OTTAWA/MONTREAL (Reuters) - Canada's spy agency will not be able conduct normal operations until it assesses the effects of a court ruling that curtailed its ability to gather data and could make it less useful to key allies, say sources and officials.
A federal court judge on Thursday said the Canadian Security Intelligence Service (CSIS) had secretly operated a data analysis center for 10 years and illegally retained electronic information from people in Canada who were not linked to particular security threats.
The agency, which says the data is useful, said late on Thursday it would suspend analysis of the information until it reviews what the ruling means for its domestic and foreign intelligence gathering.
That looks set to negatively affect its relations with sister spy agencies abroad as critics at home complain CSIS needs closer supervision.
To seek electronic data from a suspect in an investigation CSIS needs a warrant from the federal court, which has now ordered the agency not to hold onto data collected from third parties.
A senior security source said that unless the law was changed to allow CSIS to retain the data in question, "everyone should be clear what this means to the ability of CSIS to discharge its responsibilities."
CSIS could now also have trouble working with its allies in the so-called Five Eyes intelligence-sharing network, which also includes Britain, the United States, Australia and New Zealand, said a leading security expert.
"The implications are major because the new constraints are now part of every warrant going forward," Christian Leuprecht, politics professor at the Royal Military College of Canada.
The ruling, he said, meant CSIS would not be able to gather as much information as it wanted about suspects.
"That depreciates its value as a partner to allies because it means CSIS has less intelligence to share," he said by e-mail.
If CSIS finds its ability to act is crimped it could in theory turn to the Royal Canadian Mounted Police, which shares responsibility for national security. Two sources with knowledge of the matter say relations between the agencies have deteriorated.
Counterintelligence was originally handled by the RCMP's security service, but this was disbanded after a scandal and folded into the new CSIS in 1984 along with a new generation of civilian employees, a move that generated friction.
The sources said the two agencies had agreed last year to try to work towards a rapprochement but had little success.
Neither the RCMP nor CSIS were immediately available for comment.
CSIS officials said they retained the data in question because of its value. Public Safety Minister Ralph Goodale, who publicly criticized CSIS on Friday, said all intelligence and security agencies had to follow the law.
Both agencies ultimately report to Goodale, who said CSIS director Michel Coulombe understood the need for immediate action in the wake of the court ruling.
"A serious error has been made ... this situation needs to be remedied, it has to be remedied quickly," Goodale told reporters. He declined to answer directly when asked whether he still had confidence in Coulombe, who has been in his position since May 2013.
Reporting by David Ljunggren and Allison Lampert; Editing by Alden Bentley