Executive Summary

The steps that the Canadian government has recently taken under the Emergencies Act in relation to blockades that are stated to be occurring in places throughout Canada pose significant compliance challenges for financial services providers. Firstly, they are required to cease dealings with persons who have participated in certain newly prohibited activities, and it will be challenging for financial services providers to make these determinations. At this point, it is unclear whether government institutions will provide lists of names. Further, some financial services providers will have new reporting obligations to FINTRAC1. Platform fund raisers (e.g., crowdfunding platforms) and payment processors will also be required to register with FINTRAC as domestic or foreign "money services businesses" if not already registered.

It is possible that the new rules will not be confirmed by Parliament or that there will be changes in the coming days and weeks. It will be important to stay abreast of developments. In the meantime, financial service providers will need to carefully assess their obligations pursuant to the steps taken under the Emergencies Act.

Background

In response to continuing protests and blockades in the city of Ottawa and at certain Canada-U.S. border crossings, and pursuant to the extraordinary powers granted to it under the Emergencies Act, the Government of Canada has ordered that certain types of financial services providers - including banks, credit unions, insurers, foreign exchange business, fund remitters, virtual currency and securities dealers, platform fund raisers, payment processors and others - cease the provision of certain services that the Government believes are facilitating the blockades.

Specifically, the order requires the financial services providers to immediately cease:

(a) dealing in any property, wherever situated, that is owned, held or controlled, directly or indirectly, by a designated person or by a person acting on behalf of or at the direction of that designated person;
(b) facilitating any transaction related to a dealing referred to in paragraph (a);
(c) making available any property, including funds or virtual currency, to or for the benefit of a designated person or to a person acting on behalf of or at the direction of a designated person; or
(d) providing any financial or related services to or for the benefit of any designated person or acquire any such services from or for the benefit of any such person or entity.

These restrictions are imposed under an order (the "Order") and regulations (the "Regulations") made by the government on February 15, 2022, following a proclamation (the "Proclamation") made under the Emergencies Act declaring that a public order emergency exists throughout Canada that necessitates the taking of special temporary measures for dealing with the emergency. While the restrictions imposed under the Regulations are accompanied by enforcement provisions designed to encourage compliance, and violations of the Order can be prosecuted under the Criminal Code, the requirements lack clarity, give rise to significant questions for affected entities and are likely to raise many legal issues. This note focusses on issues that are most likely to be of relevant to businesses.

Grounds for Declaring a Public Order Emergency

The Proclamation, made on February 14, 2022 and a necessary precursor to Order and Regulations, states that the public order emergency is constituted by:

(a) the continuing blockades by both persons and motor vehicles that is occurring at various locations throughout Canada and the continuing threats to oppose measures to remove the blockades, including by force, which blockades are being carried on in conjunction with activities that are directed toward or in support of the threat or use of acts of serious violence against persons or property, including critical infrastructure, for the purpose of achieving a political or ideological objective within Canada;
(b) the adverse effects on the Canadian economy - recovering from the impact of the pandemic known as the coronavirus disease 2019 (COVID-19) - and threats to its economic security resulting from the impacts of blockades of critical infrastructure, including trade corridors and international border crossings;
(c) the adverse effects resulting from the impacts of the blockades on Canada's relationship with its trading partners, including the United States, that are detrimental to the interests of Canada;
(d) the breakdown in the distribution chain and availability of essential goods, services and resources caused by the existing blockades and the risk that this breakdown will continue as blockades continue and increase in number, and
(e) the potential for an increase in the level of unrest and violence that would further threaten the safety and security of Canadians.

Requirements Under the Order

While the Order requires that types of financial services providers listed above cease the prescribed activities in respect of designated persons, it does not provide a list of designated persons. Rather it defines "designated persons" as any individual or entity that is engaged, directly or indirectly, in an activity prohibited by sections 2 to 5 of the Regulations (a "Prohibited Activity"). While many financial services providers already screen counterparties for designated persons status under economic sanctions and anti-terrorism laws, such laws generally require the Government to provide the names of designated persons (hence their description as "designated").

Identifying persons engaged in Prohibited Activities

The immediate challenge for financial service providers will be to assess what steps they must take to identify persons who are engaged directly or indirectly in a Prohibited Activity. The Order provides that Canadian federal, provincial and territorial institutions may disclose information to financial services providers described in the Order, if the disclosing institution is satisfied that the disclosure will contribute to the application of the Order. Presumably this disclosure will involve names of persons allegedly involved in Prohibited Activities. Financial services providers will, on receipt of such disclosure, have to decide whether to act on the basis of the information it contains - a decision that may present some serious challenges given that non-compliance with the Order is subject to prosecution.

The RCMP has reportedly circulated a list of cryptocurrency wallets to financial service providers in order that these providers cease facilitating transactions in relation to the listed wallets. At this time, it is unclear whether names of persons have been provided. It would be understandable if the government has chosen not to name specific individuals on the basis that at this point they would merely be persons alleged by the government to have committed crimes, but who would not have been convicted of such crimes. However, leaving it to financial service providers to investigate their customers or to rely on lists of names, not set out in any law, that are provided by law enforcement or other government agencies is extraordinary, particularly given the potential to be prosecuted for dealing with such persons.

Financial services providers described in the Order must also determine on a continuing basis whether they are in possession or control of property that is owned, held or controlled by or on behalf of a designated person. This likely requires daily screening by financial services providers of whatever names are available to them of persons who are allegedly engaged in Prohibited Activities.

Expanded FINTRAC MSB registration and reporting requirements

The Order also requires platform fund raisers (e.g., crowdfunding platforms) and payment processors to register with FINTRAC as "money services businesses" and report to FINTRAC the transactions and information similar to what is already required of money service providers, namely transactions of certain descriptions generally in the amount of C$10,000 or more, whether or not they are suspicious transactions.

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act and related regulations require that both Canadian and foreign businesses that are captured by the definitions of "money services business" (for domestic businesses) or "foreign money services business" register in that capacity with FINTRAC.

In particular, under the Order, foreign crowdfunding and crypto trading platforms may be subject to registration as a "foreign money services business" if they are:

"persons and entities that do not have a place of business in Canada, that are engaged in the business of providing at least one of the following services that is directed at persons or entities in Canada, and that provide those services to their clients in Canada:

(i) foreign exchange dealing,
(ii) remitting funds or transmitting funds by any means or through any person, entity or electronic funds transfer network,
(iii) issuing or redeeming money orders, traveller's cheques or other similar negotiable instruments except for cheques payable to a named person or entity,
(iv) dealing in virtual currencies, or
(v) any prescribed service".

Requirements to report to the RCMP and CSIS

Financial services providers described in the Order must disclose without delay to the Commissioner of the Royal Canadian Mounted Police or to the Director of the Canadian Security Intelligence Service:

(a) the existence of property in their possession or control that they have reason to believe is owned, held or controlled by or on behalf of a designated person; and
(b) any information about a transaction or proposed transaction in respect of property referred to in paragraph (a).

It is noteworthy that the above-described provisions of the Order are apparently made under the authority in the Emergencies Act to make orders in relation to "the use of specified property". Whether these provisions would be found by a Court to be lawfully made under that authority remains to be seen.

Immunity from civil proceedings for compliance with order

The Order also provides that no proceedings under the Emergencies Act and no civil proceedings lie against an entity for complying with the Order. Consequently, financial service providers may decide, possibly reluctantly in some cases, to act on lists of names provided by governmental institutions or other names that come to their attention as persons alleged to be engaged in Prohibited Activities.

No punishment is specified by the Order. Contraventions can be prosecuted under s. 127(1) of the Criminal Code, which provides:

Every one who, without lawful excuse, disobeys a lawful order made by . a person or body of persons authorized by any Act to make or give the order, . is, unless a punishment or other mode of proceeding is expressly provided by law, guilty of
(a) an indictable offence and liable to imprisonment for a term not exceeding two years; or
(b) an offence punishable on summary conviction.

The use of "disobeys" likely means that in a prosecution it would be necessary to prove mens rea, or criminal intent, which can be understood as a need to prove morally blameworthy conduct.

Provisions of the Regulations

The Regulations identify the following types of Prohibited Activities:

Public assemblies that may reasonably be expected to lead to a breach of the peace

The Regulations prohibit persons from participating in certain defined types of public assemblies ("Prohibited Assemblies"). The Regulations define such assemblies as those that may reasonably be expected to lead to a breach of the peace through:

  1. the serious disruption of the movement of persons or goods or the serious interference with trade;
  2. interference with the functioning of critical infrastructure; or
  3. support of the threat or use of acts of serious violence against persons or property.

The Regulations define "critical infrastructure" broadly as any of the following infrastructure, including the land on which they may be located:

  1. airports, aerodromes, heliports, harbours, ports, piers, lighthouses, canals, railway stations, railways, tramway lines, bus stations, bus depots and truck depots;
  2. infrastructure for the supply of utilities such as water, gas, sanitation and telecommunications;
  3. international and interprovincial bridges and crossings;
  4. power generation and transmission facilities;
  5. hospitals and locations where COVID-19 vaccines are administered;
  6. trade corridors and international border crossings, including ports of entry, ferry terminals, customs offices, bonded warehouses, and sufferance warehouses.

While in some cases it will be clear that a proposed public assembly would be prohibited by the Regulations (e.g., a proposed blockade of a border crossing, railway or airport operations), in others it will be uncertain (e.g., a proposed pedestrian protest along a street in a city that is intended to last for a few hours). Further, assembly participants may be charged with offences based on facts unknown to them at the time they determined to attend an assembly, whether such facts existed before the assembly or relate to what actually transpired, perhaps unexpectedly to some participants of an assembly. In many cases, therefore, it may be very difficult (or impossible) for financial services providers to assess whether a person alleged to have participated in a Prohibited Assembly is a "designated person" for purposes of the Order. As noted above, this may leave financial service providers to assess whether they should rely on names of persons provided by governmental institutions as having participated in a Prohibited Assembly when deciding which of the people they deal with should be regarded as "designated persons".

Foreign nationals

The Regulations prohibit foreign nationals from entering Canada with the intent to participate in or facilitate an assembly that may reasonably be expected to lead to a breach of the peace in any of the ways specified by the Regulations.

The difficulties posed for financial service providers to assess whether a client is a foreign national who has entered Canada with the intent to participate in an assembly are similar to those in relation to the prohibition in relation to public assemblies that are reasonably expected to lead to a breach of the peace.

Travel in relation to prohibited assemblies

The Regulations prohibit persons from travelling to or within an area where a Prohibited Assembly referred to in subsection 2(1) is taking place.

This prohibition also raises challenges of application for persons who may be considering attending an assembly and for financial services providers in determining what is required to comply with the Order. For example, is travelling to a border crossing where a protest is expected in order to cross the border prohibited under the regulations? If a person finds themselves in an assembly that clearly becomes a Prohibited Assembly may that person travel through the area where the assembly is occurring with the intention of departing?

Supporting prohibited assemblies

The Regulations prohibit persons from directly or indirectly using, collecting, providing, making available or inviting a person to provide property to facilitate or participate in any Prohibited Assembly or for the purpose of benefiting any person who is facilitating or participating in such an activity.

The Regulations also:

  • Authorize the securing of various sites such as critical infrastructure, government buildings and war memorials; on February 17, 2022 it was reported that a fence was being erected around Parliament Hill.
  • Require persons, for compensation, to make available and render the essential goods and services requested by the Minister of Public Safety and Emergency Preparedness, the Commissioner of the Royal Canadian Mounted Police or a person acting on their behalf for the removal, towing and storage of any vehicle, equipment, structure or other object that is part of a blockade.

In the case of a failure to comply with the Regulations, any peace officer may take the necessary measures to ensure the compliance with these Regulations and with any provincial or municipal laws and allow for the prosecution for that failure to comply.

This new power is likely intended to provide law enforcement with authority to end Prohibited Assemblies. In other words, in addition to the more usual law enforcement activities of investigating and laying charges in relation to unlawful actions, law enforcement will be empowered to enforce compliance with the law. Often these kinds of enforcement orders are made by courts. This will pose challenges for law enforcement, who will not be able to rely on a judicial decision and will instead need themselves to make a determination as to whether the law is being breached before taking actions to end assemblies. Law enforcement's preference and ability to secure peaceful resolutions, without forcing compliance but with charges laid where warranted, can be seen in the conclusion of border blockades prior to the making of the Proclamation.

The Regulations also create an offence for failure to comply with them. This is an offence created not by Parliament, but by Canada's executive government. The penalty for failure to comply with the Regulations is:

(a) on summary conviction, to a fine not exceeding five hundred dollars or to imprisonment for a term not exceeding six months or to both; or
(b) on indictment, to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding five years or to both.

Of note is that the Regulations set out this punishment for mere failures to comply; they do not require that the failure be willful. This may indicate that Cabinet intends that these be strict liability offences, meaning that the prosecutor would not have to prove criminal intent or morally blameworthy conduct. A court will have to determine the nature of these offences and whether prosecutors will have to prove criminal intent.

Additional Background

Key definitions

The Emergencies Act gives the Governor in Council, i.e., the Cabinet or Canada's executive government, the power to make a proclamation that there is a public order emergency. This type of "emergency" is defined as arising from threats to the security of Canada that are so serious as to constitute a national emergency. "Threats to the security of Canada" is defined on the basis of the definition of that term in the Canadian Security Intelligence Service Act, namely:

(a) espionage or sabotage that is against Canada or is detrimental to the interests of Canada or activities directed toward or in support of such espionage or sabotage,
(b) foreign influenced activities within or relating to Canada that are detrimental to the interests of Canada and are clandestine or deceptive or involve a threat to any person,
(c) activities within or relating to Canada directed toward or in support of the threat or use of acts of serious violence against persons or property for the purpose of achieving a political, religious or ideological objective within Canada or a foreign state, and
(d) activities directed toward undermining by covert unlawful acts, or directed toward or intended ultimately to lead to the destruction or overthrow by violence of, the constitutionally established system of government in Canada.

The definition excludes lawful advocacy, protest or dissent, unless carried on in conjunction with any of the activities referred to in paragraphs (a) to (d). In other words, lawful protest carried on in conjunction with any of the activities in paragraphs (a) to (d) is included within the definition of threats to the security of Canada.

Possibility of Charter challenges

There will almost certainly be a number of challenges of the Proclamation, Order and Regulations under the Canadian Charter of Rights and Freedoms (the "Charter") - whether as standalone challenges or in the context of prosecutions for alleged breaches of the Order and Regulations.

Perhaps most centrally, s. 2 of the Charter guarantees as a fundamental freedom the freedom of peaceful assembly. Under s. 1 of the Charter certain rights guaranteed by the Charter, including those set out in s. 2, are stated to be subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society. There is a considerable body of case law regarding the application of this test that is beyond the scope of this note. The Canadian government will almost certainly seek to rely on s. 1 in the event of Charter challenges to the Order and Regulations.

The Emergencies Act requires that the government bring motions in Parliament - both the House of Commons and the Senate - for confirmation of the Proclamation, and that it must do so within seven days of the date of the declaration. A motion has been tabled in the House of Commons for debate on February 17, 2022 to confirm the Proclamation. Both houses of Parliament (and, if the Proclamation is confirmed, ultimately the courts) will presumably consider if the grounds stated in the Proclamation are of a nature and sufficient to justify the making of the Proclamation, and whether there is sufficient factual basis to support these grounds. If either the House of Commons or the Senate were to vote down the motion, the declaration would be immediately revoked and the order and regulations made pursuant to the declaration would expire immediately. However, as of February 15, 2022, the order and regulations are effective and have the force of law, subject to Charter or other legal challenges in the courts.

The government is also required to lay the Order and Regulations before both the House and the Senate within two days of their having being made. The Emergencies Act sets out a process by which either body may revoke or amend the order or regulations. It can be anticipated that the House and the Senate will consider whether existing Canadian laws - for example the prohibitions on unlawful assemblies and riots in the Criminal Code - were sufficient such that some or all of the Order and Regulations need not have been made. Further, the Emergencies Act provides for a review process to consider the exercise of powers and the performance of duties and functions pursuant to a declaration of emergency.

Going Forward

The Order and Regulations are likely to create many compliance challenges for financial service providers. This and other issues under these new laws will likely result in a rapidly developing legal analysis of the application of the Order and Regulations. Undoubtedly there will be constitutional and other challenges. Further, whether Parliament will intervene to revoke or amend any of this framework remains to be seen.

Footnote

1 The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is Canada's financial intelligence unit.

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.