The murky process harms investor confidence and public trust, says lawyer and author of report
To make the process more transparent and efficient, national security reviews under the Investment Canada Act need an amicus – or “friend of the court” – to test the federal government’s evidence and conclusions, according to a report from the C.D. Howe Institute.
In “A Friend in High Places: A Proposal to Add a National Security Amicus to Canada’s Investment Review Regime,” authors Joshua Krane, Stephen Wortley and Connor Campbell, of McMillan LLP, argue Canada needs to implement a third-party go-between to assist both the feds and investors to speed-up and clarify the process by which the government screens foreign investments.
“The issue really is that the Foreign Investment Review process really suffers from a lack of transparency,” says Krane. “And what it means is that companies that go into that process often don't know how they're going to come out of it.”
The federal government has the ability, under the Investment Canada Act, to review all creations of a new business by non-Canadian investors and instances where a non-Canadian acquires control of a Canadian business, he says. “There's a very broad ability for the government to review foreign investments on national security grounds.”
When a review is ordered, the Minister’s Investment Review Division (IRD) will deliver a “short summary statement” of its concerns with the investment. The statement is typically presented without any factual background, making it difficult for the investor to effectively challenge the IRD’s findings, said the report.
“In my practice, I've represented both investors and Canadian businesses through this process,” says Krane. “And my experience with this process has been that when an investor gets to a full national security review, there's a large reluctance to give material information about the nature of the review. It makes it very difficult for investors to respond to concerns.”
Investors have the right to make representations, but these usually consist of written submissions to the IRD. If the IRD agrees to a face-to-face meeting, that will proceed as a one-way presentation from the investor, rather than a “reciprocal discussion of the concerns,” said the report.
While the process is supposed to take a maximum of 200 days, the feds will often ask the investor to agree to an extension – sometimes multiple extensions – and if the investor does not agree, their investment is more likely to be rejected, says Krane.
This opaque experience, in which investors under review have little ability to navigate the government’s concerns harms both investor confidence, as well as public confidence in the system, he says.
Krane and his co-authors propose that the Minister appoint an amicus once a national security review is initiated. The amicus would be chosen from among a group of lawyers and former government officials who have experience with trade and investment and who would be pre-cleared to receive classified information. The amicus would be given the documents informing the review and though it would not argue in favour of the investor’s approval, it could challenge the government’s decisions not to disclose certain information.
As a neutral party, the amicus could – without disclosing classified information – communicate to the investor the merits of the government’s position. The authors argue this could save time by encouraging the investor to bow out if the government has a compelling case. The amicus would also initiate discussions to implement remedial measures that would address the government’s concerns. “Both outcomes can minimize political embarrassment resulting from blocking orders or continued delays,” said the report.
“If the government's case is thin on national security, it could be quite embarrassing. This process allows the parties to potentially resolve an impasse without public court process,” says Krane.
Also expediting the process, according to the authors, the amicus system would motivate parties acquiring Canadian entities, who are accountable to lenders and shareholders, to tailor their requests to keep the timeline moving. For the establishment of new businesses in Canada, which the authors said pose less national security risk, the Minister would be motivated to move more quickly.
Repeatedly extending the process beyond the statutory timeline is the norm for the status quo, and for investments which are time-sensitive, “delays are a failure of due process,” said the report.
