- What is Bill C-47?
Bill C-47 (the “Bill“) is the Federal Budget Implementation Act – Part 1, an omnibus bill which amends existing legislation to meet the Government’s 2023 Budget objectives. Division 10 of the Bill implements significant amendments to Canada’s unilateral sanctions legislation.[1]
- What legislation was amended?
Bill C-47 amends the Special Economic Measures Act (“SEMA“) and the Justice for Victims of Corrupt Foreign Officials Act (“the JVCFOA“). Accordingly, all country-specific statutes implemented under the SEMA will be affected by the proposed amendments (the “Amendments“).
- What is the effect of the Amendments?
The Amendments have the following effect:
- Establish a deemed ownership provision under the SEMA and the JVCFOA;
- Expand authority under the SEMA and the JVCFOA to prohibit activities with persons, or in other words – to designate, unrelated to the targeted foreign state under the SEMA; and
- Provide authority for the Minister of Foreign Affairs and FINTRAC to share information.
Deemed Ownership Provision
The Amendments include “deemed ownership” provisions (the “Deeming Provisions“). Under the SEMA and the JVCFOA, Canadian persons are prohibited, amongst other acts, from dealing in “property” that is owned, held or “controlled” by or on behalf of a designated person (the “Dealings Prohibition“). As drafted, the Deeming Provisions establish when a designated person who controls an entity is deemed to own the property of that entity. In practice, this expands the scope of the Dealings Prohibition to apply to property of entities deemed to be controlled by a designated person. The Deeming Provisions deem a designated person to “control” an entity (except a foreign state) if one of three thresholds are met:
- The designated person holds, directly or indirectly, 50% or more of the shares or ownership interests in the entity or 50% 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 sanctioned person is able, directly or indirectly and through any means, to direct the entity’s activities.
Authority to Designate Persons Unrelated to the Targeted Foreign State
The Amendments expand the government’s authority to prohibit activities with certain persons unrelated to a foreign state targeted by SEMA sanctions. Currently, the government can enact regulations under the SEMA that impose prohibited activities targeting a foreign state, persons in that foreign state, and nationals of that foreign state that do not ordinarily reside in Canada. The Amendments now permit the Government to designate any person outside Canada that is not Canadian under a country-specific SEMA regulation to prohibit certain activities with that person.
Application of AML Framework for Sanctions Enforcement
The Amendments permit the Minister of Foreign Affairs to disclose any information relevant to the enforcement of sanctions regulations or seizure orders enacted to the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC“). Additionally, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act was amended to enable FINTRAC to share information with the Minister of Foreign Affairs.
- Who is effected by the Amendments?
The Amendments effect all persons that are subject to the SEMA and the JVCFOA:
- individuals, regardless of their nationality, that are physically within Canada’s geographic territory;
- “entities” in Canada (where “entity” means a “body corporate, trust, partnership, fund, an unincorporated association or organization or a foreign state“); and
- “Canadians” outside Canada (wherever located), where Canadian “means a person who is a citizen within the meaning of the Citizenship Actor a body corporate incorporated or continued by or under the laws of Canada or of a province”.[2]
- When do the Amendments come into force?
This Bill received royal assent on June 22, 2023. The Amendments are now in force.
- How do the Amendments effect compliance with the SEMA and the JVCFOA?
Determining what constitutes “control” in the Deeming Provisions for the purposes of the Dealings Prohibition is a fundamental component of compliance with Canadian sanctions legislation. Although the government purports to clarify when an entity is deemed to be owned by a designated person under SEMA and the JVCFOA, the deeming provision is drafted broadly and purports to capture activities that may not indicate control in other commercial scenarios.
Canadian persons that must comply with the SEMA and the JVCFOA must ensure that their sanctions compliance policies and underlying due diligence processes capture the broad scope of the deeming provision. For example, the ability to appoint only one director to a Board of Directors could constitute control under SEMA, section 2.1(2)(b), or the ability to exercise a veto right could constitute control under section 2.1(c).
Canadian persons must also ensure their due diligence processes capture the fact that regulations under the SEMA may also designate nationals from a third country in which the SEMA regulations are not in relation to. For example, Canada recently implemented the Special Economic Measures Moldova Regulations. If the Amendments were in force at the time that these Moldova sanctions entered into force, the government could have opted to designate Moldovan nationals under the Special Economic Measures Russia Regulations, or another SEMA regulation. From a compliance perspective, the country identified in the name of the SEMA regulation may no longer be relevant to determining the nationality of all designated persons listed under that regulation.
[1] Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023, 1st Sess, 44th Parl, 2023 (assented to 22 June 2023).
[2] Citizenship Act, RSC 1985 c, C-29.
