Global Affairs Canada (GAC) published new guidance clarifying the application of the deemed ownership provisions under Canada’s economic sanctions legislation. The guidance, updated on 13 October 2026, addresses the thresholds for establishing control over an entity, including through aggregated ownership by multiple designated persons, board appointment rights and the exercise of influence. It also provides illustrative scenarios involving indirect ownership structures and potential proxies for designated persons.
Background
Canada’s deemed ownership provisions were introduced into the Special Economic Measures Act (SEMA) and the Justice for Victims of Corrupt Foreign Officials Act (JVCFOA) in 2023. These provisions further extend the reach of the broad dealings prohibitions (SEMA regulations, s. 3 and JVCFOA, s. 2) to entities controlled by designated persons, even where those entities are not themselves designated.
Under subsection 2.1(1) of SEMA, where a person controls an entity other than a foreign state, property owned, held or controlled, directly or indirectly, by that entity is deemed to be owned by that person. The corresponding provision under subsection 2.01(1) of JVCFOA applies where a foreign national controls an entity other than a foreign state. Control is determined when a designated person meets one of three criteria:
- the 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 person is able, directly or indirectly and through any means, to direct the entity’s activities.
As a result, an entity that is not expressly designated under a schedule to SEMA regulations of the JVCFOA, may fall within the scope of applicable dealings prohibitions. The new GAC guidance provides further detail on how control is assessed under these criteria and clarifies that when one of the control criteria are met, the dealings prohibition applies to the entity at issue. Four non-exhaustive scenarios further illustrate how the deemed ownership provisions may apply in practice.
Key elements of the guidance
1. Aggregation of ownership interests held by multiple designated persons
A central clarification in the guidance is that ownership interests held by multiple designated persons should be considered in aggregate when assessing whether the 50% ownership or voting rights threshold is met.
Under the statutory provisions, control may be established where a person holds, directly or indirectly, 50% or more of an entity’s shares or ownership interests, or 50% or more of its voting rights. GAC clarifies that this threshold may be met where multiple designated persons collectively hold the requisite interest, even if no individual designated person holds 50% or more.
For example, where two designated persons each hold 25% of an entity, their combined 50% interest would trigger the deemed ownership provision. The entity may therefore be subject to the relevant dealings prohibitions notwithstanding that neither designated person individually holds a majority interest and the entity is not itself listed.
2. Changing the composition/powers of an entity’s board
In addressing the second statutory criterion, the guidance appears to clarify that a designated person must be able to appoint/remove a majority of the members of an entity’s board of directors, not merely have the ability to nominate or elect a minority.
The guidance identifies three arrangements that may be relevant to assessing whether a designated person can change the composition/powers of an entity’s board, including:
- The right or ability to appoint or remove a majority of the members of an entity’s administrative, management or supervisory bodies.
- The ability to control a majority of shareholder or member voting rights pursuant to an agreement with other shareholders or members.
- The ability to appoint a majority of directors by virtue of being a major shareholder, even where the shareholder holds less than 50% of the entity’s shares.
3. Ability to direct an entity’s activities interpreted as de facto control
The third statutory criterion provides that control may exist where, having regard to all the circumstances, it is reasonable to conclude that a person is able, directly or indirectly and through any means, to direct an entity’s activities. The guidance refers to this as “de facto” influence and provides the following examples of circumstances relevant to this assessment, including:
- A designated person’s ability to direct an entity’s activities because they are its largest shareholder relative to other shareholders.
- Contractual or constitutional arrangements that confer dominant influence to a designated person over the entity’s business (e.g. a provision in the entity’s Articles of Association).
- Buyback clauses in favour of a designated person.
- Transfers of shares before or after designation, particularly where there is no compelling evidence that the transfer was made to an independent third party for fair market value.
- The use of front persons, e.g. family members, business partners or former employees, as apparent owners.
- The use of trusts, shell companies or limited liability companies to obscure connections to a designated person.
These examples highlight the importance of examining the commercial substance of an ownership or governance arrangement, including the identity of the persons who ultimately exercise influence over the entity.
Implications for businesses
The new guidance underscores both the breadth and complexity of Canada’s sanctions deeming provisions. While it provides welcome insight into the factors that Global Affairs Canada considers when assessing deemed ownership and control, it also confirms that compliance may require a deeper examination of governance rights, contractual arrangements, and other indicia of control that are not always publicly available. In light of this guidance, businesses should review and, where necessary, enhance their sanctions due diligence processes to ensure they are capable of identifying ownership and control risks beyond formal shareholdings. Although a growing body of civil jurisprudence has begun to interpret the deeming provisions, the full scope of these rules has yet to be tested in criminal enforcement proceedings. For businesses, the key takeaway is clear: the absence of a party from Canadian sanctions lists does not necessarily mean that transactions with that party are permissible.
