In this post we discuss disclosure obligations under Canadian economic sanctions and anti-terrorism laws, including in respect of financial services providers.
As discussed below:
- There are disclosure obligations that are applicable to all persons in Canada and all Canadians outside of Canada.
- Certain financial services providers are subject to a continuing obligation to determine whether they are in possession or control of property of a designated person and subject to requirements to file regulatory reports with their primary regulator pursuant to Criminal Code and Sergei Magnitsky Law.
- FINTRAC reporting requirements are distinct from reporting requirements under Canada's economic sanctions and anti-terrorism laws.
Generally Applicable Disclosure Obligations
Most economic sanctions are imposed on a jurisdiction-by-jurisdiction basis under the Special Economic Measures Act and the United Nations Act. However, restrictions similar to economic sanctions are imposed under the Freezing Assets of Corrupt Foreign Officials Act, economic sanctions in respect of terrorists are imposed under the Criminal Code (as well as the United Nations Act) and economic sanctions in respect of individuals for engaging in gross human rights violations or significant acts of corruption are imposed under the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law). Persons listed in these sanctions are generally referred to as designated persons or listed persons.
Almost all of these sanctions have generally applicable disclosure obligations that require persons in Canada and Canadians outside of Canada to disclose without delay to the Royal Canadian Mounted Police (or, alternatively, in some cases, the Canadian Security Intelligence Service ("CSIS")):
- property in their possession or control that is owned or controlled by a designated person (in some cases this explicitly includes a requirement in respect of property owned or controlled by a person that is owned or controlled by a designated person); and
- information about a transaction or proposed transaction in respect of any such property.
Continuing Duty to Determine
Most of the above-noted sanctions regimes also impose an obligation on a wide range of financial services providers to determine on a continuing basis whether they are in possession or control of property owned, held or controlled by or on behalf of a designated person. These entities include banks, credit unions and caisses populaires, insurance companies, trust companies, loan companies, money services businesses (in some cases) and entities authorized under provincial legislation to engage in the business of dealing in securities or to provide portfolio management or investment counselling services ("Federally or Provincially Authorized Entities").
Combined with the generally applicable disclosure obligations discussed above, the continuing duty to determine is intended to result in prompt disclosure to law enforcement (or CSIS in some cases) by specified financial services providers. However, not all specified financial services providers are either persons in Canada or Canadians outside of Canada. In particular, some Provincially Authorized Entities are non-Canadian entities located outside of Canada without any personnel in Canada. While such entities are subject to the continuing duties to determine, they are not subject to the generally appliable disclosure obligations except, potentially, if they have another relevant nexus to Canada.
Financial Services Provider Regulatory Filing Requirements
Two of Canada's economic sanctions and anti-terrorism laws, namely the Criminal Code and the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law), impose additional regulatory reporting requirements on specified financial services providers, including in some cases non-Canadian entities that are not subject to the generally applicable disclosure obligations.
The Criminal Code requires that a specified financial services provider 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 property owned or controlled by a listed terrorist entity; 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.
Thus, in many cases, monthly "nil" reports are required to be filed.
The Sergei Magnitsky Law requires that if a specified financial services provider determines that it is in possession or control of any property of a person designated under that statute it must disclose without delay, and once every three months after that, to the principal agency or body that supervises or regulates it under federal or provincial law the fact that it is in possession or control of the property, the number of persons or dealings involved and the total value of the property.
Because a wide range of financial services providers are subject to specific financial service provider regulatory filing requirements with the regulatory body that oversees their business, it follows that a wide range of regulators receive such reports. While some regulators have published forms that are intended to assist parties with filing requirements, in practice it is not always clear exactly what information is required to be filed. When making filings to comply with requirements imposed under the Criminal Code and the Sergei Magnitsky Law, it is helpful to refer to the provision that imposes the requirement, in order to better understand what information is required.
Asset Freezing and FINTRAC Reporting Obligations
This note focusses on disclosure obligations under economic sanctions and anti-terrorism laws. It is important to note that such laws also impose restrictions on dealing with designated persons as well as sectoral and geographic restrictions. In addition, it is important to keep in mind that obligations to report suspicious transactions to FINTRAC pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act are distinct from the obligations discussed in this note.
Conclusion
Disclosure obligations under Canada's economic sanctions and anti-terrorism laws can in some cases be a significant burden on businesses. This is particularly true of financial services providers that are subject to more onerous requirements. Nevertheless, it is important for affected businesses to ensure that they have the processes in place to comply with such obligations, as a failure to comply can lead to criminal charges.
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.
