Canada’s Parliament Debates Addition of Property Confiscation Provisions to Sanctions Legislation

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In this post we describe the parts of Bill C-19 that, if passed into law by Parliament, will introduce a property confiscation regime into the Special Economic Measures Act and the Sergei Magnitsky Law.

As discussed below, the key points are:

  • At this point the proposed legislation is in a bill before Parliament; it is not yet law.
  • The test in the bill for forfeiture of assets would easily be met and leave little discretion for the court.
  • There would be some protection for innocent third parties.
  • The implications for capital flows in and out of Canada are uncertain.

Bill C-19

Bill C-19, the Budget Implementation Act, 2022, No. 1, was introduced in the House of Commons by the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance. First reading of Bill C-19 was on April 28, 2022. Second reading was on May 19, 2022. The bill is currently in committee in the House of Commons and at the pre-study stage in the Senate.

Confiscation Provisions

Section 5, Division 31 of Bill C-19 proposes amendments to the Special Economic Measures Act (“SEMA”) and the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) (the “Sergei Magnitsky Law”) that will establish an economic sanctions forfeiture regime for assets of foreign nationals, essentially amounting to asset confiscation at the discretion of the Government of Canada.

Both statutes would be amended to in the following ways:

  • Courts would be required to make a forfeiture order (a “Judicial Forfeiture Order”) on application by the applicable Minister where a two-part test is satisfied.
    • The first part of the forfeiture test would be that the property that is the subject of a forfeiture application is described in an order (an “Executive Seizure Order”) made under the applicable statute.
      • Each statute gives the Cabinet (Canada’s executive government) the authority (as amended by Bill C-19) to make an Executive Seizing Order causing to be seized or restrained any property in Canada that is owned or is held or controlled, directly or indirectly, by a foreign national of a jurisdiction in respect of which Canada has enacted sanctions (a “Foreign National”).
    • The second part of the forfeiture test would be that the property that is the subject of a forfeiture application is owned by the Foreign National referred to in the Executive Seizure Order or is held or controlled, directly or indirectly, by that Foreign National.
  • Before making a Judicial Forfeiture Order the court hearing the application would be required to require that notice be given to any person who, in the court’s opinion, appears to have an interest in or right to the property. The court would be able to hear from any such person before making a Judicial Forfeiture Order.
  • Any person who would claim an interest in property that has been the subject of a Judicial Forfeiture Order would have 30 days after the order was made to apply for an order that their right or interest would not be affected by the order and directing the applicable Minister to pay to that person an amount equal to the value of their interest.
  • The Royal Canadian Mounted Police would be empowered to assist the applicable Minister in respect of the making of Executive Seizure Orders and applications for Judicial Forfeiture Orders.
  • There would be a new provision authorizing the applicable Minister to require any person to provide to the Minister any information that on reasonable grounds would be relevant to the making of an order or regulation under the statute.
  • In the case of SEMA, the applicable Minister would be able to pay the net proceeds from the disposition of forfeited property to:
    • The reconstruction of a foreign state adversely effected by a grave breach of international peace and security.
    • The restoration of international peace and security.
    • The compensation of victims of a grave breach of international peace and security, gross and systemic human rights violations or acts of significant corruption.
  • In the case of the Sergei Magnitsky Law, the applicable Minister would be able to pay the net proceeds from the disposition of forfeited property to compensate victims of:
    • Gross violations of internationally recognized human rights.
    • Acts of significant corruption.

Key Points

Bill C-19 raises many issues including:

  • It would give the Canadian government a very strong tool to pursue foreign policy objectives and potentially redress wrongs as perceived and determined by the Canadian government.
  • The test for forfeiture is a remarkably low bar, essentially based on governmental determinations as to which Foreign Nationals merit this treatment.
    • No judicial finding of wrongdoing by a Foreign National is required.
  • The proposed amendments potentially effect Foreign Nationals of many jurisdictions.
    • Currently there are sanctions on 12 different countries under SEMA including Russia, Belarus, the PRC and Iran.
    • Nationals of five countries including Saudi Arabia and Russia are currently sanctioned under the Sergei Magnitsky Law.
  • There would be some protections for innocent third parties, including the right to be heard and a court hearing for a Judicial Forfeiture Order but there would be a very short period to apply for compensation after a Judicial Forfeiture Order is made.
  • The implications for capital flows in and out of Canada are uncertain.

Conclusion

Canada has been continuing to increase its sanctions responses to Russia’s invasion of Ukraine. The proposed amendments to SEMA and the Sergei Magnitsky Law are being introduced at this time by a Minister who has been deeply involved in Canada’s foreign policy regarding Ukraine. Although it may be logical to expect that property of designated Russian persons is the likely immediate focus if Bill C-19 becomes law, the bill is not restricted to Canada’s Russia sanctions program. It would have much broader potential application.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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