On February 15, 2022, in response to the disruptions, blockades and the weeks-long "occupation" of the nation's capital, the federal government, by proclamation under the Emergencies Act, declared a public order emergency. In making this declaration, the government published the Emergency Economic Measures Order (the "Order") and the Emergency Measures Regulations (the "Regulations"), which impose significant obligations on financial institutions and financial services providers operating in Canada.
What Are the Prohibitions?
The Order requires banks, insurance companies, trust and loan companies, credit unions, other financial entities (such as cryptocurrency exchanges and crowdfunding platforms) and other payment processors (collectively, "Financial Entities") to cease:
- Dealing in property 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
- Facilitating any transaction related to a dealing referred to above
- Making available any property (including cryptocurrency) 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
- Providing any financial or related services to or for the benefit of any designated person or acquiring any such services from or for the benefit of any such person or entity
In addition, Financial Entities are required to 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.
The Order also requires the following entities to register with the Financial Transactions and Reports Analysis Centre of Canada ("FINTRAC") if they are in possession or control of property that is owned, held or controlled by or on behalf of a designated person (the "New Reporting Entities"):
- Entities that provide a platform to raise funds or cryptocurrency through donations (e.g., GoFundMe)
- Entities that perform certain payment functions (e.g., maintaining certain accounts or holding funds for end users, certain Electronic Funds Transfer ("EFT") related transactions, clearing and settlement services, etc.)
To determine whether the registration requirement applies, the New Reporting Entities will need to assess whether they are in possession or control of property that is owned, held or controlled by or on behalf of a designated person.
In addition to registering with FINTRAC, New Reporting Entities are now required to report certain transactions to FINTRAC, including suspicious transactions.
Financial Entities (which includes the New Reporting Entities) are required to disclose without delay to the Royal Canadian Mounted Police ("RCMP") or Canadian Security Intelligence Service ("CSIS") 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 any information about a transaction or proposed transaction in respect of such property.
Who is a Designated Person?
The Regulations define a "designated person" as any individual or entity that is (subject to certain exceptions) engaged, directly or indirectly, in any of the following prohibited activities:
- Participating in a public assembly that may reasonably be expected to lead to a breach of the peace (a "Public Assembly") by: (a) the serious disruption of the movement of persons or goods or the serious interference with trade; (b) the interference with the functioning of "critical infrastructure" (as defined in the Regulations); or (c) the support of the threat or use of acts of serious violence against persons or property, or causing a person under the age of 18 to participate in such an assembly
- Foreign nationals entering Canada with the intent to participate in or facilitate a Public Assembly
- Travelling to or within an area where a Public Assembly is taking place, or causing a person under the age of 18 to travel to or within 500 metres of an area where a Public Assembly is taking place
- Using, collecting, providing, making available or inviting a person to provide property to facilitate or participate in a Public Assembly or for the purpose of benefiting any person who is facilitating or participating in such an activity
What Does It All Mean?
The Order and the Regulations create significant new legal obligations for Financial Entities. Compliance with these obligations will in some cases be challenging. For example, absent a list of persons, it is not clear how Financial Entities will be able to determine with certainty and in the time available whether it is dealing in property that is owned, held or controlled, directly or indirectly not only by a designated person but also by a person acting on behalf of or at the direction of the designated person or whether they are facilitating any such transaction.
We expect that many Financial Entities may be asking what "cease providing any financial or related services to or for the benefit of" means in the context of an insured, account holder, mortgagor, borrower, etc. that is a designated person or of a person acting on behalf of or at the direction of such a designated person. For example:
- Are P&C insurers required to cancel or suspend a designated person's insurance policy, and if so what recourse might a third party have if harmed?
- Are life insurance companies expected to suspend or cancel life and disability policies of designated persons?
- Are insurers permitted to pay claims to designated persons?
- Are banks and credit unions required to freeze all the accounts that a designated person has with that bank or credit union? If the designated person also has a mortgage with that bank or credit union, is the bank or credit union required to "cease" providing the mortgage as well?
The RCMP has, we understand, sent a list of individuals to banks and cryptocurrency exchanges on February 16 and, as of the time of writing, the Globe and Mail has reported that the list contains less than 20 names, although we expect that the list will be updated on a continuing basis as the situation evolves.
The Order also provides that no proceedings under the Emergencies Act and no civil proceedings lie against a Financial Entity for complying with the requirements of the Order. This seems to suggest that Financial Entities would be immune from suit brought by a designated person who is affected by a freezing of their accounts or who is unable to access services . It is unclear, however, what the scope of this immunity would be in practice (e.g., if a Financial Entity mistakenly freezes the property of a person that is not a designated person).
We also note that unlike the Regulations, which includes a section providing for the imposition of penalties (i.e., fines and imprisonment) in the case of a contravention (i.e., if a person is a designated person), there is no corresponding section under the Order. This suggests that perhaps the federal government is more interested in receiving cooperation from Financial Entities rather than penalizing them for any non-compliance.
In terms of developing processes and procedures to comply, we note that the structure of the Order closely resembles that of many regulations made under the Special Economic Measures Act, the United Nations Act and other similar sanction related statutes for which most Financial Entities are already subject. Accordingly, these Financial Entities should consider if and how these existing processes and procedures can be leveraged to facilitate compliance with the requirements of the Order.
This situation remains fluid, with the hope that further direction and clarification from the federal government will be provided regarding how Financial Entities are to effectively comply with the Order.
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.