Global Affairs Canada (“GAC”) has provided four new responses to “Frequently Asked Questions” concerning the application of the economic sanctions under the Special Economic Measures Act, S.C. 1992, c. 17 (the “SEMA”) and its associated regulations, as well as the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law), S.C. 2017, c. 21 (the “JVCFOA”).

The following provides a summary of the recent clarifications:

1. What happens when a person is designated?

GAC explains that once a person is designated under Regulations pursuant to the SEMA or the JVCFOA, they are subject to a dealings ban and become inadmissible to Canada. A dealings ban prohibits any Canadian (in Canada or abroad) or any person in Canada from dealing with listed individuals’ real property, physical goods, or intangible property, such as intellectual property or financial instruments. Dealings bans apply to both direct and indirect transactions.  

Exceptions to this guidance may apply in relation to diplomatic activities.

2. When does a prohibition apply?

Unless a Regulation specifies otherwise, prohibitions apply from the date they entered into force. However, for some Regulations an exception may allow for activities for which an existing contract is in place when it does not benefit a designated person. For instance, the Special Economic Measures (Russia) Regulations, SOR/2014-58 (the “Russia Regulations”) allows parties to discharge their contractual obligations with a designated person if the deal was entered into before the date the person was designated. Yet, no payment can be made to or for the benefit of such designated person. Prohibitions also do not apply retroactively.

3. Can I deal with the subsidiaries of a designated company?

GAC confirms that under the SEMA and the JVCFOA, ownership and control are assessed using the following provisions:

• the designated person has 50% or more of the shares or ownership interests in the entity (directly or indirectly) or 50% or more of its voting rights;
• the designated person can change the composition or powers of the entity’s board of directors (directly or indirectly); or,
• the designated person might reasonably be able to direct the entity’s activities (directly or indirectly and through any means).

If any of these provisions apply, a non-designated company’s property would be seen as being “owned” or “controlled” by the designated person, and would therefore be subject to a dealings ban under the relevant Regulations.

In the case of subsidiaries, a designated company is deemed to “own” or “control” a subsidiary and its property if any of the above provisions apply.

4. Can I deal with an entity that deals with a designated person?

GAC explains that under most Regulations made pursuant to the SEMA and the JVCFOA, such as the Russia Regulations, it is prohibited to enter into or facilitate a transaction related to a dealing with a listed person. This prohibition extends to indirect dealings through a third party, even if the third party is not Canadian or located outside of Canada.

Further, it is prohibited to knowingly enter into or facilitate a transaction related to a dealing between an individual and a designated person. For example, a transaction for a product between a Canadian end-user and a foreign supplier that directly sources materials for the relevant product from a company designated under the Russia Regulations would be prohibited, unless an exception applies.

While GAC provides general information in its responses to the “Frequently Asked Questions”, consulting the relevant Regulations to determine prohibitions and potential exceptions is recommended.

Our team will continue to closely monitor new developments in Canada’s sanctions regimes, providing updates to keep clients informed. We have significant experience in the design and implementation of sanctions-related compliance programs and internal investigations. Where breaches are identified, we work closely with clients in making voluntary disclosures and in engaging with the ensuing investigations conducted by the RCMP and Global Affairs Canada. We also regularly assist clients with the application for delisting process as well as applications for exemption permits.

Authors: Michelle Folinas, Jack Bowness

Should you have any questions regarding these developments or sanctions generally, please contact: