Ottawa orders national-security review of Aecon sale to Chinese state-owned firm

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The Trudeau cabinet has issued a special order to prolong Ottawa's scrutiny of a $1.5-billion takeover of Canadian infrastructure giant Aecon Group Inc. by a Chinese state-owned firm, invoking a section of law used when the federal government believes an investment "could be injurious to national security."

The Aecon deal has been under review since last fall by Ottawa over whether it constitutes a "net benefit" for Canada. The would-be buyer, China Communications Construction Co. Ltd. (CCCC), is 63-per-cent owned by the Chinese government.

Toronto-based Aecon disclosed Ottawa's extended investigation Monday when it announced it was notified by Innovation Science and Economic Development Minister Navdeep Bains's department that cabinet "has, under section 25.3 of the Investment Canada Act, ordered a continuation of the national security review of the proposed acquisition of Aecon."

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Several of Aecon's largest competitors have asked Ottawa to block the takeover on the grounds that CCCC – which is one of the world's largest infrastructure companies – has a poor track record when it comes to safety and corruption, and that a state-controlled Chinese entity is not suited to work on projects with security concerns, such as the refurbishment of nuclear power stations and building military facilities.

All foreign investments are subject to some degree of national security screening, but the federal cabinet only infrequently issues an order of the kind it has made on Aecon.

In the 2016-2017 year, for example, Ottawa conducted five national security reviews under Section 25 (3) of the Investment Canada Act.

It's not clear precisely how many days Ottawa has been scrutinizing this deal, but as of Monday, 109 days had elapsed since the Aecon transaction was announced last October.

Oliver Borgers, a lawyer with McCarthy Tétrault LLP in Toronto who is an expert on foreign investment law, said this cabinet order buys the government more time.

"This signals that Minister Bains is of the view that the transaction could be injurious to national security," Mr. Borgers said.

"The cabinet order does not mean that a negative finding has been made, but rather that issues have been raised that require closer scrutiny."

Mr. Bains's office issued a statement Monday saying the Trudeau government took this additional step after advice from national security agencies.

"We follow the advice of those who actually have the information and intelligence necessary to make these determinations: our national-security agencies," press secretary Karl Sasseville said. "We will continue to do our diligence to review the potential national-security ‎implications, as we have been doing since Day 1. We never have and we never will compromise on national security."

An extended review for the purposes of national security is conducted with input from the Department of Public Safety and Canada's security and intelligence services. Factors considered include the potential impact of the investment on the security of Canada's critical infrastructure, the potential for injury to Canada's defence capabilities, the potential for transfer of technology with military application and the potential to enable foreign surveillance or espionage.

Data from the past five years show transactions subject to a national security review under Section 25 (3) of the Investment Canada Act have only been approved afterward when Ottawa imposed conditions on the deals.

It is not known how long this national security review will take, but the Chinese state-owned firm's takeover faces opposition from Canada's construction industry and from the federal Conservative Party.

The deal is opposed by the Canadian Construction Association, which counts 20,000 member firms and has concerns that Aecon could undercut rivals by having access to Chinese government subsidies. The Conservative Party has raised worries about CCCC's close ties to the Communist Party and allegations of corruption and bribery on infrastructure in the developing world.

Aecon, led by chief executive officer John Beck, sought last Friday to answer concerns that have been raised about its involvement in critical infrastructure projects, such as nuclear facilities – contracts that would pass on to CCCC if the transaction is approved by Ottawa.

"Aecon does not own any intellectual property related to nuclear energy; nor does it possess any other sensitive proprietary technology," the company said. "Aecon offers construction and refurbishment support to clients in the nuclear industry."

The construction firm has also pushed back at the notion that an Aecon owned by China would receive subsidies from Beijing in the same way that China Communications Construction Co. does. Any subsidies CCCC receives "are related to specific research and development projects in China that are available to any company involved in those projects." The subsidiary of CCCC that would own Aecon, the company said, "does not receive government subsidies for its international activities."