On December 19, 2022, the Minister of Foreign Affairs (the "Minister") announced the intention to seize and consider seeking the forfeiture of approximately US$26 million held in Canada by Granite Capital Holdings Ltd ("Granite") pursuant to Canada's primary sanctions law, the Special Economic Measures Act ("SEMA"). Granite is a company that is reportedly owned by Roman Abramovich ("Abramovich"), who is sanctioned under Canada's Russia sanctions since March 10, 2022. The Minister noted that the assets are dividends held in a bank account in Canada.
This announcement was followed by an order in council the next day restraining funds held by Citco Bank Canada ("Citco") that are owned, held or controlled, directly or indirectly, by Abramovich and credited to a bank account held by Manticore Fund (Cayman) LTD. While not entirely clear, it would appear that the two actions are connected, both dealing with the same amount of money.
These actions, coupled with the Minister's announcement in October 2022 that the government was setting aside C$76 million in funding for a new bureau dedicated to sanctions enforcement, signals a new level of aggressiveness by the Canadian government to deny sanctioned Russian persons access to their assets in Canada.
This bulletin provides details on the law giving rise to these actions and their implications for businesses in Canada.
Canada's Sanctions Seizure & Forfeiture Regime
As detailed in a previous Fasken bulletin, the SEMA underwent extensive amendments in June 2022 that gave the government significant new powers. Among the amendments was the introduction of a mechanism that authorizes the Governor in Council to make an order restraining or seizing property situated in Canada that is owned, held or controlled directly or indirectly by or on behalf of a foreign state, any company in that foreign state, or a national of that foreign state who does not ordinarily reside in Canada.
The Minister may then apply to a superior court to seek forfeiture of the restrained or seized property. So long as the reviewing judge determines that the property is described in the order seizing or restraining the property and that it is owned, held or controlled, directly or indirectly, by the person referred to in the order, the judge must issue the forfeiture order. During this process, however, the court may hear from any person who, in the court's opinion, appears to have an interest or right in the property.
Once forfeited, the SEMA provides that the Minister may liquidate the property and use the proceeds for 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.
The Minister has not indicated whether there will be an application to forfeit the restrained funds. However, the Minister has announced that, if forfeiture is sought, the proceeds would be used for the reconstruction of Ukraine and to compensate victims of Russia's invasion.
As the process for seeking forfeiture under the SEMA requires that notice be given to those with interests in the property and opens the possibility that they may make representations to the court, an application by the Minister to seek forfeiture may be expected to give rise to legal challenges under the SEMA.
Regardless of the Minister's decision to seek forfeiture, as we discussed in our previous bulletin, the amendments to the SEMA indicate that the government intends to aggressively identify and target assets held by sanctioned persons in Canada. Such actions are not limited to persons Canada has sanctioned under its Russia sanctions. In addition to Russia, Canada has sanctioned a total of 13 other countries under the SEMA—including Iran, Haiti, Belarus, Venezuela, and Myanmar—and further seizure and forfeiture claims by Canada against any of these countries or companies or nationals from these countries may be expected.
Consequently, acquiring companies and those seeking to enter joint ventures are on notice to have sanctions clarity on beneficial ownership of corporate targets or partners. Sanctions due diligence and risk arises not only regarding activities abroad, but to wholly domestic transactions involving foreign beneficiaries who have assets in Canada.
Fasken will continue to monitor developments related to the seizure and forfeiture of assets under Canada's sanctions regime and provide updates accordingly.
For guidance concerning the application of Canada's seizure and forfeiture sanctions laws or developing due diligence protocols to minimize sanctions risk, contact Fasken's International Trade Law group.
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.