Companies & Industries

Are U.S. companies ‘state-owned enterprises’?

Reality's unintended consequences.

(Photo: Graham Morgan Photography/Getty Images)

(Photo: Graham Morgan Photography/Getty Images)

The latest revelation about U.S. government surveillance comes by way of a June 14 Bloomberg report that says “thousands” of American companies are working with U.S. intelligence agencies in a mutually beneficial arrangement where the latter secretly piggybacks on normal commercial operations. What does that mean? Potentially, it means U.S. business interests are a de facto arm of the government and vice versa. And that in turn makes the Harper government’s take on state-owned enterprises, as recently discussed elsewhere in Canadian Business, a thorny and possibly embarrassing one.

Take a look at the specific language of the government’s amendments in the last federal budget to the Investment Canada Act (Bill C-60). It says that a state-owned enterprise is defined as:

(a) the government of a foreign state, whether federal, state or local, or an agency of such a government;

(b) an entity that is controlled or influenced, directly or indirectly, by a government or agency referred to in paragraph (a); or

(c) an individual who is acting under the direction of a government or agency referred to in paragraph (a) or who is acting under the influence, directly or indirectly, of such a government or agency;

Now cross reference this with the assertions in the Bloomberg story about the various American companies, which run the gamut from banks to ISPs and computer hardware/software makers:

“In some cases, the information gathered may be used not just to defend the nation but to help infiltrate computers of its adversaries.”

At the relative centre of this is Microsoft, whose operating systems dominate global computing. About its software the report says:

“[Microsoft] provides intelligence agencies with information about bugs in its popular software before it publicly releases a fix, according to two people familiar with the process. That information can be used to protect government computers and to access the computers of terrorists or military foes.

[Microsoft] and other software or Internet security companies have been aware that this type of early alert allowed the U.S. to exploit vulnerabilities in software sold to foreign governments, according to two U.S. officials.” [emphasis added]

This sounds like a security problem for any country, let alone Canada.

“If that revelation turns out to be true, it raises a whole host of issues,” adds Robert S. Russell, head of the competition and foreign investment practice at Borden Ladner Gervais. “It probably raises liability issues for Microsoft in various countries around the world, including Canada.”

Neither Industry Canada nor the Office of Public Safety were able to comment at press time.

Some companies provide information willingly, in which case not even a court order is needed. In return these and other participating companies receive “information” and “warnings about threats that could affect their bottom line,” according to the Bloomberg report.

If this arrangement doesn’t violate the legal definition of what constitutes an SOE, then it may violate its spirit. That is, a private or publicly-owned American company operating in a foreign country—and Canada is in this context a foreign country—receives aid from the U.S. government that, as the Canadian government’s legislation describes, appears to constitute direct or indirect influence by a government or agency. It also seems to run afoul of part c: “an individual who is acting under the direction of a government or agency.”

There could soon be real-world testing of these definitions with the recent news that Verizon, an American firm implicated in the NSA surveillance program code-named PRISM, is interested in buying Canadian telecom company Wind Mobile. Russell says that while he expects Verizon’s PRISM-related notoriety will be considered in government discussion on what limitations there should be on foreign ownership, he doubts the acquisition will create any greater level of risk. “Wind Mobile uses an infrastructure that is either susceptible to surveillance in the U.S. or not. Their level of cooperation [with the U.S. government] is not going to be the significant issue.”

In an e-mail message Scott Sinclair, a director at the Canadian Center for Policy Alternatives, wrote that he suspects “these revelations call into question the validity of the distinction between foreign state-owned enterprises and private corporations underlying the recent changes to the Investment Canada Act. Foreign private businesses, not just state-owned enterprises, can be manipulated by their home governments to advance foreign policy or national security aims.”

In light of the new evidence, the Harper government may want to rethink its approach.