Economic sanctions and the notion of control - clarity on the horizon?
The Canadian Government is showing an increased willingness to rely on economic sanctions and similar measures to further Canada’s foreign policy objectives in the wake of the ongoing conflict between Russia and Ukraine.
Canada’s economic sanctions regime prohibits dealings in property owned, held or controlled by sanctioned persons as well as various activities surrounding dealings with sanctioned persons. A major challenge in navigating Canadian economic sanctions legislation thus far has been understanding the notion of “control”, which is not defined in sanctions regulations yet is central in determining whether a specific dealing is prohibited or not. The lack of clear definitions in the law and official guidance from regulators has often been identified as a flaw in the Canadian economic sanctions regime when compared to other jurisdictions, such as the United States and the United Kingdom.
Bill C-47, An Act to implement certain provisions of the budget (“Bill C-47”), tabled in Parliament on March 28, 2023, proposes new changes to Canadian economic sanctions legislation, namely the Special Economic Measures Act, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) which could bring a measure of clarity on the notions of “ownership” and “control”, central to the sanctions regime.
Bill C-47 proposes a new “deemed ownership” rule whereby a sanctioned person is deemed the owner of an entity if they satisfy any one of three criteria for control:
- the person holds, directly or indirectly, 50 percent or more of the shares or ownership interests in the entity or 50 percent or more of the voting rights in the entity;
- the person is able, directly or indirectly, to change the composition or powers of the entity’s board of directors; or
- it is reasonable to conclude, having regard to all the circumstances, that the person is able, directly or indirectly and through any means, to direct the entity’s activities.
If passed into law in its current form, Bill C-47 would extend the reach of economic sanctions to entities deemed to be owned by a sanctioned person, if the sanctioned person meets any one of the criteria for control. This would be a welcome change as it would allow Canadian businesses to conduct due diligence and assess whether a given transaction is permitted under economic sanctions legislation on the basis of clearly-defined criteria.
Bill C-47 proposes to further allow the sharing of information between federal government ministries and would authorize the Minister of Foreign Affairs to disclose any information to FINTRAC, Canada’s financial intelligence unit, that is relevant to the enforcement of Canada’s economic sanctions.
Bill C-47 would also authorize FINTRAC to disclose information to the Minister of Foreign Affairs, if it has reasonable grounds to suspect that the information would be relevant to investigating or prosecuting a money laundering offence or a terrorist activity financing offence and the enforcement of economic sanctions legislation.
Our team of economic sanctions specialists continues to monitor developments in this area of the law in Canada, and is able to assist you and your business in navigating these complex issues.