Canada Announces Human Rights Sanctions Against China

Canada has imposed economic sanctions against the People’s Republic of China for the first time since the 1989 crackdown on student protestors in Beijing’s Tiananmen Square. The new measures came into effect on March 22, 2021 and initially target four Chinese government officials and one Chinese entity in response to what the Canadian government has deemed to be “gross and systematic human rights violations” against Uyghurs in China’s north-west region of Xinjiang.

Companies engaged in or contemplating any activities in or with China should be carefully scrutinizing these new sanctions along with the package of other measures announced by Canada in January of this year regarding business and supply chains involving the Xinjiang region. 

Who is targeted?

The new Special Economic Measures (People’s Republic of China) Regulations (the “China Regulations”) target the following individuals and entity “for their roles in the mass arbitrary detention, torture or cruel, inhuman and degrading treatment or punishment, mass surveillance and forced labour of Uyghurs and other Muslim ethnic minorities in [the Xinjiang region], which amount to participation in gross and systematic human rights violations in the region”:

  • Zhu Hailun, former Deputy Party Secretary of the Xinjiang Uyghur Autonomous Region;
  • Wang Junzheng, Secretary of the Party Committee of the Xinjiang Production and Construction Corps;
  • Wang Mingshan, Secretary of the Political and Legal affairs committee in Xinjiang and former director of the Xinjiang Public Security Bureau;
  • Chen Mingguo, Director of the Xinjiang Public Security Bureau (the local police force); and
  • Xinjiang Production and Construction Corps Public Security Bureau, a state-owned economic and paramilitary organization responsible for security and policing, including the management of detention centers.

What is prohibited?

Persons in Canada and Canadians outside Canada are prohibited from engaging in any of the following with respect to the above-listed persons:

  • dealing in any property, wherever situated, that is owned, held or controlled by a listed person or by a person acting on behalf of a listed person;
  • entering into or facilitating any transaction related to such a dealing;
  • providing any financial or related services in respect of such a dealing;
  • making available any goods, wherever situated, to a listed person or to a person acting on behalf of a listed person; and
  • providing any financial or related services to or for the benefit of a listed person.

The China Regulations also prohibit any persons in Canada and any Canadians outside Canada from knowingly doing anything that causes, facilitates or assists in, or is intended to cause, facilitate or assist in, any of the activities described above.

As with other sanctions regulations, there are a number of limited exceptions available, including one for any payments to be made by or on behalf of a listed person that are due under a contract entered into before they became a listed person.

The listed individuals have also been rendered inadmissible to Canada under the Immigration and Refugee Protection Act.

Reporting and monitoring obligations

The China Regulations require that financial institutions and financial services companies that operate in Canada (including Canadian financial institutions, provincially regulated financial service providers, and non-resident securities businesses operating under exemptions in Canada) engage in ongoing monitoring or screening to determine if they are in possession or control of any property owned, held or controlled by or on behalf of these listed persons.

All such financial service providers, as well as any other Canadians and persons in Canada, are also required to immediately disclose any property within their possession or control that may be owned or controlled by a person listed under the China Regulations, and any information about a transaction relating to such property, to either the Commissioner of the Royal Canadian Mounted Police or the Director of the Canadian Security Intelligence Service.

Historic step in Canadian sanctions policy

Up until now, Canada had resisted imposing economic sanctions on China despite sustained calls for such measures from within Canada and a parliamentary declaration that China’s treatment of Uyghurs amounted to genocide, and while its closest ally, the United States, had already imposed sanctions over human rights violations in the Xinjiang region and the suppression of democratic elections in Hong Kong.

Although these latest Canadian measures are closely aligned with those of the European Union, the United Kingdom and the United States, they represent a historic step in Canadian sanctions policy that could reflect a new willingness on the part of the Canadian government to take further measures in responding to human rights violations in China, including with respect to developments in Hong Kong and the continued detention of Michael Spavor and Michael Kovrig.

It is important to note that Canada chose to implement these sanctions under the Special Economic Measures Act (“SEMA”), instead of adding these individuals to the list established under the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) as has been done with targeted foreign nationals in Saudi Arabia, Russia, Venezuela, Myanmar, and South Sudan. The SEMA regulations grant wide discretion to sanction persons in China and Chinese officials, their family members, associates, and entities they own, hold or control if they have participated in gross and systemic human rights violations in China. SEMA itself also allows for expanding the sanctions to include broader measures against China or certain sectors of its economy, including bans or restrictions on imports and exports, the acquisition or provision of financial services, technology transfers, and making investments.

What’s next?

Companies should be revising their sanctions policies and procedures to reflect these new measures. The listed names should be added to their screening protocols for purposes of conducting due diligence on their counterparties in commercial transactions and, importantly, the persons that own or control them. Notably, the prohibitions are not restricted to transactions occurring in China – they apply to dealings involving listed persons anywhere in the world. That being said, activities involving China should still be carefully scrutinized to ensure full compliance with these new measures.

As there is a possibility that Canada may expand its sanctions against China, companies should be closely monitoring these developments to ensure that they are prepared to act quickly in the event that any new measures may impact existing or anticipated activities involving China.

In the more immediate term, some form of retaliation from China is expected. In response to EU sanctions, China has already sanctioned a number of EU politicians, parliamentary committees and NGOs that have criticized its human rights record. It remains to be seen whether any retaliation against Canada will be largely symbolic focusing on political figures or if Canadian business interests in China will be directly targeted.

Companies whose supply chains touch China should also be reviewing Global Affairs Canada’s recently released “Measures Related to the Human Rights Situation in the Xinjiang Uyghur Autonomous Region” and its related advisory on doing business with Xinjiang-related entities. These highlight non-sanctions measures taken by Canada to date regarding dealings involving the Xinjian region, including the prohibition on the importation of any goods made in whole or in part from forced labour, an integrity declaration for companies directly or indirectly sourcing from Xinjiang, and enhanced export controls to address the risk of human rights violations.  For more information on these measures, see our February 2, 2021 legal alert.

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