On November 3, 2017, the Government of Canada introduced regulations under the recently enacted Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) (SML) imposing an asset freeze on a number of foreign nationals identified by the government to be responsible for, or complicit in, significant corruption or gross violations of human rights. Like other Canadian sanctions laws, the restrictions set out in SML apply to all persons in Canada and all Canadian citizens and Canadian-incorporated entities operating outside Canada. SML also introduces new screening and reporting obligations for regulated financial institutions in Canada.
SML was enacted on October 18, 2017 and is intended to provide Canada with the tools to “respond to cases of human rights violations and significant acts of corruption anywhere in the world”, according to Global Affairs Canada. SML was first introduced as a private member’s bill in the Senate and later received the support of Canada’s current government to become law. Canada follows the United States and the United Kingdom in enacting SML-type legislation.
While the federal government has authority under existing Canadian sanctions legislation to impose financial and other restrictions on foreign jurisdictions and their nationals, SML specifically authorizes the government 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.
Based on these grounds, the federal government designated 52 nationals from three jurisdictions —Russia, South Sudan and Venezuela — under the new Justice for Victims of Corrupt Foreign Officials Regulations (SML Regulations). For more information on the designated individuals, please see the news release by Global Affairs Canada.
SML also amended Canada’s Special Economic Measures Act (SEMA) to allow for designation, under that legislation, of foreign states and their nationals on similar grounds.
Under the SML Regulations, persons in Canada and Canadian-incorporated entities and Canadian citizens outside Canada are prohibited from:
Dealing, directly or indirectly, in any property of a designated foreign national
Entering into or facilitating, directly or indirectly, of any financial transaction related to a dealing in property of a designated foreign national
Providing financial services or any other services to, for the benefit of, or on the direction or order of, a designated foreign national
Acquiring financial services or any other services for the benefit of, or on the direction or order of, a designated foreign national
Making available any property to a designated foreign national or to a person acting on his or her behalf.
The above prohibitions may be waived by the Minister of Foreign Affairs by way of permit issued under the Justice for Victims of Corrupt Foreign Officials Permit Authorization Order.
As with other Canadian sanctions legislation, SML requires federally and provincially regulated financial institutions, including banks, authorized foreign bank branches, credit unions, trust and loan companies, insurers, securities dealers, and money services businesses, to determine on a continuing basis, whether they are in possession or control of property that they have reason to believe is the property of a foreign national designated under SML Regulations. These institutions must therefore ensure that the SML designations are incorporated into the sanctions lists against which they conduct customer screening — whether in-house or through a third-party service provider.
For federally regulated financial institutions, the Office of the Superintendent of Financial Institutions (OSFI) published an advisory notice reiterating its expectation that financial institutions screen against the SML designated names on an ongoing basis (at least weekly) and that the screening extend to beneficial owners of corporate clients where such information is collected under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
Both federal and provincial financial institutions must report monthly to their principal regulator on whether they hold property of a foreign national designated under SML. Financial institutions must therefore ensure that their upcoming monthly sanctions report to be filed with their regulator reflects the new designations under the SML Regulations. This monthly reporting obligation was previously limited to the Iran, North Korea, Venezuela and terrorism designations in Canada.
All transactions involving foreign nationals designated under SML Regulations must also be reported without delay to the Royal Canadian Mounted Police or Canadian Security Intelligence Service. This reporting obligation is not limited to regulated financial institutions and applies to all persons in Canada and all Canadians outside Canada.
Like other Canadian sanctions statutes, SML makes it an offence to knowingly contravene the prohibitions set out in SML. The offence is punishable by criminal fines or imprisonment, but SML does not contemplate an administrative monetary penalties regime for violations.
OTHER CANADIAN SANCTIONS AND ANTI-CORRUPTION LEGISLATION
SML complements the existing Canadian sanctions legislation, including the Freezing Assets of Corrupt Foreign Officials Act, SEMA, the United Nations Act and the Criminal Code. For an overview of Canada’s sanctions regime, please see our Primer on Canadian Sanctions Legislation.
For Canadian companies or individuals engaged in international business, SML reinforces the importance of ensuring the implementation of a robust due diligence and screening program for business counterparties, including third-party agents, to avoid inadvertently breaching SML by engaging in prohibited transactions with designated foreign nationals. Due diligence screening of counterparties is equally important for compliance with Canada’s anti-corruption legislation. For a description of the importance of anti-corruption due diligence in international transactions, please see our Blakes Bulletin: Importance of Anti-Corruption Due Diligence for International Transactions.