Federal Government Granted New Powers To Seize, Forfeit And Sell Property Of Sanctioned Persons - Export Controls & Trade & Investment Sanctions

On June 23, 2022, the federal government amended the Special Economic Measures Act (SEMA) and the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) (the JVCFOA) (the Acts) to, among other things, create new powers for the Minister of Foreign Affairs (the Minister) to seize the property of designated persons under the Acts, to require the forfeiture of such property to the Minister and to sell the forfeited property for certain enumerated purposes. The amendments to the Acts (the Amendments) come in the aftermath of the Russian invasion of Ukraine, which has resulted in an increased number of Russian individuals and entities subject to Canadian economic sanctions, and a considerable growth of the types of prohibitions set out in the SEMA with respect to Russia, Belarus and Ukraine.

What you need to know

The Amendments create a significant expansion in the nature and application of Canadian sanctions laws and the powers of the Canadian government with respect to property of sanctioned persons.
The Acts have been amended to allow the Minister to seize property of sanctioned persons, to create a process to require the forfeiture of this property to the federal government and to enable the Minister to sell forfeited property and to use the proceeds to advance international peace and security, under SEMA, or to compensate victims of gross human rights violations under the JVCFOA.
The Amendments grant the Minister the power to require any person to provide any information that the Minister reasonably believes is relevant for imposing sanctions or a seizure order.
The definition of "property" in the Acts has been expanded to include digital assets and virtual currency.
The Amendments demonstrate an increased focus on information sharing between several federal Ministers and federal agencies, such as the Canadian Security Intelligence Service (CSIS) and the Superintendent of Financial Institutions.

Recent developments in Canadian sanctions against Russia

As a result of the war in Ukraine, the Canadian government has increased sanctions against Russia and Russian-related individuals and entities, greatly expanding both the lists of "designated persons" under the regulations to SEMA with respect to Russia, Belarus and Ukraine and the types of prohibitions set out therein. Broadly speaking, Canadians are restricted from dealing with, or, engaging in any activity related to, listed individuals and entities, and the provision of goods and financial or related services to such persons. Canada has recently listed more than 1,000 additional Russian-related individuals and entities as "designated persons" under the regulations to SEMA and has considerably broadened the restrictions in dealings with certain entities including Russian financial institutions. In addition, the Canadian government has imposed several new trade sanctions against Russia and any person in Russia, including:

prohibiting the import of certain listed petroleum products from Russia or any person in Russia into Canada;
banning the export of certain goods and technology relating to, among other things, electronics, telecommunications, and transportation, to Russia and Belarus or any person in Russia or Belarus, as set out in the Restricted Goods and Technologies List;
imposing import and export restrictions on certain luxury goods to and from Russia or any person in Russia, including the import of items such as caviar and vodka, and the export of items including textile products, sportswear and footwear, and, unlike the U.S. and the European Union, Canada has not set a dollar threshold for these prohibited items, resulting in broad trade restrictions with respect to these goods; and
restricting the provision of certain services, such as advertising and management consulting services relating to specific industries, including oil, chemicals and gas, to Russia or any person in Russia.

Canada also announced last week that it will be banning certain gold imports from Russia in coordination with the United States, United Kingdom, and Japan.

Seizure, forfeiture and sale powers

Prior to the Amendments, the federal government's powers with respect to property of sanctioned persons were limited to the imposition of asset freezes in certain cases. Now, under the Acts, the Minister can, by order, seize any property in Canada that is directly or indirectly owned, held or controlled by a foreign state, any person in that foreign state, or a foreign national who does not ordinarily reside in Canada, under SEMA, or by a foreign national, under the JVCFOA. In each case, once the property is seized, the Minister can apply to a judge of a superior court in the province where the property is situated for the forfeiture of the property to the federal government so long as the Minister can prove that (a) the property is subject to a seizure order made by the Minister and (b) the property is directly or indirectly owned, held or controlled by the person described in the order. Given these requirements, the Amendments have created a very low threshold for the government to obtain a forfeiture order.

The Amendments also set out procedural requirements for giving notice to anyone, other than the sanctioned person, who has an interest in, or right to the property in question, such as a creditor, and provides rights to those persons to reclaim portions of the proceeds, and ensuring that all secured and unsecured rights and interests in the property are maintained. The person whose property has been seized is also given rights in the Acts to request that the property cease being subject of that order.

Further, if the Minister is successful in obtaining an order, both Acts allow the seized and forfeited assets to be sold by the Minister and to use and repurpose the proceeds for certain purposes. Under SEMA, the purposes are:

the reconstruction of a foreign state adversely affected by a grave breach of international peace and security;
the restoration of international peace and security; and
the compensation of victims of a grave breach of international peace and security, gross and systematic human rights violations or acts of significant corruption.

The Minister can also enter into an agreement with a foreign state to ensure the proceeds from the forfeited sanctioned assets are used for these purposes.

Under the JVCFOA, the profits from the seized assets can be used towards compensation for victims of certain gross violations of human rights, including extrajudicial killings and torture. The Minister can also enter into an agreement with any person who receives the proceeds to ensure that the proceeds are only used for compensation of these victims.

New definition of property

The Amendments create a new definition of "property" under the Acts, which now includes digital assets and virtual currency, as opposed to the former definition in SEMA of "real or personal property" and an absence of a definition of property in the JVCFOA. Property under the Acts now will formally include virtual currencies, including non-fungible tokens (NFTs) and cryptocurrency. However, this new definition is likely for greater certainty, as we would expect a court to interpret the prior definition of property to include virtual currencies.

Focus on information sharing and information gathering

The Amendments place a greater emphasis on information sharing among federal agencies and information gathering on the part of the Minister. Namely, the Amendments focus on the coordination amongst the various agencies involved in sanctions administration and enforcement, as the Acts now include a "sharing of information" section to enable certain ministers, including the Minister and the Minister of Finance, to share information with the director of CSIS, the chief of the Communications Security Establishment, the president of the Canada Border Services Agency and the Superintendent of Financial Institutions. Additionally, the Amendments grant the Minister new broad information gathering powers to require any person to provide information that the Minister reasonably believes is relevant for the purposes of the making, administration or enforcement of sanctions or an order for seizing property. These new information gathering powers may have implications for financial institutions (FIs), which currently must report the existence of property of sanctioned persons in their possession or control, or information relating to a transaction or proposed transaction respecting such property, to the Royal Canadian Mounted Police (RCMP) or CSIS.

We note that sanctions laws generally are evolving at a rapid pace and are likely to do so for the foreseeable future, which gives rise to commercial and reputational uncertainty for Canadian businesses, who are subject to Canadian sanctions laws. Canadian businesses are expected to keep up-to-date with updates to Canadian sanctions laws to ensure compliance.

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