A Primer on Canadian Sanctions Legislation

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 on not only the target countries but also 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 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) and 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 March 2023.

ECONOMIC SANCTIONS

There are five federal statutes under which the Government of Canada imposes economic sanctions and trade restrictions.

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.

The Government of Canada enacts into Canadian law sanctions adopted by the UN Security Council through regulations made under the United Nations Act (UNA) Currently, regulations under the UNA impose sanctions in respect of the following jurisdictions:

Two additional regulations made under the UNA implement the UN suppression of terrorism sanctions and sanctions against Al-Qaida, Taliban and ISIL (Da'esh). The Canadian authorities do not maintain a consolidated list of all designations under the UNA 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 UNA 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 UNA 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 or acquiring any financial or other related service in respect of such property

• Making any property or financial service available to a designated person.

Absent a UN Security Council resolution, the Government of Canada has authority under 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:

The SEMA regulations vary depending on the target jurisdiction but 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 and Zimbabwe also impose arms embargoes. The SEMA sanctions in respect of other targeted jurisdictions include a range of export and import embargoes on specific goods, services, technologies and material and are discussed in greater detail below.

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.

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.

Beginning in October 2022, the regulations have been amended several times to list and expand the list of persons Canada considers to have participated in “gross and systemic human rights violations” in Iran.

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 include prohibitions against:

• Dealing in the property of over 1,500 designated individuals, groups and businesses that are listed in Schedule 1 to the Special Economic Measures (Russia) Regulations (Russia Regulations) and the Special Economic Measures (Ukraine) Regulations

• ​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

• 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

• Exporting, selling, supplying or shipping various 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

• Exporting, selling, supplying or shipping various advanced goods, technologies and raw materials that are referred to in the Restricted Goods and Technologies List  or Schedule 5.1 of the Russia Regulations

• Importing, acquiring, exporting, selling, supplying or shipping various luxury goods listed in Schedule 6 of the Russia Regulations

• Exporting, selling, supplying or shipping various goods and materials that could be used by Russia to manufacture weapons listed in Schedule 7 of the Russia Regulations

• Supplying various services to certain industries, including computer, architectural and engineering

• Investing, dealing in property, providing or acquiring financial services, or importing, exporting, purchasing or selling anything to or from any occupied region of Ukraine, including the Donetsk Oblast, the Luhansk Oblast, the Kherson Oblast, the Zaporizhzhia Oblast and Crimea regions of Ukraine

The SEMA regulations in respect of Belarus (Belarus Regulations) impose prohibitions against:

• Dealing in transferable securities and money market instruments issued by Belarus and banks and other entities controlled by Belarus

• Dealing in debt of longer that 90-days’ maturity, in relation to Belarus, banks and other entities controlled by Belarus

• Providing insurance or reinsurance to Belarus or an entity it controls

• Providing insurance or reinsurance to any person in Belarus in relation to certain aviation and aerospace goods and related technology

• Dealing in or providing financial or other services related to designated petroleum products exported from Belarus

• Dealing in designated potassium chloride products exported from Belarus

• Exporting, selling, supplying or shipping to Belarus or to any person in Belarus any good or technology that is referred to in the Restricted Goods and Technologies List or Schedule 3 of the Belarus Regulations

• Importing, acquiring, exporting, selling, supplying or shipping various luxury goods listed in Schedule 4 of the Belarus Regulations

• Exporting, selling, supplying or shipping any good related to the manufacture of weapons referred to in Schedule 5 of the Belarus Regulations

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.

The SEMA regulations in respect of North Korea impose sanctions in addition to those provided for under the UNA. 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.

The Minister of Finance also issued Ministerial directives in respect of North Korea and Iran pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). The directives require reporting entities under the PCMLTFA to treat all transactions to and from North Korea and Iran as high risk, regardless of the amount of the transaction. The Iran directive, which applies to Canadian-regulated banks, credit unions and money services businesses, requires these entities to take specific measures for transactions originating from or bound for Iran, including verifying the identity and ascertaining beneficial ownership of a person initiating or benefiting from such a transaction and ascertaining the source of funds and purpose of the transaction.

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 PCMLTFA 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.

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 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.

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.

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 UNA 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 the Minister of 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, 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 PCMLTFA 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.

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. The United Nations has a consolidated list of all designations under Security Council resolutions, which should presumably capture all designations under the UNA. Individuals designated under the FACFO Act are not currently included under any of the above consolidated lists and can be accessed through the FACFO (Tunisia) Regulations and the FACFO (Ukraine) Regulations. 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 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 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 monitoring news alerts by Global Affairs Canada.

There are a number of reporting requirements under the Canadian sanctions legislation:

1. 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.

2. Regulated financial institutions are also required to disclose 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. Under the Criminal Code, reports must be made monthly. If no such property is detected, a nil report must be sent to the principal regulator. Under the SML regulations, a report is only required where a regulated financial institution detects such property, and subsequent reports regarding any such property must be made every three months thereafter.

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.

To learn more about the monthly reporting obligation for Canadian-regulated financial institutions, please see our August 2021 Blakes Bulletin: Additional Sanctions Against Belarus and Amended Sanctions Reporting Requirements and our May 2019 Blakes Bulletin: Changes to Monthly Sanctions Reporting Requirement.

Institutions subject to the PCMLTFA must also report matches with the Criminal Code list and designations under the UNA 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.

It is a criminal offence in Canada to willingly contravene the Canadian sanctions legislation. Contraventions are punishable by significant fines or 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

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:

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 U.S.

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.

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.

The Canadian province of Ontario has enacted a Discriminatory Business Practices Act, which prohibits persons in that province 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

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:

• Area Control List (ACL)

• Export Control List (ECL)

• Import Control List (ICL)

The ACL is a list of countries for 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 specific or general — 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 or other businesses engaged in international trade financing should take measures to ensure they do not indirectly contravene Canada’s export and import control legislation when providing services to an importer or exporter.

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 they do not indirectly contravene the PCMA by providing services to an importer or exporter.

Under the Customs Act and Customs Tariff, it is prohibited to import goods made wholly or in party by prison labour or forced labour. In addition, the 44th Canadian Parliament has introduced Bill S-211, An Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act, which is expected to proceed to its third reading in March 2023 and enter into effect in 2024. Once enacted, it will add child labour to the existing import prohibition on forced labour goods in the Customs Tariff and require entities above a certain size (i.e., over C$20-million in assets, C$40-million in revenue and/or at least 250 employees) to submit an annual report regarding their efforts to prevent forced and child labour.

Independently of Bill S-211, Global Affairs Canada has issued an advisory on doing business with entities active abroad or with ties to Xinjiang, China (Advisory). The Advisory does not impose legal requirements but sets clear compliance expectations for Canadian businesses with respect to forced labour and human rights involving Xinjiang, including adoption of voluntary best practices.

The Government of Canada expects Canadian businesses with links to Xinjiang to examine their supply chains to ensure their activities do not support repression of ethnic minorities in Xinjiang and across China, including surveillance apparatuses in Xinjiang, detention or internment facilities, or forced labour. Similarly, the Advisory encourages companies to closely examine end-users of their products and services to ensure they are not being used to support these activities. Canadian businesses that operate in or have end-users in certain high-technology fields, such as those related to cameras, sensors and biometric devices, are expected to exercise the highest level of due diligence and caution when doing business in China as these products may be used to arbitrarily track Uyghurs and others in Xinjiang.

Given the broad scope of this Advisory and its emphasis on examining supply chains and end-users of services, Canadian financial institutions, institutional investors and other investors should consider applying due diligence measures to ensure businesses receiving financing or capital from them do not engage in or direct the funds received to supporting the types of activities described in the Advisory.

The Advisory also cautions companies to take steps to ensure their supply chains do not violate the prohibition in the Customs Tariffs Act against importing from any country goods produced, in whole or in part, by forced labour. Under the Export and Import Permits Act, controlled goods and technology cannot be exported from Canada, where there is a substantial risk they could be used to commit or facilitate serious violations of human rights. The advisory states that all export permit applications for controlled goods and technologies will be reviewed for risk that the items could be used to commit or facilitate such violations.

To learn more about the Advisory, please see our January 2021 Blakes Bulletin: Government of Canada Sets Compliance Expectations for Canadian Businesses Linked to Xinjiang, China.

To learn more about Bill S-211, please see our Blakes Business Podcast: Canada’s Modern Slavery Act: What’s in Store for Canadian Companies.

For further information about trade sanctions, please contact:

Roy Millen                          +1-604-631-4220
Brady Gordon                    +1-604-631-5255
Alison Burns                      +1-604-631-3390

or any other member of our International Trade group.
 
For further information about any other aspect of this primer, please contact:
 
Vladimir Shatiryan            +1-416-863-4154
Zvi Halpern-Shavim          +1-416-863-2355
Ora Morison                       +1-416-863-2712

or any other member of our Financial Services Regulatory group.