review transactions on national security grounds in a number of cases, and has rejected some of them," said Oliver Borgers, a partner at law firm McCarthy Tétrault and a foreign investment expert.

Mr. Borgers said the extension is also a conscientious effort to ensure no mistakes are made. "It's not in their DNA to turn down deals in Ottawa, so before they make such a draconian decision they do want to give themselves more time to consider it if they need it."

He said a longer review period in Canada would also give Ottawa more time to consult with foreign intelligence agencies.

In a statement released Wednesday, the Canadian government laid out in in the clearest detail yet how it handles foreign takeovers that set off alarm bells in Ottawa. "If national security threats associated with investments in Canada by non-Canadians are identified, primarily by Canada's security and intelligence agencies, they will be brought to the attention of the minister of industry," the government said.

Following concerns raised by the Canadian Security Intelligence Service and other agencies, Canada's industry minister is supposed to consult with his counterpart at the Department of Public Safety and then inform cabinet, the government said.

"If the [cabinet] orders a review, the minister of industry, after consultation with the minister of Public Safety, will conduct the review and, if necessary, submit a report to [cabinet] with recommendations." After this, cabinet "has the authority to take any measures in respect of the investment that it considers advisable to protect national security."

In an annual report made public in 2012, Canada's spy agency warned of the emerging threat of foreign companies with "ties to foreign intelligence agencies or hostile governments" seeking to make investments in Canada. CSIS said foreign interests "might well exploit that control in an effort to facilitate illegal transfers of technology or to engage in other espionage and other foreign interference activities."