A company director learns that Global Affairs Canada has designated the corporate shareholder. Every asset in the group is frozen. The corporation's Canadian counsel sends a fee proposal. The finance team flags the problem immediately: paying those fees from company funds could be a prohibited dealing with blocked property. Time is short. The lawyer needs a retainer. What happens next?
Under the Special Economic Measures Act ("SEMA"), Canada's primary autonomous-sanctions statute, payments to fund legal representation from frozen assets require a specific authorisation – commonly called a legal-fees licence – issued by the Minister of Foreign Affairs through Global Affairs Canada ("GAC"). Without that authorisation, disbursing or receiving funds from a blocked account to pay counsel is itself a sanctionable dealing. The authorisation is not automatic, and the criteria are more prescriptive than many businesses assume at first encounter.
This guide walks through the governing authority, the eligibility criteria, the application procedure, a comparison with OFAC, OFSI, and EU equivalents, the common risk flags, and the point at which specialist counsel should be involved.
What is the legal basis for a legal-fees licence under SEMA?
SEMA gives the Governor in Council power to prohibit dealings in property of designated persons, and it gives the Minister of Foreign Affairs power to issue permits authorising transactions that would otherwise be prohibited – including the release of frozen funds to pay for legal representation. GAC administers the programme and receives applications. The same statutory framework governs all of Canada's autonomous-sanctions programmes, whether they target specific individuals, entities, or country-wide measures.
It is worth distinguishing the two types of dealing that a legal-fees situation triggers. First, the designated person or an entity they control cannot lawfully receive or transfer funds without authorisation. Second, the lawyer receiving the fee payment must also satisfy themselves that accepting it does not constitute a sanctionable dealing on their side. Both questions arise simultaneously, and both point to the same authorisation mechanism.
Canada's regime differs structurally from the US position. Under OFAC, a general licence (a standing authorisation permitting a defined category of transactions without a separate application) has historically covered the receipt of a capped level of legal fees for services in connection with sanctions proceedings. No equivalent general licence exists under SEMA. Every legal-fees payment from a blocked account in Canada requires a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction), and the absence of a standing general licence is the single most significant divergence practitioners encounter.
The applicable country regime is SEMA and the regulations made under it. GAC's Sanctions Policy and Operations Bureau is the administering office. There is no published tariff or deemed-approval period; GAC has full discretion over whether to grant, refuse, or impose conditions on a permit.
Who can apply, and what criteria does GAC apply?
The applicant for a legal-fees permit is typically the designated person, the entity whose assets are frozen, or an authorised representative acting on their behalf – which in most cases means the very counsel seeking to be paid. This creates a practical tension: the lawyer is simultaneously the adviser on the application and a direct beneficiary of its success. That tension should be disclosed clearly in the application and, in our experience, GAC is attentive to it.
GAC assesses applications against several intersecting considerations. The most important are:
- The purpose of the legal representation – GAC looks for a connection to the designated person's legal affairs, including proceedings directly related to the designation or to the underlying matters giving rise to it.
- The reasonableness of the proposed fees – the amount must be proportionate to the scope of the work; schedules of fees and billing rates are routinely requested.
- The absence of any route by which funds could flow to a sanctioned party beyond the lawyer – GAC will scrutinise whether the arrangement could be used to move value through the legal-fee channel for purposes beyond genuine representation.
- The identity of the counsel to be paid – GAC expects the permit to name the law firm and, in some cases, the individual lawyers; open-ended authorisations to "any counsel" are not typically granted.
There is no published score or threshold. GAC's permit decisions are discretionary and non-transparent in reasoning, though a refusal can be challenged through Canadian administrative-law mechanisms. We regularly advise on both the initial application and the challenge route if a refusal is received.
Step-by-step: how to apply for a legal-fees permit under SEMA
The application process has six identifiable stages, each of which creates its own timeline risk if handled incorrectly.
- Confirm the designation and the asset-freeze scope. Before filing anything, map the full picture: which SEMA programme applies, which entity or individual is designated, what assets are frozen, and whether any affiliated entities are caught through ownership or control. The ownership and control test under SEMA (the test for whether a non-listed entity is caught through a listed person's ownership or control) can extend the freeze further than the immediate designee. This step typically takes two to five business days if the corporate structure is clear, longer for complex group structures.
- Identify the counsel and the fee structure. GAC expects a concrete description of the legal work to be funded, an estimate or schedule of fees, and the billing arrangement. Vague or contingency-based fee structures create friction. Fixed or capped retainer arrangements are cleaner for the permit application.
- Prepare the application package. A typical package includes a cover letter explaining the basis for the request, a description of the designated party's legal affairs requiring representation, the fee schedule and retainer terms, supporting documentation on the designation, and any relevant corporate-structure charts. There is no published form for a SEMA legal-fees permit; the package is drafted by counsel and submitted to GAC's Sanctions Policy and Operations Bureau by email or in writing.
- Submit and manage the GAC review. GAC does not publish a target review period. In practice, simple applications in straightforward programmes can take several weeks; applications involving complex group structures, parallel criminal proceedings, or politically sensitive designations can take considerably longer. During the review, GAC may send information requests. Responding promptly and completely is critical to pace. Delays in response are the most common cause of extended timelines in our experience.
- Receive and review the permit conditions. If GAC grants the permit, it will typically be conditioned: it will name the receiving counsel, cap the amount, specify the permissible scope of work, and may require reporting on how funds are used. Conditions must be read carefully before funds move, because a payment that technically violates a permit condition is not authorised.
- Implement and record-keep. Once the permit is in place, each payment must be documented against the permit terms. Keep records of every transaction, every invoice, and every communication with GAC. Good record-keeping is the defence if GAC later scrutinises compliance with the permit.
The position above covers the standard case. Your facts – the counterparty, the programme in play, the complexity of the structure, and the amount in issue – change the analysis materially. For an assessment of your specific situation under the applicable country regime, contact Calder & Vance at info@caldervance.com.
How does Canada compare with OFAC, OFSI, and the EU on legal-fees authorisations?
Cross-regime comparison is essential for any designated party with assets in multiple jurisdictions, and the differences are significant enough to affect the sequencing of applications.
Under OFAC, the US position has historically operated through general licences for legal fees in connection with sanctions proceedings, subject to a fee cap and a prohibition on representing the designated party in any offensive legal action against the US Government. That cap has varied over time; verify the current cap before relying on it. The structural advantage of the OFAC general-licence mechanism is speed: an eligible lawyer can receive fees within the cap immediately, without a prior application. The structural disadvantage is the cap itself and the scope limitations that attach to general licences.
Under OFSI in the United Kingdom, the position under SAMLA (the Sanctions and Anti-Money Laundering Act) requires a specific licence for legal-fee payments from frozen accounts, similar in structure to Canada. OFSI publishes licensing guidance and, in most programmes, has indicated the factors it weighs. Response times vary; the regime does not guarantee a timeline, though OFSI has published indicative timeframes for different categories of licence that practitioners can use as a planning guide. Under UK law, the test for whether a non-listed entity is caught can turn on both ownership and control, adding a layer of analysis before the licence application begins.
Under EU Council regulations, the position parallels OFSI: specific authorisations are required for payments from frozen funds to cover legal fees, and the authorisation is issued by the competent national authority in each Member State. The practical consequence for a group with assets in multiple EU jurisdictions is that parallel applications to multiple national authorities may be required. Co-ordination between those applications is a distinct exercise. The EU does publish some guidance on the types of legal fees that are in principle authorisable.
The key divergences for a cross-border practitioner are:
- General licence availability: OFAC has it (within caps); SEMA, OFSI, and EU do not.
- Multiple simultaneous applications: an EU group may need filings in several Member States; a Canada/UK-assets combination requires parallel SEMA and OFSI applications.
- Review timelines: all regimes are discretionary, but OFAC's general-licence route avoids the wait; specific-licence regimes vary by programme, national authority, and volume.
- Condition drafting: SEMA and OFSI permits tend to be highly specific; EU national-authority conditions vary by Member State.
Where assets are frozen in more than one jurisdiction, the stricter prohibition governs each asset separately. Obtaining an OFAC general licence does not authorise movement of Canadian assets; the SEMA permit covers only the Canadian position. Sequencing the applications in parallel, not in series, preserves time.
If a transaction has already been flagged by a financial institution, or a fee payment has been returned as a potential prohibited dealing, an early review of the permit position can preserve options that narrow with time. Contact info@caldervance.com for a confidential review.
What are the risk flags that most commonly derail a legal-fees permit application?
Applications fail or are significantly delayed for a predictable set of reasons. Identifying these before filing is more efficient than correcting them during a GAC review.
The first and most common risk is an incomplete corporate-structure analysis. If the designated person owns or controls entities beyond the directly named designee, and those entities hold the funds proposed to be used for fees, the permit must address the full chain. A permit authorising a dealing with the designated individual's own blocked account does not automatically authorise a dealing with a controlled subsidiary's account. We have acted for clients where this gap was identified only after GAC queried the application, adding weeks to the process.
The second risk is an insufficiently particularised fee description. GAC is sceptical of open-ended retainer requests. Applications that identify specific proceedings, specific legal tasks, and a schedule of fees tied to those tasks are better received than those that describe "general legal assistance" at a broad monthly rate.
The third risk is failing to address GAC's flow-of-funds concern. If the designated person or entity could in any way benefit from the fee payment beyond receiving legal services – for example, if the lawyer is also an affiliate, or if the fee structure has a contingency component that could create a profit interest for the designee – the application is likely to face additional scrutiny or conditions.
The fourth risk, specifically relevant to the cross-border context, is moving assets in reliance on an OFAC general licence without separately obtaining a SEMA permit for the Canadian portion. The two regimes are legally independent. An authorisation under one does not constitute an authorisation under the other.
A related myth that we address regularly: some businesses believe that because the fees are going to an independent law firm rather than to the designated person directly, no authorisation is required. That is incorrect under SEMA. A transfer of value from a blocked account, regardless of the recipient, requires a permit unless an applicable exception applies. The destination of funds does not cure the prohibition on the transfer itself.
When should you involve specialist counsel, and what will they do?
The honest answer is: before you attempt the application alone. That is not self-serving advice – it reflects the reality that GAC's discretionary process rewards well-constructed, complete applications and does not provide a structured opportunity to cure deficiencies informally in the way some other regulators do.
Specialist sanctions counsel performs several specific functions in a legal-fees permit matter. First, they conduct the ownership-and-control mapping to identify the full perimeter of the asset freeze. Second, they assess whether any applicable exception under SEMA could cover the payment without a permit – a threshold question that, if answered positively, saves weeks of application time. Third, they draft the permit application, including the cover letter, the supporting materials, and the fee documentation. Fourth, in a cross-border matter, they co-ordinate the parallel SEMA, OFSI, or OFAC steps so that the first authorisation obtained does not create a false sense of clearance before the others are in place.
In a recent matter, a financial-services group with assets in Canada and the United Kingdom identified a designation affecting a controlling shareholder. We mapped the ownership structure across both jurisdictions, identified the asset-freeze perimeter under both SEMA and SAMLA, and filed parallel applications in Ottawa and London. The parallel approach meant that counsel in both jurisdictions could begin substantive work at the same stage rather than waiting for sequential authorisations. The matter resolved without enforcement action under either regime.
The question of timing is also relevant. A lawyer who has already received a retainer from a frozen account – perhaps before the designation was identified, or in the belief that a general licence applied – may face a reporting obligation as well as a licensing need. Under some programmes, knowledge of a potential prohibited dealing triggers a reporting window. If that situation has arisen, the first call should be to sanctions counsel, not to the regulator, because the sequencing of a VSD (voluntary self-disclosure to a regulator) and any remedial steps matters.
Related practices
- Frozen account management under BIS/EAR – managing export-control holds on accounts and shipments under US rules.
- Legal-fees licences under Canada – advanced issues – group structures, conditions, and post-permit compliance.
- Legal-fees licences: cross-border guide – parallel OFAC, OFSI, EU, and SEMA applications in a single matter.