CSIS warns of foreign takeover risks in annual report

The same day shareholders of the Calgary-based energy company Nexen agreed to a takeover bid by a state firm from China, Canada's spy agency is warning such purchases can pose a threat to national security.

In its latest annual report, the Canadian Security Intelligence Service says the majority of foreign investment in Canada is carried out in an open and transparent manner.

However, certain state-owned enterprises and private firms "with close ties to their home governments have pursued opaque agendas or received clandestine intelligence support for their pursuits here."

The CSIS report for 2010-11, tabled in Parliament on Thursday, says that when companies with links to foreign intelligence agencies or hostile governments try to acquire control over strategic sectors of the Canadian economy, it can represent a threat to security interests.

The spy service's report camejust as shareholders of oil-and-gas company Nexen Inc. solidly voted to support the high-profile takeover by the China National Offshore Oil Co., a deal that still requires federal approval.

Foreign interference

Two years ago, CSIS director Dick Fadden made headlines by openly speaking of provincial cabinet members and municipal politicians coming under foreign influence. Though Fadden was cagey about the alleged foreign interference, he broadly suggested that China posed concerns.

While it does not name specific countries or companies, the newly released CSIS report says foreign entities involved in takeovers might try to exploit newfound control in an effort to make illegal transfers of technology "or to engage in other espionage and other foreign interference activities."

"CSIS expects that national security concerns related to foreign investment in Canada will continue to materialize, owing to the increasingly prominent role that (state-owned enterprises) are playing in the economic strategies of some foreign governments."

The report says CSIS continued in 2010-11 to investigate foreign interferencethe attempt by governments or their agents to clandestinely influence Canadian policies and opinions, or to spy on and intimidate diaspora groups in Canada.

"Foreign interference is particularly nefarious because it can have the effect of disrupting the multicultural harmony that is central to Canadian identity," CSIS says.

The spy service report underscores other threats to Canada, including cyberattacks, the proliferation of weapons of mass destruction and the lingering possibility of terrorist attacks in the post-9-11 era.

It notes that in January 2011 online attackers targeted the networks of the Finance Department and Treasury Board.

'While the technological hurdles to such efforts remain significant, the possibility that a terrorist group could acquire crude capabilities of this kind cannot be discounted.' CSIS report

"Unfortunately attacks like this are not a rare exception. The government of Canada is now witnessing serious attempts to penetrate its networks on a daily basis."

The main target of cyberspies is the aerospace and high-technology industry, with the oil-and-gas business and universities involved in research and development also eliciting interest, CSIS says. "From the attackers' perspective, it is significantly cheaper and often less difficult to steal research than to develop it."

In addition to pilfering intellectual property, state-sponsored attackers are also seeking information that would give them an advantage, such as inside knowledge of coming negotiations and the personalities involved, the report says.

"Foreign intelligence agencies use the Internet to conduct espionage operations, as this is a relatively low-cost and low-risk way to obtain classified, proprietary or other sensitive information."

The danger of nuclear proliferation remains acute, says the spy agency, singling out the activities of Iran and North Korea as particularly worrisome.

CSIS also points out that terrorist groups have pursued the means to use biological agents or improvised radiological explosives known as "dirty bombs."

"While the technological hurdles to such efforts remain significant, the possibility that a terrorist group could acquire crude capabilities of this kind cannot be discounted."