A Canadian trading company is finalising terms with a new supplier. Screening clears the counterparty itself. Then someone in the compliance team asks the harder question: who owns the supplier, and does any part of that ownership chain touch a listed person? The deal is ready to close. The answer to that question could block it entirely.
Ownership and control assessments under Canada's sanctions regime – administered by Global Affairs Canada ("GAC") under the Special Economic Measures Act ("SEMA") – require a business to look beyond the listed entity itself and trace whether a listed person holds sufficient ownership or exercises control over an unlisted counterparty. The test is not purely mechanical, and it diverges in important respects from the approaches taken by OFAC, OFSI, and the EU. Understanding those differences is not optional for cross-border businesses; it is the foundation of sound transaction clearance.
This analysis sets out how Canada's ownership and control test operates, where it agrees and where it parts ways with the other major regimes, the risk flags that practitioners see most often, and when the complexity of a structure makes specialist counsel essential.
The governing regime: GAC, SEMA, and the legal basis for Canada's approach
Canada's autonomous sanctions operate primarily under SEMA, which empowers the Governor in Council to prohibit dealings with designated persons and entities where the government determines that a foreign state has committed acts that breach international peace and security, or has committed grave human-rights violations, among other statutory grounds. The administering authority is GAC, which maintains the list of designated persons, issues permits, and provides guidance on the regime's application.
The core prohibition under each set of SEMA regulations covers transactions with, or for the benefit of, a designated person. That phrase – "for the benefit of" – is doing significant work. It means the prohibition is not limited to transactions in which the designated person appears by name on the face of the contract. A transaction that flows economic benefit to a designated person, even indirectly through layers of ownership, can fall within the prohibition. GAC's published guidance makes clear that businesses are expected to look through corporate structures when assessing whether a counterparty is effectively controlled by or acting for the benefit of a listed person.
Canada also implements United Nations Security Council sanctions through the United Nations Act, giving effect to Security Council resolutions and the UN Consolidated List. Where both instruments apply, the stricter prohibition governs. For cross-border businesses operating from multiple jurisdictions, this layering matters: a counterparty cleared under SEMA may still present exposure under UN-derived obligations or under a concurrently applicable foreign regime such as the EU regulations or OFAC.
In our cross-border practice, we regularly advise clients who discover that a single counterparty sits in the scope of more than one regime simultaneously. The Canadian and EU analyses can run in parallel and produce different conclusions. That is a live risk, not a theoretical one.
How does Canada's ownership and control test work in practice?
Canada's ownership and control test under SEMA is a purpose-driven inquiry rather than a purely numerical one. The question is whether a listed person owns or exercises control over the entity in a way that means a dealing with the entity would constitute a dealing with, or for the benefit of, the listed person.
Ownership is the more straightforward limb. Where a designated person holds a direct equity stake in a counterparty, that interest is relevant to whether proceeds or value from a transaction would benefit the designated person. Canada's regulations and GAC guidance do not publish a single fixed ownership percentage that automatically triggers the prohibition in the way that OFAC's 50 percent rule operates. Instead, the analysis asks whether, given the level of ownership and all other facts, a transaction would be for the benefit of the designated person. In practice, a majority stake by a designated person will almost always trigger the prohibition. Minority stakes require a more contextual review.
Control is the broader and more demanding limb. Control can be exercised through ownership of voting rights, through contractual arrangements, through board representation, through management agreements, or through other forms of practical dominance. A designated person holding a minority stake but controlling the board through a shareholders' agreement, for example, may well meet the control test even without a majority ownership interest. GAC expects businesses to assess actual influence, not just formal shareholding.
The practical implication is that a standard screening tool – one that flags only the named counterparty – is insufficient. The business must map the ownership chain, identify all persons with significant stakes or influence, and check each against the applicable lists. Where the structure is multi-layered or involves trusts, nominee arrangements, or complex joint-venture terms, that mapping exercise is not trivial. Have you assessed who controls the counterparty's board, or only who owns its shares?
Where does Canada diverge from OFAC, OFSI, and the EU?
The sharpest divergence between the major regimes is between Canada's contextual, purpose-driven approach and OFAC's mechanical 50 percent rule. Under OFAC's guidance under IEEPA, an unlisted entity is treated as blocked when designated persons own 50 percent or more of it in the aggregate, directly or indirectly. The test is binary: if the threshold is met, the entity is blocked regardless of whether any actual benefit flows to the designated persons. OFAC does not ask whether the transaction would in practice benefit the designated persons; the ownership figure settles the matter.
Canada does not apply that bright-line rule. A counterparty in which a designated person holds, say, 55 percent requires careful attention under Canada, but the final determination still involves asking whether the dealing is for the benefit of that designated person. In our experience, that contextual flexibility can make the Canadian analysis harder to apply with certainty, not easier. A mechanical rule can be checked quickly; a purpose-driven test demands a substantive review of commercial arrangements, fund flows, and governance terms.
The EU and OFSI approaches introduce a control element that sits alongside ownership, and in that sense they are structurally closer to Canada's model than OFAC is. Under the relevant EU Council regulations, the ownership and control test catches entities that are owned or controlled by a designated person, with control interpreted broadly to include situations where a designated person does not hold a majority stake but effectively dominates decision-making. OFSI applies a similar framework under the relevant UK thematic regulations: the test covers entities owned or controlled by a designated person, and the ownership and control concept encompasses both formal shareholding and practical influence.
One difference that practitioners encounter regularly is the treatment of aggregated holdings. OFAC's 50 percent rule aggregates the stakes of multiple designated persons. EU guidance and OFSI guidance also require aggregation. Canada's approach to aggregation is less explicit in published guidance but the "for the benefit of" framing supports an aggregation analysis in substance, because a transaction that benefits multiple designated persons through their combined stakes remains a prohibited transaction.
A further divergence relates to the burden of analysis. Under the EU, designated persons include legal persons, entities, and bodies owned or controlled by a listed person, and the Council's implementing regulations extend the prohibitions to that class directly. The entity is treated as caught; a dealing with it is itself prohibited. Canada's formulation is transactional: it prohibits dealings for the benefit of the designated person, which means the question is live at each transaction rather than resolved once and for all by a designation determination. For a business with an ongoing relationship with a complex corporate group, this transactional framing requires continuous reassessment as ownership and control structures change.
The table below sets out the principal points of divergence in narrative form. No single regime is uniformly stricter across all dimensions; the answer depends on the specific structure and transaction at issue.
- OFAC: mechanical 50 percent ownership threshold; aggregation of designated persons' stakes; no separate control limb for ownership below 50 percent; entity treated as blocked if threshold is met.
- OFSI / UK: ownership and control test; both limbs operative; practical dominance counts; no published fixed percentage; requires case-by-case assessment for control below majority.
- EU: ownership and control test; entity treated as caught by regulation when the test is satisfied; aggregation required; broad control definition including contractual and de facto control.
- Canada (SEMA): purpose-driven "for the benefit of" standard; ownership and control both relevant; no published fixed percentage trigger; each transaction assessed individually; contextual flexibility increases analytical burden.
For a multinational operating across these jurisdictions, the conservative approach is to apply whichever regime's analysis would catch the structure, while also running the Canada-specific analysis on its own terms. Where the regimes diverge on a specific structure, specialist advice is essential before proceeding.
The position above covers the standard analytical framework. Your facts – the counterparty's precise ownership structure, the jurisdiction of the listed persons, the nature of the goods or services, and the regime or regimes in play – change the analysis materially.
Contact Calder & Vance at info@caldervance.com for an assessment of your counterparty's structure under the applicable regimes.
What risk flags should compliance teams watch for?
The risk flags most commonly seen in Canadian sanctions ownership-and-control assessments arise where corporate structures are deliberately or organically opaque. Opacity is not in itself evidence of intent, but it does raise the probability that a standard screening exercise will miss a listed person in the chain.
The following patterns require enhanced scrutiny in a Canadian assessment:
- Nominee or trust arrangements: where shares are held through nominees or trustees, the beneficial owner may be the relevant person for the "benefit of" analysis. GAC's position focuses on economic benefit, and trust or nominee structures do not insulate the beneficial owner's interest from the analysis.
- Contractual control without majority equity: shareholders' agreements granting veto rights, board appointment rights, or operational approval rights to a minority designated holder can satisfy the control limb even where formal ownership is below any ownership threshold. Legal review of the underlying commercial documentation is required.
- Layered intermediate holding companies: multi-tier structures held through jurisdictions with limited corporate transparency can conceal a designated person at an upper tier. The analysis must extend to the ultimate beneficial owner, not stop at the first identifiable corporate layer.
- Frequent ownership changes shortly before a designation: a pattern of transfers that reduce an identified designated person below a threshold just before or after a listing may indicate an arrangement that continues to benefit the designated person. The "for the benefit of" standard is designed to reach exactly this pattern.
- Shared infrastructure or management personnel: a counterparty sharing management, banking relationships, registered addresses, or key personnel with a known designated entity requires additional diligence even if ownership links are not immediately apparent.
In a recent matter, a manufacturing-sector client sought to on-board a new distributor. The distributor's direct ownership structure appeared clean on initial screening. A second-tier analysis identified a holding company whose ultimate beneficial owner was a designated person under the applicable SEMA regulations. The distributor had been incorporated after the designation and was operating in what appeared to be a closely aligned commercial sphere. We advised the client to suspend the on-boarding pending a full beneficial-ownership review and engagement with legal counsel on whether GAC permit guidance provided any pathway. The matter was resolved without a prohibited transaction occurring. No outcome is guaranteed in any similar situation.
When does ownership complexity require formal legal advice?
Not every counterparty assessment requires external counsel. Straightforward direct-ownership cases – where a single designated person holds a controlling stake in the counterparty and there is no plausible "for the benefit of" argument to the contrary – can often be resolved by a well-equipped internal compliance team. The decision tree changes when the structure is complex.
Counsel should be involved when:
- The ownership chain includes more than three corporate layers, particularly where intermediate layers are in jurisdictions with limited beneficial-ownership transparency.
- A designated person holds a minority stake but there is contractual, structural, or documented evidence of practical control.
- A transaction is structured through a third-country intermediary that is not itself a direct counterparty but may receive value derived from the dealing.
- The Canadian analysis and the OFAC or EU analysis produce divergent conclusions – one regime catches the structure; the other arguably does not.
- Ownership has changed recently, particularly in a pattern that appears calculated to reduce designated-person stakes below a threshold.
- The business is considering whether to seek a GAC permit to proceed with a transaction that would otherwise be prohibited.
A GAC permit – formally, a ministerial permit under SEMA – is the mechanism by which certain prohibited transactions may be authorised on a case-by-case basis. The permit system is not unlimited in scope: permits are issued where the Minister is satisfied that the dealing is consistent with the objectives of the relevant sanctions programme. Eligibility must be assessed carefully, and the permit application itself requires a clear statement of the transaction, the parties, and the grounds for authorisation. Preparing a well-supported permit application – and managing any regulator queries that follow – is a task where experienced counsel reduces the risk of avoidable refusal.
If a transaction has already been flagged by an internal screen or by a correspondent bank's review, or if a filing has been refused, an early legal review can preserve options that narrow with delay. The window between identification of a potential issue and the point at which a dealing becomes prohibited or a reporting obligation crystallises can be short.
A common misconception: "our counterparty is not on any list"
The most persistent myth in Canadian sanctions compliance is that a clean screening result settles the question. It does not. Screening confirms that the counterparty's name does not appear on a published list. It says nothing about whether persons who own or control that counterparty are listed, and it says nothing about whether the transaction would benefit a listed person through less direct means.
SEMA's "for the benefit of" standard is specifically designed to prevent the prohibition from being side-stepped by interposing unlisted entities between the designated person and the commercial arrangement. A business that treats a clean screening result as conclusive is relying on an incomplete analysis. GAC's enforcement posture has consistently focused on transactions that benefit designated persons through exactly these indirect arrangements.
We regularly advise clients who arrive having completed a first-tier screen and believe they have finished the compliance exercise. The second conversation is almost always about what the screen did not assess: the ownership chain above the counterparty, the contractual arrangements governing that counterparty, and the destination of economic value within the group. These are the questions that the SEMA standard requires businesses to answer.
The same misconception exists in relation to de-listing. A counterparty whose designation has been removed from the GAC list is no longer a designated person for SEMA purposes. However, if the same counterparty remains listed under an OFAC, EU, or UN regime that applies to your business, the Canadian clearance does not resolve those concurrent obligations. Cross-regime verification is not optional.
Related practices
- Sanctions compliance audit and testing – screening logic, programme testing, and gap analysis across the major regimes
- Ownership and control assessments under the EU – EU Council regulation ownership and control: how the test works and where it diverges from OFAC and Canada
- Ownership and control assessments under OFAC – the 50 percent rule explained: aggregation, indirect ownership, and cross-border interaction with UK and EU tests