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.

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 (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.

3. Special Economic Measures Act

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.

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.

To learn more 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.

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.

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
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

Belarus

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

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 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.

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 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.

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 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.

To learn more 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 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.

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 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.

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. 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.

Reporting

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.

Penalties and Contravention

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

1. 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:

Foreign Extraterritorial Measures (United States) Order,
1992

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.

Certain Foreign Extraterritorial Measures (United
States) Order, 2014

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.

2. Canadian Anti-Discrimination Laws

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

1. 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 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.

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

3. Forced Labour Goods and Global Affairs Advisory
Regarding Xinjiang, China

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 permission to reprint articles, please contact the
Blakes Marketing Department.

© 2020 Blake, Cassels & Graydon LLP.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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