Introduction
Federal, provincial and foreign insurance companies doing business
in Canada are subject to obligations under what are commonly
referred to as the "Listings and Sanctions Laws" relating
to terrorists, terrorism financiers, and financiers of nuclear
proliferation and weapons of mass destruction (the Listings and
Sanctions Laws). These obligations are in addition to requirements
designed to combat terrorist financing contained in the Proceeds of Crime (Money Laundering) and
Terrorist Financing Act (Canada).
In order to provide guidance to federally-regulated financial
institutions, including insurance companies, in complying with the
Listings and Sanctions Laws, Canada's federal financial
institutions regulator, the Office of the Superintendent of
Financial Institutions (OSFI), recently released an
"Instruction Guide" that provides OSFI's
interpretation of the relevant legal obligations. Specifically, the
Instruction Guide addresses the
legislative requirements relating to identifying designated
persons, prohibited activity with respect to assets of designated
persons and the reporting requirements pertaining to the assets of
designated persons. The Instruction Guide reflected the results of
a consultation with industry stakeholders following the release for
comment of a draft version of the Guide in February 2010.
This Update provides a brief summary of obligations contained in
the Listings and Sanctions Laws and which are the subject of the
Instruction Guide.
Listings and Sanctions Laws
(A) Criminal Code, R.S.C. 1985, c.
C-46.
Freezing property
Part II.1 of the Criminal Code (sections 83.01 to
83.33) contains various provisions respecting terrorism that apply
to Canadian insurance companies. Section 83.05(1) of the Criminal
Code provides a mechanism by which the Governor in Council may
place an entity (defined as a person, group, trust, partnership or
fund, or unincorporated association or organization) on a list of
terrorist entities. Section 83.08(1) of the Criminal Code
prohibits dealing directly or indirectly in any property that is
owned or controlled by or on behalf of a terrorist group (the
definition of "terrorist group" includes, but is not
limited to, a listed entity), entering into or facilitating any
transaction in such property or providing any financial or other
related services in respect of such property to, for the benefit
of, or at the direction of a terrorist group. A person that freezes
property pursuant to section 83.08(1) will not be held liable in a
civil action so long as the person "took all reasonable steps
to satisfy themselves" that the property in question was owned
or controlled by a terrorist group.
Disclosure
Under section 83.1(1) of the Criminal Code, every person
in Canada and all Canadians outside Canada must disclose forthwith,
to the Commissioner of the RCMP and the Director of CSIS, the
existence of property in their possession or control that they know
is owned or controlled by, or on behalf of, a terrorist group.
Information about a transaction or proposed transaction in respect
of such property must also be disclosed. Persons making such
disclosure in good faith are immune from criminal and civil
proceedings.
Audit
Section 83.11(1) of the Criminal Code requires insurance
companies to determine on a continuing basis whether they
are in possession or control of property owned or controlled by, or
on behalf of, a listed entity. While it is unclear how often such a
determination must be made in order to comply with the
requirements, OSFI's Instruction Guide recommends downloading
all applicable lists (including those applicable to the United
Nations Regulations, below) on a weekly basis at a minimum.
According to OSFI, circumstances may dictate more frequent
determinations and new client names should be checked against the
applicable lists "as part of, or as soon as reasonably
possible after, the process of opening new accounts or otherwise
entering into new business relationships." There is no
assurance, however, that the courts will require or accept
OSFI's interpretation of the requirements. Federally regulated
insurance companies must also report on a monthly basis to OSFI
whether they are in possession or control of such property and, if
so, the number of persons, contracts or accounts involved and the
value of the property. Further, according to OSFI, a short or long Form 525 and a short or long Form 590 are to be filed
each month. The relevant short forms are to be used for
"nil" reports where there is no frozen property to be
reported and the relevant long forms are used to file positive
reports. Companies making such disclosure are immune from criminal
and civil proceedings when making reports in good faith.
Offences
Those in contravention of any of the above sections are liable on
summary conviction to a fine of up to $100,000 and/or imprisonment
of one year or, on a conviction on indictment, to imprisonment for
up to 10 years.
B) Regulations under the Special Economic Measures
Act (Canada), S.C. 1992, c. 17.
Section 4(1)(a) of the Special Economic Measures Act (SEMA)
allows the Governor in Council to make orders or regulations
restricting or prohibiting an enumerated list of activities with
respect to a foreign state. The list of activities that may be
prohibited or restricted includes dealing in property held by the
relevant foreign state or a person in the foreign state. To that
end, regulations under SEMA have been made with respect to Burma
(SOR/2007-285) and Zimbabwe (SOR/2008-248) (collectively, the
Special Economic Measures Regulations). Among other things, the
Special Economic Measures Regulations prohibit Canadians from
dealing in the property of designated persons and, in the case of
Burma, from providing or acquiring financial services. Much like
the provisions of the Criminal Code, insurance companies,
among others, must determine on a continuing basis whether they are
in possession or control of property owned or controlled by or on
behalf of designated persons and disclosure requirements also
exist. Again, it is unclear what will satisfy the requirement that
determinations be made on a "continuing basis".
(C) Regulations under the United Nations Act
(Canada), R.S.C. 1985, c. U-2.
The
United Nations Act provides the Governor in Council
with the authority to make orders and regulations necessary or
expedient for enabling United Nations Security Council measures.
Numerous regulations have been made under this legislation to
address Security Council resolutions, including those dealing with
Al-Qaida and the Taliban, Iran, Iraq and North Korea (collectively,
the UN Regulations). Similar to the restrictions discussed above,
the regulations generally prohibit Canadians and persons in Canada
from dealing in property held in the respective state or providing
financial services related to property held in the state.
Core Provisions
The core rules establishing reporting and property freezing
requirements are repeated in substantially the same form in the
relevant Criminal Code provisions, the Special Economic
Measures Regulations, and the UN Regulations. Generally, the only
significant difference relates to the definition of the property or
persons targeted.
"Freezing" of Assets
- no person in Canada and no Canadian outside Canada shall knowingly deal directly or indirectly in any [designated property];
- no person in Canada and no Canadian outside Canada shall knowingly enter into or facilitate, directly or indirectly, any financial transaction related to a dealing in [designated property];
- no person in Canada and no Canadian outside Canada shall knowingly provide any financial services or any related services in respect of any [designated property];
- no person in Canada and no Canadian outside Canada shall knowingly make any property [or any financial or other related service] available, directly or indirectly, to or for the benefit of [a designated person];
Duty to Determine
- every [insurance company] must determine on a continuing basis whether it is in possession or control of property owned or controlled [directly or indirectly] by or on behalf of [a designated person];
Disclosure
- every [insurance company] must report, monthly, to the principal agency or body that supervises or regulates it under federal or provincial law either:
-
- that it is not in possession or control of any [designated property]; or
- that it is in possession or control of such property, in which case it must also report the number of persons, contracts or accounts involved and the total value of the property; and
- every person in Canada and every Canadian outside Canada shall disclose without delay to the Commissioner of the RCMP and/or to the Director of CSIS:
-
- the existence of property in their possession or control that they have reason to believe is owned or controlled [directly or indirectly] by or on behalf of [a designated person]; and
- information about a transaction or proposed transaction in respect of such property.
Variations
Despite similarities, there are some noteworthy variations in the
provisions:
- the regulations in respect of Burma, Côte d'Ivoire, Congo, Eritrea, Liberia, Somalia, Sudan and Zimbabwe do not require monthly reporting on suspicious property to a regulatory body;
- not all regulations require disclosure to the RCMP and/or CSIS, and the regulations in respect of Burma, Eritrea, Somalia, and Zimbabwe require that the possession of property owned by designated persons be disclosed only to the RCMP and not CSIS;
- the equivalent disclosure requirement in the regulations for Iraq requires disclosure to the Department of Foreign Affairs and International Trade (DFAIT) and, unless notified otherwise by DFAIT, ultimately the transfer of such property to the Federal Reserve Bank of New York;
- each statute or regulation imposes a different set of "designated persons";
- "property" is defined differently in the UN Regulations and Special Economic Measures Act;
- the regulations in respect of Terrorism and in respect of Al-Qaida and the Taliban impose additional funding restrictions; and
- under the regulations in respect of Burma, investment in property held by, or on behalf of, a person in Burma is prohibited, as are financial services transactions with persons in Burma, with limited exceptions.
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.