Sanctions In Real Estate: Are Your Transactions Compliant (Part 2-4)?

This article is Part 2 of a four-part series on Canadian sanctions compliance. Part 1 — Overview covered the core legislative framework and how to assess whether your business has sanctions exposure. Part 2 focuses on sanctions risk in real estate transactions.

Why do sanctions matter in Canadian real estate transactions?

Did you know that dealing with property owned or controlled by a sanctioned individual can expose professionals to serious legal consequences, including significant fines and potential criminal liability? In fact, Canadian sanctions enforcement has moved beyond financial institutions and export-focused businesses. Real estate has emerged as a specific area of regulatory focus, and the consequences of non-compliance are serious. Depending on the statute violated, sanctions breaches can result in fines of up to $100,000, imprisonment of up to 10 years, and asset freezes.

As covered in Part 1 of this series, Canada’s sanctions framework rests on three primary statutes: the United Nations Act, SEMA, and the Magnitsky Law, which together prohibit Canadians from dealing in property owned, held, or controlled by designated individuals or entities.

As Canada continues to expand its sanctions regime in response to global events, real estate transactions have emerged as a key area of enforcement. Real estate remains a stable and high-value asset class, making it an attractive vehicle for sanctioned individuals seeking to preserve or conceal wealth. Government guidance has specifically identified the sector as vulnerable to sanctions evasion through intermediaries, shell entities and opaque ownership structures.

For lawyers, brokers, and developers, the risk is no longer theoretical. Sanctions compliance must now be treated as a core component of transaction diligence, not an afterthought.

What legal framework governs sanctions in real estate?

Canada’s sanctions regime operates through a combination of prohibitory and compliance statutes. Real estate transactions in Canada are subject to strict oversight under the Special Economic Measures Act (“SEMA”) and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PCMLTFA”).

SEMA and the Justice for Victims of Corrupt Foreign Officials Act (“Magnitsky Law”) prohibit Canadians from dealing in property owned, held or controlled by designated individuals or entities. These statutes allow Canada to impose sanctions in response to international crises, human rights violations, and corruption.

Complementing these prohibitions, the PCMLTFA imposes active compliance obligations on real estate professionals, including identity verification, record-keeping, and transaction reporting requirements.

Together, these statutes create a layered system. SEMA and Magnitsky Law define what is prohibited, while the PCMLTFA requires professionals to actively detect and prevent violations. Non-compliance with either regime creates independent legal and regulatory exposure. A professional who screens for designated persons but fails to comply with applicable PCMLTFA reporting, record-keeping, or client due diligence obligations may still face regulatory consequences.

What happens when real estate is subject to sanctions?

When a sanctioned individual owns or controls property in Canada, the asset becomes effectively “frozen.”

A frozen property generally cannot be sold, transferred, mortgaged, leased, or otherwise dealt with without authorization. Financial institutions and service providers will often refuse to process transactions involving sanctioned property, making it difficult to use or realize the value of the property.

These restrictions apply to both direct and indirect dealings. A direct dealing may involve buying, selling, leasing, or financing property owned by a sanctioned person. An indirect dealing may arise where a sanctioned person’s interest is hidden through a corporation, trust, nominee, or other intermediary structure. As a result, sanctions risks can exist even where a listed individual does not appear on title.

Importantly, a frozen property is not automatically confiscated. Ownership typically remains unchanged, but the owner’s ability to use, transfer, or monetize the asset is significantly restricted. Since 2022, however, Canada has, in certain circumstances, had the authority to seize, forfeit, and redistribute assets of sanctioned entities, making this distinction increasingly important for parties holding or administering affected property.

What is beneficial ownership, and what hidden risks can it create?

Sanctions risks are not always obvious. Ownership or control may be concealed through corporations, trusts, nominees, or similar arrangements that make it difficult to determine who ultimately controls an asset.

Under Canada’s sanctions regime, ownership is not limited to the person whose name appears on title. SEMA and the Magnitsky Law contain “deemed ownership” provisions that can treat property held by an entity as property of a sanctioned person where that individual controls the entity. Since 2023, a 50% ownership threshold has been codified: if a sanctioned person directly or indirectly holds 50% or more of the shares, ownership interests, or voting rights of an entity, that entity is automatically deemed to be controlled by the sanctioned party. Control may also be established below that threshold where a sanctioned person can influence the composition or powers of the entity’s board or otherwise directs its activities. As a result, real estate held through a corporation, partnership, or real estate investment trust (REIT) may be treated as sanctioned property even where the listed individual does not appear as the registered owner.

Government guidance has highlighted the use of nominees, intermediaries, and layered ownership arrangements to conceal involvement in transactions. For real estate professionals, this means that reviewing title alone is not enough. Effective due diligence requires identifying the ultimate beneficial owners (UBOs) and understanding who exercises control over the entity involved.Canada’s public corporate beneficial ownership registry, launched in recent years, has limited the utility of anonymous shell companies, but does not eliminate the risk entirely, particularly for structures involving foreign entities.

What compliance obligations apply to real estate professionals?

Real estate professionals play an important role in preventing sanctions evasion and financial crime. As part of Canada’s compliance framework, they are expected to conduct appropriate due diligence and monitor transactions for potential risks.

Key obligations include:

• Identity verification (KYC): Confirm the identity of parties and determine whether they are acting on behalf of another person or entity.
• Sanctions screening: Check parties against applicable Canadian sanctions lists.
• Beneficial ownership reviews: Take reasonable steps to identify who ultimately owns or controls the entity involved in the transaction.
• Mandatory reporting: Submit reports to FINTRAC or law enforcement where required.

These obligations may apply to a range of participants in real estate transactions, including brokers, sales representatives, developers, and other reporting entities, depending on their role and applicable regulatory requirements. In many cases, these obligations form part of broader compliance requirements that also apply to financial institutions and other reporting entities under Canada’s anti-money laundering and sanctions regimes.

Compliance is not a one-time exercise. Risks should be reassessed throughout the transaction lifecycle, particularly where ownership changes or new information comes to light.

What are the key red flags in real estate transactions?

Real estate professionals should be alert to the following warning signs:

1. Complex ownership structures

• Offshore corporations, trusts, or nominee purchasers
• Multiple layers of ownership with no clear commercial purpose
• Limited transparency regarding who ultimately owns or controls the property

2. Unusual funding arrangements

• Large cash purchases or unexplained sources of funds
• Funds originating from high-risk jurisdictions
• Payments involving multiple intermediaries or third parties

3. Behavioural indicators

• Resistance to identity verification or beneficial ownership inquiries
• Pressure to accelerate closing timelines without a clear business reason
• Unusual indifference to pricing, transaction costs, or commercial terms

Government guidance has noted that these indicators may signal efforts to conceal beneficial ownership, obscure control of assets, or circumvent sanctions restrictions. Where one or more red flags are present, additional due diligence may be warranted before proceeding with the transaction.

What practical steps can professionals take to manage risk?

Managing sanctions risk requires a proactive approach throughout the transaction lifecycle. Key steps include:

• Conduct enhanced due diligence: Look beyond title and corporate records to identify the ultimate beneficial owner (UBO).
• Screen parties early and throughout the transaction: Perform sanctions screening at the outset of the transaction and again before closing.
• Investigate ownership and control issues: Request additional documentation where ownership structures are unclear or involve multiple layers of entities.
• Respond promptly to red flags: Pause the transaction and seek legal or compliance guidance if concerns arise.
• Maintain thorough records: Document due diligence steps, screening results, and any decisions made in response to identified risks.

A risk-based approach is essential. The level of due diligence should reflect the nature of the transaction, the parties involved, and any indicators of sanctions exposure. By identifying potential issues early, professionals can help reduce the risk of transaction delays, regulatory scrutiny, and potential liability.

Key takeaways for real estate professionals

Five things to implement before your next transaction:

1. Title review is not enough

Reviewing title is not enough. A sanctioned person may not appear on title if they hold or control property through a corporation, partnership, or trust. Effective sanctions screening requires looking beyond the registered owner and reviewing beneficial ownership structures. Under the PCMLTFA and FINTRAC’s beneficial ownership guidance, reporting entities must take reasonable measures to identify individuals who directly or indirectly own or control 25% or more of an entity. This threshold is distinct from the 50% threshold established under SEMA for deemed control of an entity by a sanction person: the former targets identification and reporting obligations, while the latter determines whether a property is subject to sanctions. Accordingly, sanctions due diligence must extend beyond legal title.

2. Screen twice — at opening and at closing

Canada’s sanctions lists change with no advance warning. A party who was clean at the start of a transaction may be designated before it closes.

3. Document every step

Canadian sanctions operate under a strict liability regime. Written, date-stamped records of your screening process and any false positives you cleared are your primary defence if a transaction is later scrutinized.

4. Embed a sanctions termination clause

Every high-value or cross-border real estate agreement should include a clause allowing exit without penalty if a party, owner, or banking intermediary triggers a sanctions match during the transaction period.

5. When in doubt, pause and seek advice

Voluntary disclosure to Global Affairs Canada may be available where a potential breach is identified, but timing and framing matter significantly. Early legal advice can make the difference between a manageable compliance issue and a criminal matter.

Are your current processes sufficient?

Sanctions compliance has become an essential part of real estate transactions in Canada. As ownership structures become increasingly complex and sanctions obligations continue to evolve, risk can arise in transactions that may otherwise appear routine.

The key question is no longer whether sanctions considerations may be relevant, but whether existing due diligence processes are sufficient to identify and address those risks before they disrupt a transaction or create potential liability.

Our team advises developers, investors, lenders, brokers, and other real estate professionals on sanctions compliance, beneficial ownership reviews, transaction due diligence, and risk management. Whether you are purchasing, selling, financing, developing, or advising on real estate assets, we can help you identify potential exposure, strengthen internal processes, and navigate sanctions-related issues before they affect your transaction.