A Canadian company signs a joint-venture term sheet with a foreign partner. Due diligence is complete, the commercial terms are agreed, and the transaction is weeks from closing. Then the compliance team identifies that one of the partner's upstream shareholders has a connection to a designated entity under the Special Economic Measures Act ("SEMA"), Canada's primary autonomous-sanctions statute administered by Global Affairs Canada ("GAC"). The deal does not automatically die – but the structuring work that should have happened at heads-of-agreement stage now has to happen under time pressure, with closing conditions already set.
Structuring a joint venture for sanctions risk under Canadian law requires a systematic process: mapping the ownership and control chain of all parties against the GAC consolidated sanctions list, identifying any prohibited dealings under SEMA and the United Nations Act ("UNA"), assessing whether the proposed structure creates a prohibited financial interest or service, and designing governance and exit triggers that keep the JV compliant as circumstances change. As of January 2026, Canada's sanctions regime is enforced by GAC as the designating authority, with the Royal Canadian Mounted Police and the Canada Border Services Agency carrying enforcement responsibility.
This guide walks through the structuring process in six stages, from pre-signature ownership mapping to post-closing compliance governance, and identifies the cross-border overlaps with OFAC, OFSI, and EU rules that most Canadian JV practitioners underestimate.
Step 1: Map ownership and control before you negotiate
The first step is a full ownership-and-control map of every proposed JV counterparty, completed before term-sheet negotiations are finalised. Canadian sanctions prohibitions apply to "dealing in property" of designated persons and to providing financial services that benefit them; a JV interest held by or on behalf of a designated person can trigger both.
SEMA designations are published in the Canada Gazette and replicated in the GAC consolidated list, which is updated without fixed periodicity. The UNA implements UN Security Council designations and runs alongside SEMA, so a counterparty could be caught by one without the other. In our experience, the most common gap is screening against only the GAC list and missing a UNA-based designation that sits on a different instrument.
Control matters as much as direct ownership. Canadian sanctions instruments do not define control identically across all programmes, but the underlying prohibition on dealing in property extends to situations where a designated person exercises effective control over an entity, even below a majority-ownership line. Unlike OFAC's mechanical 50 percent or more aggregation rule, Canadian law requires a contextual assessment of whether effective control exists. This makes the analysis more fact-intensive and is one reason experienced sanctions counsel should be involved at the mapping stage rather than after term sheets are signed.
The mapping exercise should trace at least three levels of ownership above each JV party, review publicly available corporate registry data in each relevant jurisdiction, and flag any shareholder whose identity cannot be confirmed. Gaps in the ownership picture are themselves a risk flag, not a clearance.
Step 2: Identify prohibited dealings and assess structure-specific exposure
Once the ownership map is complete, the second step is a dealing-by-dealing assessment of whether the proposed JV structure involves a prohibited transaction under the applicable Canadian instrument. The term "dealing" in SEMA is broad: it captures acquisitions, disposals, transfers, and the provision of services, including financial and management services, that directly or indirectly benefit a designated person.
The structure of the JV determines the exposure profile. A contractual joint venture – two parties sharing profit and loss under an agreement without a separate legal entity – creates a different risk footprint from an incorporated JV entity in which each party holds equity. In the incorporated model, an equity contribution by a party with a designated upstream shareholder may itself constitute a dealing in that shareholder's property if the interest is deemed held on their behalf. The contractual model avoids that specific nexus but creates its own exposure if the commercial activity undertaken under the joint venture provides services that benefit a designated person.
Consider, too, the nature of the JV's business. A joint venture providing financial intermediation, trade finance, or services to sectors named in a SEMA order requires a more granular assessment than a manufacturing JV with no financial-services component. In our cross-border practice, we regularly advise JV parties whose proposed vehicles sit at the intersection of financial services and goods supply – exactly the combination that triggers multiple heads of prohibition simultaneously.
Does the proposed JV involve a management fee payable to a foreign parent? Does it require a loan or guarantee from an affiliated lender? Each financial flow is a separate dealing and must be assessed individually. A single prohibited flow is enough to make the structure non-compliant, regardless of the overall commercial rationale.
Step 3: Apply the cross-regime overlay – OFAC, OFSI, and EU exposure
Canada's regime does not operate in isolation. A JV structured to be Canadian-sanctions-compliant may still expose the parties to liability under OFAC, OFSI, or EU regulations, and the failure to apply the cross-regime overlay at structuring stage is one of the costliest mistakes we see.
OFAC's reach is extraterritorial in a material sense. US-dollar clearing, US-person involvement in management or financing, or goods and technology with a US-origin component can all give OFAC jurisdiction over a transaction that is purely Canadian in corporate form. Under OFAC's 50 percent rule, any entity owned 50 percent or more in aggregate by one or more blocked persons is itself treated as blocked, regardless of where that entity is incorporated. A JV counterparty that passes the Canadian contextual-control test may still be treated as blocked under OFAC's mechanical threshold if the aggregate ownership of listed persons meets that bar.
OFSI in the United Kingdom applies a combined ownership-and-control test. An entity is caught if a designated person owns it, directly or indirectly, or if a designated person holds the right to appoint or remove a majority of directors, even without majority ownership. For a JV with UK-nexus activities – a UK-incorporated holdco, a UK bank account, or a UK-resident director – OFSI's test applies alongside GAC's. The two tests can produce different results on the same fact pattern.
EU sanctions regulations apply a similarly broad ownership-and-control standard, with the Council's guidance indicating that both majority ownership and effective control through other means are relevant. If any JV party or its financiers are incorporated in an EU member state, or if the JV transacts in euros, EU rules apply. Our practice regularly maps all three regimes against the same counterparty before the JV structure is finalised, because a structure that satisfies one regime's test while failing another's is not a compliant structure – it is a partially-compliant structure with an identified gap.
For further analysis of cross-border JV structuring across regimes, see our cross-border JV sanctions structuring guide and the dedicated EU JV sanctions structuring guide.
The position above covers the standard case. Your facts – the counterparty, the JV sector, the financing structure, and the regimes in play – change the analysis significantly. For a preliminary assessment of your JV's cross-regime exposure, contact Calder & Vance at info@caldervance.com.
Step 4: Design governance provisions and designated-person triggers
Governance provisions in the JV agreement are the primary contractual tool for managing the risk that a party becomes a designated person after closing. A well-structured JV agreement addresses three contingencies: new designations affecting a party or its upstream shareholders; a change in ownership or control that brings a new person into the ownership chain; and a licensing or authorisation that permits dealing in circumstances that would otherwise be prohibited.
The core protection is a representations-and-warranties clause in which each party confirms, as of the date of the agreement and on a rolling basis, that neither it nor any person controlling it is a designated person under SEMA, the UNA, or, where relevant, the applicable OFAC, OFSI, or EU instruments. A static representation at signing is insufficient. Ongoing obligations – typically quarterly certification in a steady-state JV and event-triggered disclosure when a party becomes aware of a change – provide earlier warning and reduce exposure from the date of designation rather than from the date of discovery.
A forced-transfer or buy-out mechanism is equally important. If a JV party becomes associated with a designated person, the non-affected party needs a contractual right to acquire that party's interest – and, critically, that acquisition right must itself be structured so that its exercise does not constitute a dealing in the designated person's property. In practice, this means pricing the buy-out by reference to a pre-agreed formula rather than a negotiated valuation, and routing the consideration in a way that does not transfer funds to the designated person. These mechanics need to be designed before closing, not improvised after a designation event.
Finally, consider whether the JV's constitutional documents need to address board-level governance. If a JV party that is subsequently designated holds the right to appoint a director, that appointment right may need to be suspended or extinguished on designation, because the continued exercise of an appointment right by or on behalf of a designated person can itself be a prohibited dealing under certain Canadian instruments and is almost certainly a prohibited dealing under OFSI's test.
Step 5: Address record-keeping, reporting, and the financing structure
Canadian sanctions obligations extend beyond the initial structuring to continuous operational compliance, including record-keeping and reporting requirements. Where property is held that is owned or controlled by a designated person, Canadian law imposes an obligation to freeze that property and to report it to the relevant authority. The reporting obligation is not discretionary.
Record-keeping under Canadian sanctions instruments requires retention of documentation sufficient to demonstrate compliance. The duration is not identical across all instruments, and practitioners should verify the current position applicable to the specific SEMA order or UNA regulation in force. Qualitatively, the obligation is comparable in scope to the five-year record-keeping standard applied by OFSI and the EU, but confirmation of the precise period applicable to the specific Canadian instrument is necessary before reliance.
The financing structure of the JV deserves particular attention. Loans from third-party lenders typically carry sanctions representations and event-of-default provisions. If the JV or a party becomes subject to a sanctions designation, lenders may call an event of default. More critically, a lender that is itself subject to OFAC or OFSI jurisdiction may be prohibited from continuing to fund the JV even if Canadian sanctions do not independently require it to stop. A JV that is technically compliant under Canadian law but whose financing is rendered unavailable by OFAC rules is commercially non-functional. Stress-testing the financing structure against all applicable regimes is a standard part of our diligence process on cross-border JVs.
For businesses in financial services or those relying on correspondent-banking infrastructure, the interaction between sanctions structuring and de-risking (a financial institution exiting a relationship to avoid sanctions exposure) is an additional pressure point. Our colleagues address that interaction in the context of correspondent banking and de-risking under OFAC.
If a transaction has already been flagged, or if a JV filing or financing condition has been refused on sanctions grounds, early legal review preserves options that narrow with time. Contact Calder & Vance at info@caldervance.com to discuss the position.
Step 6: Build an ongoing compliance framework and plan for change
A joint venture's sanctions-compliance obligations do not end at closing. The sixth and final step is designing the ongoing compliance programme that will govern the JV's operations throughout its life. Sanctions lists change frequently; new programmes are added; existing designations are amended or revoked. A JV that is compliant at closing can become non-compliant within weeks if no mechanism exists to monitor and respond to those changes.
The minimum ongoing programme for a JV with any cross-border dimension includes: periodic re-screening of all JV parties, their directors, and their material upstream shareholders against the GAC list, the UNA list, and – where relevant – the SDN List, the UK Consolidated List, and the EU Consolidated List; a documented escalation procedure for screening hits; and an annual review of whether the JV's activity has expanded into sectors or geographies that create new exposure.
In a recent matter, a manufacturing joint venture with parties from two jurisdictions had maintained only an annual screening cycle. A mid-year designation of an upstream shareholder in one party's ownership chain meant the JV continued to make quarterly profit distributions to a vehicle that was, from the date of designation, the indirect property of a designated person. The issue was identified in the course of a wider transaction due-diligence process rather than through the JV's own compliance procedures. We advised on the remediation process, including the freezing of distributions, the submission of a report to the relevant authority, and a governance restructure to prevent recurrence. The matter was resolved, but the regulatory risk created by the compliance gap was avoidable from the outset.
Where a JV is large enough to warrant it, a sanctions management protocol – a document sitting alongside the JV agreement that sets out the specific screening cadence, the escalation chain, and the procedure for responding to a designation event – is a practical tool that makes the abstract obligations of the JV agreement operational. We regularly draft these protocols as part of a JV structuring engagement.
Common misconceptions in joint-venture sanctions structuring
One persistent misconception among clients approaching a Canadian JV structure for the first time is that Canadian sanctions are materially less demanding than OFAC or OFSI rules, and that a structure cleared under those regimes will automatically be cleared under Canadian law. This is wrong in both directions. Canadian law's contextual control test can catch arrangements that OFAC's mechanical ownership threshold would miss at 50 percent or more. Conversely, a UNA-based designation may bind a party under Canadian law without that party appearing on the OFAC SDN list or the UK Consolidated List.
A second misconception is that a licensing regime does not exist under Canadian sanctions. GAC does have the authority to issue permits under SEMA in certain circumstances, allowing dealings that would otherwise be prohibited. The permit process is not automatic and is not available for all transactions, but it is a genuine option in some structuring scenarios – and overlooking it can lead parties to abandon transactions that could lawfully proceed with appropriate authorisation. Verify the current availability of permits under the specific SEMA order applicable to your transaction before concluding that no path exists.
A third misconception, particularly common in private-equity and joint-venture contexts, is that a minority stake held by a designated person is necessarily harmless. Under the dealing-in-property prohibition, providing financial services – including management fees, loan interest, and profit distributions – that directly or indirectly benefit a designated minority shareholder may be prohibited regardless of whether that shareholder controls the entity. The quantum of the shareholding does not determine the scope of the prohibition on benefit.
Related practices
- Correspondent Banking and De-Risking – OFAC – structuring correspondent relationships to manage OFAC sanctions exposure and de-risking pressure
- Cross-Border JV Sanctions Structuring – multi-regime analysis for JVs spanning OFAC, OFSI, EU, and other jurisdictions
- EU JV Sanctions Structuring Guide – how EU Council regulations apply to joint-venture ownership, control, and governance