The second-largest economy in North America, Canada is a hub for business interests from all over the world and is an influential political power. With that in mind, in order to pursue its political and diplomatic objectives and punish violations of international law, Canada implements economic sanctions against a range of countries, individuals, and entities.
Canadian sanctions broadly prohibit trade with persons within targeted countries, at the risk of financial and criminal penalties. Recent sanctions actions taken by the Canadian government reflect an increased global focus on human rights violations and have seen the introduction of ‘Magnitsky-style’ measures that allow for the targeting of individuals in addition to governments and state entities. Given the changing sanctions landscape, and the potential for significant compliance penalties, firms that operate within Canada’s jurisdiction should understand their sanctions obligations and put a screening solution in place to ensure they achieve regulatory compliance.
Sanctions in Canada are issued by Parliament under several articles of legislation:
- The United Nations Act (UNA): As a member of the UN, Canada is obliged to implement sanctions that are passed by the United Nations Security Council (UNSC). UNA facilitates that process by enabling the Canadian government to enact UNSC sanctions in domestic legislation.
- Special Economic Measures Act (SEMA): Canada’s policy is to impose sanctions multilaterally with the UN, however where the UN does not issue sanctions, Canada may do so autonomously, under SEMA. Sanctions designations are applied under SEMA where Canada finds that targets have breached international law or committed serious human rights abuses, or where Canada has international treaty obligations.
- Justice for Victims of Corrupt Foreign Officials Act (JVCFO): JVCFO enables Canada to impose sanctions against individual targets, rather than states and regimes. Like the US’ Magnitsky Act, JVCFO is specifically intended to address serious human rights abuses or acts of corruption that are perpetrated by foreign officials and their associates.
Canada’s economic sanctions prohibit trade and business relationships with persons within target countries. Sanctions restrictions generally involve import and export bans, embargoes, asset freezes, travel bans, and prohibitions on access to Canada’s financial system.
Penalties: Noncompliance with Canadian sanctions may result in both financial and criminal penalties. Individuals that are convicted of sanctions violations in Canada face fines of up to $100,000 and prison terms of between 1 and 5 years.
Once designated by the government of Canada, sanctioned countries and individuals are added to the Consolidated Canadian Autonomous Sanctions List. The list includes all targets and measures applied under UNA, SEMA, and JVCFO. Firms in Canada must search the consolidated list as part of their sanctions screening process: when customer names are matched to the list, firms must apply the restrictions set out by the specific sanctions measure.
The consolidated list is available online. Firms may search for active sanctions designations across every sanctions program currently implemented by the Canadian government. Countries currently targeted by Canada’s sanctions regime are:
- Central African Republic
- Democratic Republic of the Congo
- North Korea
- People’s Republic of China
- South Sudan
Terrorism financing: In order to prevent the funding of terrorism, Canada also enforces specific measures against terror groups including the Taliban, ISIL, and Al-Qaida.
Canada has taken a number of notable recent sanctions actions, reflecting the increased global focus on serious human rights violations. Those sanctions actions include:
Canadian Sanctions Against Ukraine and Russia: In March 2021, Canada introduced a new round of sanctions against a number of Russian and Ukrainian individuals and entities. Canadian sanctions against Ukraine and Russia were imposed in connection to the annexation of Crimea in 2014, while separate human rights sanctions against Russia were imposed in response to the poisoning of Alexey Navalny and his subsequent prosecution.
Canadian Sanctions Against Myanmar: In May 2021, Canada imposed new sanctions against Myanmar, designating 10 entities and 16 individuals for their involvement in the country’s repressive military regime and its systematic human rights abuses. The sanctions actions were taken in coordination with the UK, the US, and the EU.
Firms in Canada must put a sanctions screening solution in place in order to fulfill their regulatory obligations. In practice, obligated firms must check customer names against the Consolidated Canadian Autonomous Sanctions List to determine whether sanctions restrictions are currently applicable.
Sanctions challenges: The sanctions screening process should be accurate and efficient, which means that firms should ensure their screening solution is updated with the latest Canadian sanctions data and is capable of managing a range of unique sanctions challenges, including false positive identification.
Given the scope of the Canadian sanctions regime, false positives alerts represent a significant time and cost drain, and create negative experiences for customers. With that in mind, screening solutions in Canada should seek to reduce false positives by incorporating suitable smart technology tools capable of accounting for variations in spelling, non-Latinate characters, the use of nicknames and aliases, and regional naming conventions.
KYC: Canadian sanctions screening solutions should also be backed by effective Know Your Customer (KYC) procedures, including the following measures and controls:
- Customer due diligence: Firms should conduct suitable customer due diligence in order to establish and verify the identities of their customers, and the beneficial ownership of customer entities.
- Transaction monitoring: Firms should monitor the transactional behavior of their customers to detect transactions that involve persons designated on the Canadian sanctions list.
- PEP screening: Since they present a greater risk of involvement in sanctioned activity, firms should screen customers to establish their politically exposed person (PEP) status.
Adverse media screening: News of a sanctions designation is often broken in the media. Accordingly, firms should screen on an ongoing basis for adverse media stories that involve their customers.
To learn more about sanctions around the world, view our latest report.
Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.
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