Senator to Reintroduce Bill Requiring National Security Review for All Proposed Investments in Canada by Foreign SOEs

An Aecon employee at the Toronto Pearson International Airport. The Canadian government blocked the takeover of Aecon Group Inc. by a Chinese state-owned company in May 2018 following an extensive national security review. Canadian Press/AP, Tobin Grimshaw

OTTAWA—Just as Canada’s spy agency is raising security concerns over attempted takeovers of Canadian critical infrastructure by foreign state-owned enterprises, a Senate bill seeking to address this exact issue will end up dying with the rise of the Senate ahead of the fall election.

“A number of state-owned enterprises (SOEs) and private firms with close ties to their government and/or intelligence services have pursued corporate acquisition bids in Canada, raising national security concerns,” reads the 2018 public report by the Canadian Security Intelligence Service (CSIS) published June 21.

The report notes that “corporate acquisitions by these entities pose potential risks related to vulnerability of critical infrastructure, control over strategic sectors, espionage and foreign influence activities, and illegal transfer of technology and/or expertise.”

It was last December, six months before publication of the CSIS report, that Senator Thanh Hai Ngo introduced Senate public bill S-257 seeking to amend the Investment Canada Act to address those precise concerns.

“All SOEs that would like to invest in Canada should be subject to a national security review, that is the aim of the bill,” said Ngo in an interview with The Epoch Times.

Such a review will ensure the government takes steps to identify any threats an SOE takeover might pose, and allow it to block acquisitions deemed to be “injurious to national security.”

The problem is that currently it’s up to the government of the day to decide whether the investment of an SOE in Canada should be subject to a national security review, but “with the bill, it is a must,” Ngo said.

Although the bill will not see the light of day this time, Ngo said he will reintroduce it in the next session of Parliament.

Espionage and Foreign Influence

“Some countries use their state-owned enterprises to exert their country’s ideology and political interests through their techniques and are stealing intellectual property, influencing other nations’ domestic politics, conducting cyber espionage, and even developing cyber weapons,” Ngo said at the second reading of his bill on April 10.

“These legal commercial entities in Canada can provide foreign governments with a strategic advance to inflict damage on our infrastructure, steal our sensitive data, and even influence our democratic process if they are not properly vetted.”

Though neither Ngo nor the CSIS report named China, the 2018 annual report of the National Security and Intelligence Committee of Parliamentarians, published in April 2019, did name China as being “among a handful of states who conduct espionage and foreign influence activities in Canada.”

Controversial Chinese takeovers causing national security concerns have in fact been a hot topic widely covered by media in the past few years.

At the second reading of Bill S-257, Ngo gave several recent examples of foreign takeovers that had sparked widespread controversy and concerns—all involving Chinese SOEs or firms with close ties to the Chinese regime.

‘Extremely Risky’

In March 2017, Prime Minister Justin Trudeau’s government revisited and approved Hong Kong-based O-Net Communications’ takeover of Montreal’s ITF Technologies, despite the previous Harper government, acting on advice from national security agencies, having rejected the deal in 2015.

The concern was that O-Net is partly owned by a Chinese SOE while ITF was a producer of military-grade laser technology.

“If the technology is transferred, China would be able to domestically produce advanced military laser technology to Western standards sooner than would otherwise be the case, which diminishes Canadian and allied military advantages,” said a national security assessment prepared by the Department of National Defence and CSIS in 2015, according to Globe and Mail reporting in 2017.

Then in June 2017, the Trudeau government approved another highly controversial takeover by a firm with ties to the Chinese regime—that of Norsat by Chinese telecom company Hytera. This was done ignoring warnings from security experts that the deal threatened the national security of Canada and its allies. Vancouver-based Norsat produces satellite communication equipment that’s sold to the U.S. military, and the approval was granted without a full national security review.

Ngo noted that the government’s decision was widely criticized and “suggested the kick-off of an extremely risky level of comfort with investment from China in a sensitive economic sector of importance to our security and our allies.”

The Trudeau government last May did block the attempt to acquire Aecon by Chinese SOE China Communications Construction Company following an extensive national security review. However, the review was conducted only after many voices of concern were raised, including those of former CSIS directors Ward Elcock and Richard Fadden and former ambassador to China David Mulroney.

The federal government is currently undertaking a national security review to determine whether to use Huawei in the development of Canada’s 5G, the next generation of wireless technology. Ngo told the senators on April 10 that it’s “a very necessary process.”

The majority of Canada’s allies in the Five Eyes intelligence alliance—the United States, Australia, and New Zealand—have banned Huawei from their 5G networks.

Communist Regimes Are of Particular Concern

Ngo said that experience with Chinese SOEs clearly shows that Canada’s investment policy needs to be updated and optimized.

“This government—and any future government, for that matter—should be running full-fledged national security reviews when foreign governments are investing in key sectors of our economy, especially when these are from countries that have high rates of corruption, poor transparency standards, and keep threatening the international rules-based order,” Ngo said in the Senate on April 10.

Moreover, according to the Investment Canada Act, foreign SOEs include not only enterprises owned by a foreign government or its agencies, but also enterprises “controlled or influenced, directly or indirectly” by a foreign government or its agencies.

A CSIS conference report published in May 2018, called “Rethinking Security: China and the Age of Strategic Rivalry,” warned that it is irrelevant whether a Chinese partner company is state-owned or private.

“It will have close and increasingly explicit ties to the [Chinese Communist Party],” the report said. “Unless trade agreements [and investments] are carefully vetted for national security implications, Beijing will use its commercial position to gain access to businesses, technologies, and infrastructure that can be exploited for intelligence objectives, or to potentially compromise a partner’s security.”

Senator Ngo particularly expressed concern about takeovers by SOEs under communist regimes.

“This bill is also to let the Canadian people know that our natural resources and key infrastructure are not going to be purchased by foreign SOEs without a full-fledged national security review, particularly those under communist regimes,” Ngo said in the interview.