Canada’s intelligence agency warns on foreign investments

OTTAWA - Reuters

A woman walks past the China National Offshore Oil Corp’s logo outside its headquarters in Beijing. REUTERS photo

The Canadian intelligence service made a rare warning over foreign investments in the country, especially a Chinese billion-dollar bid, noting risks like espionage and illegal technology transfers.

In September, two months after China’s state-owned CNOOC Ltd. made an unexpected $15.1 billion bid for Canadian energy company Nexen Inc, Canadian Security Intelligence Service (CSIS) told ministers that takeovers by Chinese companies may threaten national security. The rare warning from the CSIS did not stop the takeover. That was approved by Canadian authorities earlier this month.

But the intervention and an influential U.S. lawmaker’s warning in October that Canadian companies should be careful about doing business with Chinese telecom equipment companies Huawei Technologies Co. and ZTE Corp. made the approval process for the deal more difficult than initially expected.

In October, the U.S. House of Representatives’ Intelligence Committee urged U.S. firms to stop doing business with Huawei and another Chinese telecom equipment company ZTE on the grounds that Beijing could use products made by the two companies to spy.

The House Intelligence Committee’s chairman, Rep. Mike Rogers, a Michigan Republican, urged Canada to take a similar stance, and two days later, the Canadian government indicated it would not let Huawei help build a secure government communications network because of possible security risks.

“CSIS did not like the Nexen bid and thought it was a bad idea for Chinese firms to be investing in the oil sands. It all played into their greater fears about firms like Huawei,” said one person familiar with the agency’s concerns.

“They do not want to wake up one day and realize a crucial sector of the economy is under the control of foreign interests.”

Tough investment rules

And after listening to the spy service, Canada drew up surprisingly tough foreign investment rules that were unveiled when approving the Nexen deal.

CSIS didn’t specifically recommend the CNOOC deal be blocked, but rather warned more generally about such deals with Chinese entities, the person said.

In its annual report, released in September, CSIS noted risks that included espionage and illegal technology transfers, and said some foreign state-owned enterprises had “pursued opaque agendas or received clandestine intelligence support for their pursuits” in Canada.