As explained in our recent insight on the 2022 Canadian Federal Budget, on April 7, 2022, the Federal Government of Canada released Budget 2022: A Plan to Grow Our Economy and Make Life More Affordable. The Budget sets the fundamental groundwork of the Federal Government's goals for national economic development, promising continued investment in economic growth and innovation in Canada. Among the changes introduced in Bill C-19, titled the Budget Implementation Act, 2022, No. 1 (Budget Implementation Act, 2022), are significant amendments to the Special Economic Measures Act and the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) as well as corresponding changes to the Seized Property Management Act. If enacted, the legislation would introduce a host of changes, including notably:
- a new "purpose" clause that describes the legislative and policy objective of the statute;
- an amendment to the definition of "property";
- revisions that broaden the scope of orders and regulations that can be made with respect to seized property, provide a new power for forfeiture orders for seized property and outline the authorized uses of the proceeds of forfeited property; and
- enhanced enforcement powers.
The proposed changes come shortly after a joint statement published by Ministers from Canada, Australia, United States, United Kingdom, France, Germany, Italy and Japan as well as European Commissioners. This Russian Elites, Proxies and Oligarchs Task Force (REPO Taskforce) pledged their commitment to "find, restrain, freeze, seize and, where appropriate, confiscate or forfeit the assets of those individuals and entities that have been sanctioned in connection with Russia's premeditated, unjust and unprovoked invasion of Ukraine" in an attempt to bar these persons from accessing their resources and wealth abroad. Specifically, the Budget announced the Federal Government's intent to clarify the ability of the Minister of Foreign Affairs to cause the forfeiture and disposal of assets held by sanctioned individuals and entities and support Canada's participation in the REPO Taskforce.
Details of Proposed Changed Introduced by the Budget Implementation Act, 2022
Special Economic Measures Act
The amendments to the Special Economic Measures Act (SEMA) proposed by the Budget Implementation Act, 2022 are significant and notably, will enable the Government of Canada to compel the forfeiture of seized or restrained assets belonging to sanctioned individuals or entities. The changes would make Canada the first among the Group of Seven countries to provide for forfeiture and distribution of frozen assets of those subject to sanctions. Considerations already being raised about the proposed measures include whether forfeiting and paying out assets undermines the leverage to change behaviour that comes from the possibility of assets being unfrozen in the future, and whether compelling the production of information without a warrant raises concerns about unreasonable search and seizure.
Some of the key proposed changes are:
- Re-defining "Property"
"Property" is currently defined as "any real or personal property." The proposed amendments would amend and broaden the definition to include any type of property, "whether real or personal or immovable or movable, or tangible or intangible or corporeal or incorporeal and includes money, funds, currency, digital assets and virtual currency." The primary expansion contained in the new definition is the inclusion of intangible or incorporeal assets, including digital assets and virtual currency, which arguably may not have been caught by the previous definition. - Forfeiture orders
The proposed amendments would create a power for a Minister to apply to the Superior Court of the relevant province for an order for forfeiture of seized or restrained property to the federal Crown. The proposed amendments do not, however, contain criteria to guide the decision of the Minister regarding circumstances in which forfeiture should be sought. There are provisions requiring notice of a forfeiture application to parties appearing to have a right or interest in the property. The proposed amendments also provide for an application by a person with an interest in or right to forfeited property, other than the designated person who owned or controlled the property, for a court order for compensation from the Minister. - Application for review
Individuals and entities whose property is the subject of a seizure or restraint order under para. 4(1)(b) of the Act would be able to apply to the Minister to request that the property cease being the subject of the order made under that paragraph. Again, the criteria for "reasonable grounds" upon which the Minister may grant such an application are not specified in the proposed amendments. The review decision of the Minister would be subject to judicial review under the Federal Courts Act. - Payment of proceeds from seized property
The proceeds of forfeited property would only be paid out and allocated for specific purposes that are limited to: 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. This would potentially authorize the Government of Canada to use the proceeds to assist, for example, in reconstruction efforts in Ukraine. - Enhanced Enforcement Powers: Information Sharing and
Compelled Disclosure
Further proposed amendments include a provision enabling the collection and sharing of information across Federal Government agencies and departments, including the Ministry of Finance, the Ministry of Foreign Affairs, the Canadian Security Intelligence Service (CSIS), the Canada Border Services Agency (CBSA) and the Royal Canadian Mounted Police (RCMP). In addition, the proposed amendments would create a new role for the RCMP, allowing them to assist the Minister in matters related to the making of a forfeiture order. Similarly, the powers granted to the Minister of Foreign Affairs would be broadened to include the ability to compel individuals to provide any information that that Minister believes, on reasonable grounds, is relevant for making, administration or enforcement of a forfeiture order. - Adding a purpose clause
The proposed amendment would introduce a new purpose clause affirming and enabling the Government of Canada's commitment to "take economic measures against certain persons in circumstances where an international organization of states or association of states of which Canada is a member calls on its members to do so, a grave breach of international peace and security has occurred, gross and systematic human rights violations have been committed in a foreign state or acts of significant corruption involving a national of a foreign state have been committed." Having an explicit statement of purpose in the legislation will assist the interpretation of the statute and enable courts in the future to assess the scope of conduct prohibited or restricted by the SEMA in light of the intended purpose of the legislation. - Clarifying the broad scope of orders and
prohibitions
At present, the Governor in Council may seize, freeze or sequester any property situated in Canada that is held by or on behalf of a foreign state, a person in that foreign state or a national of the foreign state who does not ordinarily reside in Canada, if the Governor believes that certain conditions, such as a grave breach of international peace and security, have occurred. The proposed amendments replace the concepts of "freeze or sequester" with the broader concept of "restrain," and clarify that the power to seize or restrain (and the prohibition on "dealing in") would apply to any property situated in Canada that is "owned—or that is held or controlled, directly or indirectly—by" a foreign state, a person in that foreign state or a national of the foreign state who does not ordinarily reside in Canada.
Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law)
Similar amendments have been proposed for the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law). These amendments include the same new definition of "property" as well as broadening the concept of property capable of being seized to include property that is "owned—or that is held or controlled, directly or indirectly—by" a foreign national. Similarly, the proposed amendments would provide for an application to have property cease to be the subject of a seizure or restraint order. The proposed amendments would put in place the same type of process for forfeiture orders, and similar provisions enabling the collection and sharing of information across government agencies and departments as well as enabling the RCMP to assist the Minister and allowing the Minister to compel persons to provide information.
Under the proposed amendments, the proceeds of forfeited property would only be paid out and allocated to compensate victims of the circumstances for which the Act allows the Governor in Council to make order or regulations. These circumstances include, for example, where a foreign national is responsible for or complicit in gross violations of human rights or where a public official is responsible for or complicit in acts of significant corruption.
Related Proposed Legislation: Bill S-217
In parallel, there has been a recent call on the House of Commons to expedite the review and passing of a new law that would provide a mechanism for confiscating "billions of dollars of frozen Russian assets and use them to build Ukraine." Formally known as Bill S-217 "An Act respecting the repurposing of certain seized, frozen or sequestrated assets," the proposed legislation was introduced in November 2021 and is now on course to be passed by the Senate, which means it will soon be headed for subsequent consideration in the House of Commons.
Bill S-217, the proposed Frozen Assets Repurposing Act, is intended to provide for the reporting and disposition of assets seized, frozen or sequestrated under the Special Economic Measures Act, the Freezing Assets of Corrupt Foreign Officials Act and the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law).
Bill S-217 was introduced by Senator Omidvar and is not a government bill. It is intended to achieve the same goal as the amendments to the sanctions regime proposed by the Budget Implementation Act, 2022, namely, to provide a regime by which certain property related to international human rights abuses that is seized, frozen or sequestrated under Canadian law may be repurposed. The bill would also apply to property frozen under the Freezing Assets of Corrupt Foreign Officials Act.
To achieve this goal, Bill S-217 proposes that, on application of the Attorney General of Canada, a judge or justice of the Superior Court of the province in which a frozen asset is located may order that the frozen asset is paid into court, sold, or otherwise dealt with as the court considers appropriate if it is proven that the asset is associated with a foreign national responsible for or complicit in corruption, forced displacement of peoples or certain violations of human rights.
Any proceeds paid into court under the Act would be limited to allocations towards benefitting persons harmed or otherwise disadvantaged by the actions of a foreign national, supporting humanitarian relief, the relief of forcibly displaced persons or assisting a foreign state in accommodating refugees.
As compared with the proposed amendments to the SEMA in the Budget Implementation Act, 2022, Bill S-217 gives a significant role to the courts to craft orders in their discretion under which frozen assets paid into court would be distributed. It also broadens the basis on which assets could be forfeited to include forced displacement of persons.
Bill S-217 is currently at third reading in the Senate. If it is adopted by the Senate it would then move to the House of Commons for consideration. However, if Parliament passes the proposed amendments in the Budget Implementation Act, 2022, then it is unlikely that Bill S-217 would proceed. The Minister of Foreign Affairs has already indicated publicly that the Budget Implementation Act, 2022 amendments are intended to build on Senator Omidvar's work.
Next Steps
The amendments proposed in the Budget Implementation Act, 2022 have the potential to affect the operations of Canadian businesses that trade with, provide services to or engage in financial transactions with organizations and individuals associated with sanctioned persons, including those who have interests in property that is also owned, held, or controlled—directly or indirectly—by entities and individuals subject to sanctions. Businesses should evaluate their current exposure in sanctioned regions and monitor developments closely.
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.
