In this post we look at the latest sanctions-related developments relating to the invasion of Ukraine. These restrictions are in addition to those already imposed in relation to Russia, Belarus and Ukraine under the Special Economic Measures Act ("SEMA") as described in our blog posts of February 25, March 3, March 4, March 15 and March 21.

As discussed below, the new developments include:

  • The issuance by FINTRAC of guidance on compliance with money laundering laws as they may relate to sanctions evasion by persons designated under economic sanctions laws;
  • More Russians and Belarusians have become designated persons;
  • New prohibitions in relation to restricted goods and technology;
  • The withdrawal by Export Development Canada ("EDC") of export finance support for Russia and Belarus (EDC will continue to support Ukraine); and
  • The prohibition of insurance and reinsurance in relation to Russian and Belarusian aircraft.

FINTRAC Issues Special Bulletin on Russia-linked Money Laundering Related to Sanctions Evasion

We previously reported that FINTRAC entered into a statement of intent with the financial intelligence units of the other G7 members, as well as those of Australia, New Zealand and the Netherlands, to enhance financial intelligence on sanction-related matters and associated financial flows and economic activities. FINTRAC has since issued a Special Bulletin on that topic. Highlighting the potential application of Canadian money-laundering and proceeds of crime laws to sanctions violations, the Special Bulletin notes that:

  • Attempts to evade sanctions imposed against Russian individuals and entities are likely to be conducted through the use of intermediary jurisdictions to set up complex networks of shell and front companies (often registered to addresses in offshore financial centres or tax havens) and non-resident bank accounts (generally located in jurisdictions known to cater to Russian-speaking customers).
  • In order for money laundering to occur in the context of sanctions evasion, the sanctions evasion would either need to be attempted or committed using proceeds of crime (as defined in the Criminal Code, which includes proceeds of crimes committed outside of Canada), or the sanctions evasion would need to give rise to or generate proceeds of crime that would then be laundered or attempted to be laundered.
  • Alternative financial channels – among them, cryptocurrencies and other emerging financial technologies – may also play an important role in Russia-linked illicit financial flows related to the proceeds of crime.

The Special Bulletin describes several risk factors that may be relevant to assessing money laundering risks any particular case:

  • The involvement of legal firms, including company service providers based in offshore financial centres, that have historically specialized in Russian clientele or in transactions associated with Russian elites and their associates.
  • A pattern of shell companies registered in traditional tax havens conducting international wire transfers using financial institutions in jurisdictions distinct from the company's registration (i.e., non-resident banking) and associated with Russian financial flows.
  • Jurisdictions with low barriers to set up shell companies as general trading companies with particular attention being paid to entities located in international trade hubs with noted anti-money laundering deficiencies, including the 23 jurisdictions recently highlighted by the Financial Action Task Force (which include the Cayman Islands, Turkey and the UAE) or in jurisdictions that have seen a recent decline in accountable governance and democratic development (which is a rather general consideration of potentially wide application but still worth considering when assessing compliance risk).
  • Accounts with financial institutions or in jurisdictions associated with Russian financial flows that are experiencing a sudden rise in the value being transferred to their respective institutions or areas, without a clear economic or business rationale. The Special Bulletin also states that some Russia-linked individuals and entities have been known to use real-estate transactions for money laundering purposes.

More Russians and Belarusians Have Been Designated

Canada has designated more Russians and Belarusians under its economic sanctions laws. Currently there are 735 Russian individuals and 136 Russian entities that have been sanctioned by Canada under SEMA. In the case of Belarus, 146 Belarusian individuals and 37 Belarusian entities are currently sanctioned under SEMA.

Restricted Goods and Technologies List

The SEMA Russia and Belarus Regulations now include, subject to certain exceptions, prohibitions on exporting, selling, supplying or shipping any goods on the Restricted Goods and Technology List or to provide any technology on that list to Russia or Belarus or to any person in Russia or Belarus.

Withdrawal of Export Finance Support

Export Development Canada together with the export credit agencies of the U.K. and the U.S. have withdrawn new export finance support for Russia and Belarus while retaining such support for Ukraine.

Prohibition on Insurance for Russian and Belarusian Aircraft

Canada has prohibited the provision of insurance or reinsurance to Russia or any person in Russia in relation to goods described in Chapter 88 of the Harmonized Commodity Description and Coding System, published by the World Customs Organization, or in relation to technology for a good described in that chapter. This mainly relates to aircraft and spacecraft.

Conclusion

Canada continues to enact new restrictions in relation to Russia's war in Ukraine. Compliance with such laws, and also with money laundering laws that may be triggered in relation to sanctions evasion, continues to be important for Canadian businesses.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.