Canada imposes further sanctions against Russia and Belarus as unprecedented asset forfeiture mechanism comes into force
As we move into the sixth month of Russia’s illegal invasion and assault on Ukraine, Canada has imposed further sanctions against Russia and Belarus targeting the arms and defence sector. On June 23, 2022, the proposed amendments to the Special Economic Measures Act and Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) addressed in our May 2, 2022 client alert came into effect, providing the federal government with a new power to seek forfeiture of sanctioned persons’ assets. On June 27, 2022, the Special Economic Measures (Russia) Regulations (“Russia Regulations”) and Special Economic Measures (Belarus) Regulations (“Belarus Regulations”) were further amended to prohibit the export of certain advanced technologies and goods that could be used in the production and manufacturing of weapons by Russia or Belarus. In addition, six senior officials and 46 defence entities were newly listed on Schedule 1 to the Russia Regulations, and 13 senior defence officials and two military entities were newly listed on the Schedule 1 to the Belarus Regulations.
The Belarus Regulations were also updated to add bans on sourcing and supplying luxury goods as well as supplying goods that could be used for the manufacture of weapons. These prohibitions are the same as those imposed under May 18, 2022 amendments to the Russia Regulations.
For more details regarding Canada’s previous sanctions measures imposed in response to the Russian invasion of Ukraine, please refer to our client alerts from February 28, 2022, March 2, 2022, March 14, 2022, March 29, 2022, April 7, 2022, May 2, 2022, June 3, 2022, and June 8, 2022.
New seizure and forfeiture mechanism enters into force
Canada has become the first G7 nation to provide for the forfeiture and redistribution of sanctioned assets. It is expected that other major Western nations, including the United Kingdom, will follow suit shortly. Bill C-19, which received Royal Assent on June 23, 2022, makes several significant changes to the Special Economic Measures Act (“SEMA”) and the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) (the “Magnitsky Law”).
As a result of these amendments, both SEMA and the Magnitsky Law now allow for the forfeiture of property that has been the subject of a seizure order under these sanctions measures. These amendments will allow the government to sell the seized property and use the proceeds for various enumerated purposes, including reconstruction of foreign states and compensation of victims of grave breaches of international peace and security, human rights violations, and acts of significant corruption.
These new measures can be applied to any property situated in Canada that is owned, held, or controlled directly or indirectly by any foreign state or by any person in or national of any foreign state.
Under the SEMA and Magnitsky Law regimes, the Minister of Foreign Affairs can issue an order for the seizure or restraint of such property (a “Seizure Order”) in certain specified circumstances. Under SEMA, for example, these circumstances include where the Minister is of the view that (i) there is a grave breach of international peace and security that is likely to result in a serious international crises, (ii) gross and systemic human rights violations have been committed in a foreign state, or (iii) a national of a foreign state is responsible for or complicit in acts of significant corruption.
Once such a Seizure Order has been issued, the Minister can now apply to the Superior Court of the province in which the seized or restrained property is located for an order to forfeit such property (a “Forfeiture Order”). The court must issue the Forfeiture Order if it is determined that (i) the property in question is the same property as described in the Seizure Order and (ii) it is owned, held, or controlled directly or indirectly by the person referred to in the Seizure Order.
For further discussion of these provisions, please see our May 2, 2022 client alert.
New prohibitions on supply of goods and technology
The most significant element of this latest round of sanctions is the broadening of the ban on the supply of goods and technology. Formerly, section 3.6 of each of the Russia Regulations and Belarus Regulations forbade the export, sale, supply, or shipment of any good or technology described in the Restricted Goods and Technologies List.
The new amendments broaden this provision to apply to further goods and technologies having defence functions, especially in relation to missiles and missile-control systems, as set out in the newly added Schedule 5.1 to the Russia Regulations and Schedule 3 of the Belarus Regulations. These include:
- Equipment, electronic assemblies and components, specially designed for quantum computers, quantum electronics, quantum sensors, quantum processing units, qubit circuits, qubit devices or quantum radar systems;
- Cryogenic refrigeration systems designed to maintain temperatures below 1.1 kelvin for 48 hours or more and cryogenic refrigeration equipment and components therefor;
- Ultra-high vacuum equipment;
- High quantum efficiency photodetectors with a quantum efficiency greater than 80% in the wavelength range exceeding 300 nanometres but not exceeding 1700 nanometres;
- Certain additive manufacturing equipment and vat photopolymerization additive manufacturing equipment;
- Scanning electron microscopes, scanning auger microscopes, transmission electron microscopes, atomic force microscopes and scanning force microscopes, and related equipment and detectors;
- Decapsulation equipment for semiconductor devices; and
- Certain software and technology related to the above.
These new restrictions do not apply to goods or technologies already subject to export control under Canada’s Export Control List (“ECL”), unless they fall under item 5400 (i.e., US-origin goods and technology not elsewhere specified on the ECL)".
New ban on supply to Belarus of goods that can be used for manufacture of weapons
The Belarus Regulations now include a broad supply prohibition on various goods that could be used for weapons manufacturing, substantively equivalent to the provisions in the Russia Regulations. The export, sale, supply, or shipment of any good referred to in Schedule 5, wherever situated, to Belarus or to any person in Belarus is now prohibited.
Schedule 5 lists 60 diverse categories of goods, including medical devices such as X-rays or artificial respiration or other therapeutic respiration apparatuses, measuring instruments, photographic equipment, thermostats, ships, boats and floating structures, unmanned aircrafts, vehicles, electrical machinery, industrial robots, equipment used in construction, metals and scrap metals, and pumps.
Notably, it does not appear necessary that these items be specially designed for weapons production or military use in order to be subject to the supply ban. As such, suppliers of any of the listed goods should carefully reviewing these requirements before shipping to Belarus or persons operating in or from Belarus or the surrounding regions.
New ban on supply of luxury goods to Belarus
The new provisions prohibit any persons in Canada or Canadians outside Canada from exporting, selling, supplying, or shipping goods referred to in Part 1 of Schedule 4 of the Belarus Regulations, wherever situated, to Belarus or to any person in Belarus. They also prohibit persons in Canada and Canadians outside Canada from importing, purchasing, or acquiring goods referred to in Part 2 of Schedule 4, wherever situated, from Belarus or from any person in Belarus. These prohibitions will take effect 60 days after they come into force, i.e., by August 26, 2022.
Importantly, the scope of these prohibitions is not limited to imports into and exports from Canada. They also apply to the supply or sourcing of these products anywhere in the world to or from “Belarus or any person in Belarus”.
There is an exception for personal effects taken by individuals leaving Canada for Belarus as well as individuals leaving Belarus that are solely for their and their immediate families’ use.
These new prohibitions in the Belarus Regulations relating to the supply and sourcing of luxury goods are substantively identical to those in Russia Regulations. Please see our client alert of June 3, 2022 for further analysis of these provisions.
Addition of individuals and entities to the lists of designated persons under the Russia Regulations and Belarus Regulations
Six senior officials and 46 defence entities have been newly designated under the Russia Regulations, bringing the total to over one thousand. The individuals listed include Adam Delimkhanov, a member of the Duma and close associate of Chechen leader Ramzan Kadyrov who allegedly commanded Chechen forces in the siege of Mariupol; Mikhail Oseevsky, president of Rostelecom (a listed entity); Mikhail Poluboyarinov, former CEO of Aeroflot and current deputy CEO of Russia Post. The defence entities include a variety of tactical missile production facilities, radio-communications facilities, and a ship maintenance centre.
Thirteen individuals and two defence entities have been newly designated under the Belarus Regulations. The individuals include Dmitri Paulichenka, commander of the Special Response Group of the Ministry of the Interior, as well as Yury Sivakov and Viktar Sheiman, close associates of Lukashenko and implicated in the unresolved disappearances of Lukashenko’s political opponents. These listings bring Canadian sanctions into closer alignment with UK and US sanctions against Belarus, which had already targeted these individuals. The two entities added are Belramoshservice and Belteleradio Company.
The Russia Regulations and Belarus Regulations impose an effective dealings ban in relation to listed individuals and entities.
The Canadian government’s summary of the sanctions applied in relation to Russia, Ukraine, and Belarus highlights the significant number of entities and individuals, now totalling 1,600 (up from approximately 550 prior to the Russian invasion of Ukraine), subject to Canadian sanctions under these measures as follows:
Notably, this does not include Russian and Ukrainian parties that have been listed under other Canadian economic sanctions legislation, including the Magnitsky Law and the Freezing Assets of Corrupt Foreign Officials Act.
Given the very broad prohibitions in place against dealings involving or benefiting listed individuals or entitles, including against any direct or indirect facilitation of such dealings, companies should be verifying that they have effective sanctions screening mechanisms in place to ensure compliance with these rapidly evolving sanctions measures.
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With no end to the Russian invasion in sight, we anticipate the continued expansion of Canada’s Russian sanctions program. The McCarthy Tétrault International Trade and Investment team will continue to monitor as the situation in Russia and Ukraine continues to evolve. It remains essential that Canadian companies keep apprised of the rapidly shifting sanctions landscape, as these measures pose significant business risk at home and abroad.
 See “Liz Truss mulls seizure of Russian assets in UK to give to Ukraine”, The Guardian, July 3, 2022 (at https://www.theguardian.com/world/2022/jul/03/liz-truss-mulls-seizure-of-russian-assets-in-uk-to-give-to-ukraine).