How the framework fits together
Canadian sanctions are built from several federal statutes. Most of them are framework laws: the statute gives the government the power to impose measures, and the actual measures are set out in regulations made under it for particular countries, situations or individuals. When a new sanctions regime is announced, it usually takes the form of new or amended regulations under an existing statute.
Global Affairs Canada leads on sanctions policy and administers permits. Enforcement involves the RCMP and, for goods crossing the border, the Canada Border Services Agency. Breaches can be criminal offences.
The statutes most relevant to payments are the Special Economic Measures Act, the Justice for Victims of Corrupt Foreign Officials Act, the United Nations Act and the terrorist listing provisions of the Criminal Code. Other laws, such as export control legislation, matter for businesses that trade in goods and technology. This article describes the main statutes in general terms. It does not list current targets, because they change frequently and the official lists are the only reliable source.
The Special Economic Measures Act
The Special Economic Measures Act, usually called SEMA, is the main vehicle for Canada's autonomous sanctions, meaning measures Canada imposes on its own initiative or in coordination with allies rather than because the UN Security Council requires them.
In general terms, SEMA allows the government to impose measures where an international organisation or association of states of which Canada is a member calls for them, where a grave breach of international peace and security has occurred, where gross and systematic human rights violations have been committed in a foreign state, or where foreign public officials or their associates are responsible for significant corruption.
SEMA regulations are made for particular countries or situations. A typical regulation lists individuals and entities in a schedule and prohibits dealing in their property, entering into transactions with them, providing financial or related services to them, or making goods or funds available to them. Some SEMA regulations go further and impose sector-wide measures, such as restrictions on certain exports, imports, investments or services connected with a country, whether or not a listed person is involved.
The Justice for Victims of Corrupt Foreign Officials Act
The Justice for Victims of Corrupt Foreign Officials Act, sometimes called Canada's Magnitsky law, targets individual foreign nationals. It allows the government to list foreign nationals responsible for, or complicit in, gross violations of internationally recognised human rights, and foreign public officials or their associates responsible for significant acts of corruption.
Listing under this Act triggers an asset freeze and a dealings prohibition on the listed individual. People in Canada and Canadians abroad may not deal in the listed person's property, enter into transactions with them, or provide them with financial or related services. The Act can also make listed individuals inadmissible to Canada under immigration law.
Unlike most SEMA regulations, which are organised by country, listings under this Act are about individuals and their conduct. A listed person may come from a country that is not otherwise subject to any Canadian measures. That is one reason why screening must cover individual names across all lists, rather than relying on country risk alone.
The United Nations Act
The United Nations Act allows Canada to give effect to decisions of the UN Security Council. When the Security Council adopts sanctions under Chapter VII of the UN Charter, member states are obliged to implement them, and Canada does so through regulations made under this Act.
UN sanctions regimes vary. Some target named individuals and entities with asset freezes and travel bans. Others impose arms embargoes, restrictions on specific goods, or broader measures against a country. Many are linked to particular conflicts, to weapons proliferation, or to terrorism.
Because UN listings are agreed internationally, they are generally reflected in the sanctions laws of most countries. A party listed by the UN will typically appear on Canadian, United States, United Kingdom and European Union lists as well. Autonomous lists, by contrast, differ between countries, which is why a payment can be acceptable under Canadian law but still be blocked by a foreign bank applying its own country's measures.
Criminal Code terrorist listings
Part II.1 of the Criminal Code deals with terrorism and includes a mechanism for listing terrorist entities. Once an entity is listed, it is treated as a terrorist group for the purposes of the Criminal Code.
The Criminal Code makes it an offence to knowingly deal in property owned or controlled by or on behalf of a terrorist group, to facilitate such dealings, or to provide financial or related services in connection with that property. It also requires people in Canada who are in possession or control of such property to disclose it to the RCMP and CSIS.
For reporting entities under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, these rules connect with the duty to file terrorist property reports with FINTRAC. A money services business that finds it holds or controls property belonging to a listed terrorist entity must freeze it, make the required disclosures and file the report. In practice, terrorist listings are a core part of every Canadian provider's screening data.
Other laws that matter
Several other laws can come into play, depending on the business:
- The Freezing Assets of Corrupt Foreign Officials Act allows Canada to freeze assets of politically exposed foreign persons at the request of a foreign state that is in turmoil or political uncertainty.
- Export control legislation, principally the Export and Import Permits Act and its control lists, governs the export of military, dual-use and other controlled goods and technology. It operates alongside sanctions and is especially relevant for defence and technology businesses.
- Ministerial directives under the PCMLTFA can require reporting entities to apply specific measures to transactions connected with particular foreign jurisdictions or entities, for anti-money laundering reasons rather than as sanctions in the strict sense.
For a business that trades internationally, a transaction may need to satisfy all of these at once: the counterparty is not listed, the goods do not need an export permit or the permit is in place, and no directive restricts the payment route.
Who must comply
Canadian sanctions apply to any person in Canada and to Canadians outside Canada. Person here includes companies, partnerships, trusts and other entities as well as individuals. A Canadian company with a branch abroad, and a Canadian citizen working for a foreign company, both remain subject to Canadian sanctions.
The obligations are not limited to banks or money services businesses. A manufacturer, a law firm, a shipping agent or an individual investor in Canada all have the same basic duty not to deal with listed parties. Financial institutions are simply the point at which many prohibited dealings become visible, which is why they screen so carefully.
Foreign sanctions can also reach Canadian businesses indirectly. A payment in US dollars will usually pass through the United States banking system, and US sanctions may then apply to it. A payment routed through European banks may be affected by EU measures. That is why providers in Canada often screen against foreign lists as well as Canadian ones.
Types of measures
Sanctions regulations use a common set of tools. Knowing them helps when reading an official announcement:
- Asset freezes and dealings prohibitions on listed individuals and entities, covering their property and transactions with them.
- Prohibitions on providing financial or related services to listed parties or for prohibited activities.
- Making goods or funds available to listed parties, directly or through others, is prohibited.
- Sectoral measures that restrict particular activities, such as investment in certain industries, provision of certain services or dealings in certain securities.
- Trade restrictions on exporting, importing or supplying specified goods and technology.
- Technical assistance bans that prohibit services linked to restricted goods.
Most regulations also prohibit doing anything that causes, assists or promotes a prohibited activity. That means a business cannot avoid sanctions by routing a transaction through an intermediary.
Permits, exceptions and disclosure
Many regulations contain exceptions for specific activities, such as payments required under contracts entered into before a listing, humanitarian assistance or certain diplomatic activities. These exceptions are narrow, and their wording matters.
Where no exception applies, a person may apply to the Minister of Foreign Affairs for a permit to carry out a prohibited activity. Permits are granted case by case at the government's discretion.
Sanctions laws also impose duties to disclose. People in Canada who hold property of a listed person, or who have information about a transaction involving that property, are generally required to report it to the RCMP and, under some regimes, to CSIS. Some regulations also require certain financial institutions to review their records regularly for listed parties.
How the laws affect payments
In day-to-day payments, sanctions laws show up in a few predictable ways. Payments involving listed parties are blocked. Payments to or from countries with broad sanctions may be impossible, or permitted only for specific purposes. Payments that pass through foreign banks can be held under those banks' own sanctions programmes, even where Canadian law would allow them.
A business that pays suppliers or receives funds internationally should know where its counterparties are, who owns them and what goods or services are involved. It should give its provider complete information, expect questions about higher-risk payments, and keep its own records of the checks it has done.
Before you act
This article is a general overview of Canadian sanctions laws. It is not legal advice, and it does not describe any current listing or regime. Always check the official lists and take specialist advice before dealing with a counterparty or country that may be subject to sanctions.
CCYFX screens clients and payments against Canadian and other major lists. The compliance page explains our approach, and our guide to sanctions screening describes what happens when a payment is held.
