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A Primer on Canadian Sanctions Legislation

A Primer on Canadian Sanctions Legislation
February 11, 2020

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 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 key requirements under Canadian sanctions legislation as of February 1, 2020.

ECONOMIC SANCTIONS

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. Public Safety Canada publishes a list of entities designated under these regulations on its website. The Criminal Code imposes specific reporting requirements and asset freeze obligations relating to terrorist property. It 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:

Central African Republic Libya
Democratic Republic of the Congo North Korea
Eritrea Somalia
Lebanon South Sudan
Iran Sudan
Iraq Yemen
Mali  

Two additional regulations made under the United Nations Act implement the UN suppression of terrorism sanctions and sanctions against Al-Qaida and Taliban. 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

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.

Currently, there are regulations under SEMA imposing sanctions in respect of the following jurisdictions:

Burma South Sudan
Iran Syria
North Korea Ukraine
Russia Zimbabwe
Venezuela Libya
Nicaragua  

The SEMA regulations generally prohibit dealings in the property, including financial assets, of persons designated under the regulations. They also prohibit providing financial or other services related to restricted activities. The regulations in respect of Burma, Iran, South Sudan and Zimbabwe also impose arms embargoes. The SEMA sanctions in respect of other targeted jurisdictions are discussed in greater detail below.

Venezuela

The Venezuela regulations prohibit dealing in any property, including financial assets, that is owned, held or controlled by an individual designated under the regulations or a person acting on their behalf. The regulations also prohibit entering into or facilitating related transactions or providing financial or related services. Currently, only Venezuelan nationals are designated under the Canadian regulations. The Government of Venezuela and state-owned enterprises in Venezuela are not targeted by Canadian sanctions, unlike the sanctions measures in the United States. However, many of the designated individuals are members of the Government of Venezuela. 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.

Iran

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. Recent political developments in respect of Iran have not, so far, resulted in new Canadian sanctions against Iran. The Canadian sanctions in respect of Iran are set out both in the SEMA and United Nations Act regulations. For more information about the Iran sanctions, please see our February 2016 Blakes Bulletin: First Step to Re-engagement: Canada Rolls Back Iranian Sanctions.

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 providing related financial or other services. For more information on Canadian sanctions against Crimea, please see our February 2020 Blakes Bulletin: New Canadian Sanctions against Crimea.

Syria

Significant restrictions also exist in respect of Syria. The 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 involving the Government of Syria or any person in Syria, subject to certain threshold exceptions

  • Providing or acquiring financial or related services for the purpose of facilitating trade in petroleum or related products, other than natural gas

  • Making investments in Syria and engaging in other prohibited conduct specified in the regulations.

There are several limited exceptions to these restrictions available under the regulations.

North Korea

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 involving 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 and engaging in other prohibited conduct specified in the regulations.

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.

Facilitation

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.

Screening

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, the Office of the Superintendent of 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. Public Safety Canada maintains a list of terrorist persons designated under the Criminal Code regulations (available here). The United Nations 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). Note that OSFI no longer maintains a list of designated persons.

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.

Reporting

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. For more information on the monthly reporting obligation for Canadian-regulated financial institutions, please see our May 2019 Blakes Bulletin: Changes to Monthly Sanctions Reporting Requirement.

  • Third, institutions subject to the PCMLTF Act must also report matches with the Criminal Code list and designations under the United Nations Act suppression of terrorism regulations 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 information about the impact of the 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.

EXPORT AND IMPORT CONTROLS

Export and Import Permits Act

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 legislationTherefore, 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.

Prohibiting Cluster Munitions Act

The Prohibiting Cluster Munitions Act (PCMA) implements Canada’s commitments under the Convention on Cluster Munitions, an international treaty addressing the humanitarian consequences of certain explosive munitions. The PCMA makes it an offence to possess, move, import or export cluster munitions, explosive submunitions and explosive bomblets, or aid another person in carrying out any of these acts. Businesses should ensure that they do not indirectly contravene the PCMA by providing services to an importer or exporter.

For further information about trade sanctions, please contact:

Greg Kanargelidis                      416-863-4306
Roy Millen                                  604-631-4220

or any other member of our International Trade group.

For further information about any other aspect of this primer, please contact:

Ora Morison                               416-863-2712
Vladimir Shatiryan                      416-863-4154

or any other member of our Financial Services Regulatory group.