Canada, like other major jurisdictions, has a broad range of economic and financial sanctions targeting foreign states and their nationals, as well as various terrorist organizations.
Given that Canada is in many ways a trading nation, and many Canadian businesses have ties elsewhere, sanctions laws have a significant impact not only on the target countries but also on Canadian businesses. Although there is a great deal of harmonization between Canadian sanctions laws and those of Canada’s international partners (such as the United States and the European Union), there are also major differences. Compliance with the complex net of sanctions laws is, therefore, an integral aspect of managing reputational, legal and regulatory risks of every business, and must be addressed in the context of every economic undertaking.
Canadian sanctions laws apply to all individuals and businesses in Canada and to all Canadian citizens and Canadian-incorporated businesses operating outside Canada. They prohibit dealings with designated persons, jurisdictions or within targeted sectors of specified foreign jurisdictions, and impose screening, reporting, and asset-freeze obligations on regulated financial institutions and other businesses. Canadian sanctions laws encompass resolutions passed by the United Nations (UN), as well as other restrictive measures that Canada, alone or in cooperation with its international partners, has imposed on foreign jurisdictions or groups.
This primer on Canadian sanctions provides an overview of the key elements of the Canadian sanctions legislation and related prohibitions and obligations as of December 4, 2018.
There are five federal statutes under which the Government of Canada imposes economic sanctions and trade restrictions.
1. Criminal Code
Part II.1 of the Criminal Code prohibits dealing in property of terrorist groups, including certain entities identified in the Regulations Establishing a List of Entities. It imposes specific reporting requirements and asset freeze obligations relating to terrorist property. The Criminal Code also sets out several offences relating to money laundering and the financing of terrorism.
2. United Nations Act
The Government of Canada enacts into Canadian law sanctions adopted by the UN Security Council through regulations made under the United Nations Act. Currently, regulations under the United Nations Act impose sanctions in respect of the following jurisdictions:
Two additional regulations made under the United Nations Act implement the UN suppression of terrorism sanctions and sanctions against Al-Qaida and Taliban. These two regulations, together with the Criminal Code regulations, list organizations and individuals that the Government of Canada deems to be associated with terrorism (collectively, the Anti-Terrorism List). Canada’s federal financial institutions regulator — the Office of the Superintendent of Financial Institutions (OSFI) — publishes and regularly updates the Anti-Terrorism List on its website. The Canadian authorities do not maintain a consolidated list of all designations under the United Nations Act regulations. However, the UN publishes a consolidated list of all designations under the UN Security Council resolutions on its website.
The sanctions imposed under the United Nations Act regulations vary depending on the target jurisdiction or group and generally include arms embargoes, trade restrictions, and prohibitions against providing financial services or technical assistance in respect of such covered activities. In addition, the United Nations Act regulations prohibit dealings with persons designated under the UN Security Council resolutions or their property. While the scope of these prohibitions is not uniform across all regulations, they generally encompass prohibitions against:
Dealing in property that is owned or controlled by a designated person
Entering into or facilitating any financial transaction related to such a dealing
Providing any financial or other related service in respect of such property
Making any property or financial service available to a designated person (i.e., asset freeze).
3. Special Economic Measures Act
Absent a UN Security Council resolution, the Government of Canada has authority under the Special Economic Measures Act (SEMA) to impose sanctions on foreign jurisdictions and persons where the government is of the opinion that a grave breach of international peace and security has occurred that is likely to result in a serious international crisis. SEMA also authorizes regulations to implement a decision of an international organization (other than the UN) of which Canada is a member. In 2017, SEMA was amended to additionally allow the Government of Canada to introduce sanctions against foreign states where gross and systematic human rights violations have been committed or against foreign public officials who are responsible for significant corruption.
Currently, there are regulations under SEMA imposing sanctions in respect of the following jurisdictions:
The SEMA regulations in respect of Burma, Iran, South Sudan, and Zimbabwe impose arms embargoes and prohibit dealings in the property, including financial assets, of persons designated under the regulations. They also prohibit providing financial or other services related to those restrictive activities. The SEMA sanctions in respect of Iran and South Sudan are in addition to those imposed under the United Nations Act regulations. The SEMA regulations in respect of Venezuela prohibit dealings in the property of certain listed designated persons, and financial or related services in relation to such dealings. For more information about the Venezuela sanctions, please see our October 2017 Blakes Bulletin: Canadian Economic Sanctions Update: New Sanctions Against Venezuela and Other Developments.
Until 2016, Canada had in place an all-encompassing set of trade restrictions in respect of Iran. The Government of Canada lifted most (but not all) of these restrictions in February 2016 when the International Atomic Energy Agency confirmed that Iran satisfied the commitments it made under the Joint Comprehensive Plan of Action, a program intended to ensure that the Iranian nuclear program is not used for the development of nuclear weapons. For more information about the Iran sanctions and recent amendments, please see our February 2016 Blakes Bulletin: First Step to Re-engagement: Canada Rolls Back Iranian Sanctions.
The SEMA regulations in respect of Russia/Ukraine, North Korea, and Syria are broader and — in the case of North Korea — go beyond the sanctions imposed under the United Nations Act. These are discussed in greater detail below.
Russia and Ukraine
The Government of Canada, along with its international partners, has imposed a wide range of sanctions against Russian businesses and individuals, as well as persons with connections to certain pro-Russian groups in Ukraine. These sanctions measures generally fall within the following six categories:
A broad prohibition against dealing in the property of certain designated individuals, groups, and businesses that are listed in Schedule 1 to the Special Economic Measures (Russia) Regulations and the Special Economic Measures (Ukraine) Regulations
A prohibition against dealing in, or providing financing for, equity securities or new debt of longer than 30 days’ maturity in relation to designated major Russian financial institutions or their property
A prohibition against dealing in, or providing financing for, new debt of longer than 90 days’ maturity in relation to designated major Russian energy companies or their property
A prohibition against exporting, selling, supplying, or shipping certain designated goods to Russia or to any person in Russia for use in shale oil, deep-water offshore oil, or Arctic oil exploration or production
A broad prohibition against making investments in the Russian-controlled Crimea and the city of Sevastopol
A broad prohibition on importing and exporting any goods from or to the Russian-controlled Crimea and the city of Sevastopol.
Significant restrictions also exist in respect of Syria. The SEMA regulations prohibit, among other measures, the importing or shipment of any goods, other than food, from Syria. There is a prohibition on exporting to Syria and to any person in Syria any goods or data for use in monitoring telecommunications, luxury goods, and chemicals and products listed in the regulations. There are also significant restrictions on the provision of financial services, including prohibitions against:
Dealing in property held by or on behalf of persons designated under the regulations
Providing or acquiring financial or related services to, from, for the benefit of, or on the order of, the Government of Syria or any person in Syria, subject to certain threshold exceptions
Providing or acquiring financial or related services to, from, for the benefit of, or on the order of, the Government of Syria or any person in Syria for the purpose of facilitating trade in petroleum or related products, other than natural gas
Making investments in Syria
Providing any financial services in respect of the above prohibited activities.
A number of limited exceptions to the foregoing restrictions are available under the regulations.
The SEMA regulations in respect of North Korea impose sanctions in addition to those provided for under the United Nations Act. These include, among other measures, prohibitions against:
Providing or acquiring financial services to, from, for the benefit of, or on the direction of, the Government of North Korea or any person in North Korea, subject to threshold exceptions
Making investments in any entity in North Korea
Exporting, supplying or shipping any goods to North Korea or any person in North Korea and dealing in any goods destined for North Korea or any person in North Korea
Transferring or communicating technical data to North Korea or any person in North Korea.
Limited exceptions to these prohibitions are available under the regulations.
On December 9, 2017, the Minister of Finance also issued a Ministerial directive in respect of North Korea pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTF Act), which requires reporting entities under that Act to treat all transactions to and from North Korea as high risk, regardless of the amount of the transaction.
4. Freezing Assets of Corrupt Foreign Officials Act
The Freezing Assets of Corrupt Foreign Officials Act (FACFO Act) permits the Government of Canada to make orders directing that the property in Canada of a politically exposed foreign person (PEFP) be seized, frozen or sequestered when there is internal political turmoil in a foreign state. The FACFO Act also allows the government to make orders restricting the dealings with designated PEFPs. The designations expire in five years, unless extended for a longer period by the Government of Canada. The powers under the FACFO Act are in addition to, and should not be confused with, the provisions of the PCMLTF Act relating to enhanced due diligence for PEFPs.
Currently, regulations have been introduced under the FACFO Act in respect of individuals associated with the former regimes in Ukraine and Tunisia.
5. Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law)
The Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) (SML) was introduced in October 2017 to authorize the Government of Canada to to designate foreign nationals who, in the government’s view, are responsible for, or complicit in, gross violations of internationally recognized human rights. A designation under SML may also be made in respect of foreign public officials (or their associates) who, in the government’s view, are responsible for, or complicit in, acts of significant corruption. Designations under SML are made through the Justice for Victims of Corrupt Foreign Officials Regulations.
Currently, the designations under SML target nationals of Russia, Venezuela, South Sudan, Myanmar, and Saudi Arabia.
For more information about SML, please see our November 2017 Blakes Bulletin: New Canadian Sanctions Legislation in Effect: Sergei Magnitsky Law.
Canadian sanctions legislation generally makes it an offence to do anything that, directly or indirectly, causes, facilitates, promotes, or assists in a prohibited activity. This could include financial or technical assistance, advisory services, or other activities. When a corporation develops a sanctions compliance framework and controls, care must be exercised to detect and prevent any corporate activities that engage sanctions law prohibitions indirectly.
Permits and Licences
Canadian sanctions legislation includes mechanisms for the Minister of Foreign Affairs to issue permits or certificates to authorize certain specified activities or transactions that are otherwise prohibited. Permits may be granted on an exceptional basis in respect of activities that are prohibited under SEMA or SML regulations. The United Nations Act regulations also authorize the Minister of Foreign Affairs to issue a certificate permitting a specified party to engage in an activity that is otherwise restricted.
In addition, the Minister of Public Safety and Emergency Preparedness may issue an authorization under the Criminal Code permitting a person to carry out a specified activity or transaction that would otherwise be contrary to the prohibition against dealing in or providing services in respect of property of a terrorist group.
Canadian sanctions legislation imposes a screening obligation on regulated financial institutions, including banks, credit unions, trust and loan companies, insurance companies, securities dealers, and money services businesses that open accounts for clients. These institutions are required to determine, on a continuing basis, whether they are in possession or control of property owned or controlled by, or on behalf of, any person designated under any of the five Canadian sanctions statutes.
For federally regulated financial institutions, OSFI published an Instruction Guide that sets out OSFI’s expectations with respect to this screening obligation, including the frequency and scope of the required screening. Specifically, OSFI expects that screening must be conducted weekly at a minimum, and more frequently where circumstances dictate. Larger federal financial institutions are expected to screen their records daily. New client names must be checked against sanctions lists as part of, or as soon as reasonably possible after, the onboarding process. OSFI also expects that federal financial institutions subject to the PCMLTF Act will apply the foregoing search measures to recorded beneficial owners of clients and other third parties. Sanctions screening measures must also be integrated into transaction monitoring processes.
Accessing Sanctions Lists
In recent years, the Government of Canada has made progress toward consolidating the lists of sanctioned persons designated under Canadian legislation. The Consolidated Canadian Autonomous Sanctions List maintained by Global Affairs Canada now comprehensively lists individuals and entities that are designated under SEMA and SML regulations. OSFI maintains a consolidated Anti-Terrorism List (available here), as well as a list of the United Nations Act Iran designations (available here) and United Nations Act North Korea designations (available here). The United Nations also has a consolidated list of all designations under Security Council resolutions (available here), which should presumably capture all designations under the United Nations Act. Individuals designated under the FACFO Act are not currently included under any of the above consolidated lists and can be accessed through the regulations (available here and here).
Given that there is no fully consolidated list of Canadian designated persons, financial institutions must either consolidate all Canadian designated names in-house or rely on a third-party commercial screening service provider to comply with their ongoing screening obligation. Where such service providers are used, it is the responsibility of the financial institution to ensure that the screening is conducted against all Canadian sanctions lists and is updated in a timely manner when designations are made.
The designations under Canadian sanctions legislation often take effect before the implementing regulations are officially published in the Canada Gazette. Financial institutions should ensure that there is an effective process in place so that new designations are added to their lists before the formal publication of the regulations, such as by monitoring for news alerts by Global Affairs Canada and OSFI.
There are a number of reporting requirements under the Canadian sanctions legislation:
First, any property of a designated or related person, identified as a result of screening or otherwise, must be frozen and reported without delay to the Canadian law-enforcement authorities. These obligations are not limited to regulated financial institutions and apply to all persons in Canada and all Canadians outside Canada.
Second, regulated financial institutions are also required to disclose, every month, to their principal federal or provincial regulator, whether they are in possession or control of property of a person designated under the Criminal Code regulations or the SML regulations. The number of persons or contracts involved and the total value of the property must be reported monthly; if no such property is detected, a nil report must be sent to the principal regulator. For federally regulated financial institutions, these reports must be filed with OSFI according to OSFI’s instructions for using OSFI Form 525 or OSFI Form 590. The Canadian Securities Administrators have also issued guidance for securities dealers who must make these reports to a provincial securities commission as their principal regulator. The Investment Industry Regulatory Organization of Canada (IIROC) has also published instructions for its dealer member firms.
Third, institutions subject to the PCMLTF Act must also report matches with the Anti-Terrorism List to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) consistently with FINTRAC’s guidance on submitting terrorist property reports.
Canadian sanctions legislation typically provides immunity from civil proceedings for any good-faith disclosure made under the legislation. The specific immunity provisions under each relevant regulation must be consulted to make this determination.
Penalties and Contravention
It is a criminal offence in Canada to willingly contravene the Canadian sanctions legislation. Contraventions are punishable by significant fines, imprisonment, or both. Moreover, a violation of the sanctions legislation, or even an allegation of a violation, may significantly harm the reputation on any organization, particularly a financial institution.
BLOCKING AND ANTI-BOYCOTT LEGISLATION
Foreign Extraterritorial Measures Act
The Government of Canada has authority under the Foreign Extraterritorial Measures Act (FEMA) to make orders protecting Canadian interests against the extraterritorial application of foreign laws in Canada. There are currently two blocking orders issued under FEMA.
First, the Foreign Extraterritorial Measures (United States) Order, 1992(1992 Order) blocks the extraterritorial application in Canada of the U.S. embargo against Cuba. The 1992 Order prohibits a Canadian corporation, including its directors, officers, and employees, in respect of any trade between Canada and Cuba, from complying with an extraterritorial measure of the United States. The 1992 Order also prohibits complying with any direction or communication relating to such a measure that the Canadian corporation has received from a person who is in a position to influence the policies of the Canadian corporation. There is also an obligation to notify the Attorney General of Canada of any such communications. For further information about the 1992 Order, please see our February 2013 Blakes Bulletin: Doing Business in Cuba: Understanding Canada’s Blocking Legislation. For information about the impact of the recent changes to the United States-Cuba relations for Canadian businesses, see our February 2016 Blakes Bulletin: What the United States’ Weakened Embargo Against Cuba Means for Canadian Business.
Second, the Certain Foreign Extraterritorial Measures (United States) Order, 2014, prohibits any person in Canada from complying with U.S. “Buy America” requirements in relation to the redevelopment of premises in northern British Columbia that were leased by the State of Alaska.
Canadian Anti-Discrimination Laws
The Canadian provinces of Ontario and Manitoba have each enacted a Discriminatory Business Practices Act, which prohibits persons in each of those provinces from engaging in certain discriminatory practices. This legislation was introduced in the 1980s in response to the Arab League boycott of Israel. The legislation prohibits a person from refusing to engage in a business activity with another person on account of nationality or the geographic location of the counterparty, among other grounds. There is also a prohibition against entering into any contract that includes a requirement that one of the parties to the contract will refuse to engage in business with any other person on the basis of such attributes. The legislation provides for mandatory reporting requirements when a person receives a request to participate in prohibited activities. For more information, please refer to our March 2015 Blakes Bulletin: The Boycott, Divestment and Sanctions Movement: Limits on Restricting Trade with Israel.
EXPORT AND IMPORT PERMIT LEGISLATION
The Export and Import Permits Act imposes export and import trade controls on specific goods or goods from certain jurisdictions. These controls have an impact on a wide range of cross-border shipments and transactions. The controls are implemented primarily through the following three lists:
The ACL is a list of countries to which the government has deemed it necessary to control the export of any goods. Currently, North Korea is the only jurisdiction listed in the ACL, and a permit is required to export goods to that country.
The ECL and ICL are lists of goods that the government has deemed necessary to control for certain enumerated purposes. For example, Canada closely controls the export of military goods and technology to countries that pose a threat to Canada and its allies, are involved in, or under imminent threat of hostilities, or are subject to UN Security Council sanctions. The ECL also controls the export of any U.S. origin goods whether or not the goods are otherwise controlled by the ECL. A permit — whether a specific or general permit — is required to export or import goods identified on the ECL or ICL.
The Export and Import Permits Act also makes it an offence to aid or abet a person in engaging in an activity that contravenes the legislation. Therefore, financial institutions engaged in international trade financing, as well as other businesses, should take measures to ensure that by providing services to an importer or exporter, they do not indirectly contravene Canada’s export and import control legislation.