A Canadian-registered holding company acquires a minority stake in a trading entity. The trading entity then enters a supply agreement with a buyer whose ultimate beneficial owner appears on the Consolidated Canadian Autonomous Sanctions List (the list maintained by Global Affairs Canada of individuals and entities subject to Canadian autonomous sanctions). The question for the compliance team is immediate: is the buyer caught? Does the taint reach the trading entity? Does it reach the holding company? In our experience, these questions surface far more often than firms expect – and the answer, under Canada's sanctions regime, is rarely obvious from a surface-level screen.
Ownership and control assessments under Canada are governed by the Special Economic Measures Act ("SEMA"), its associated regulations, and the guidance issued by Global Affairs Canada ("GAC"). Unlike the mechanical 50 percent or more ownership threshold applied by OFAC, the Canadian test encompasses both ownership and control, meaning that even a minority holder may be caught if it exercises effective control over a listed person – or over an entity that a listed person controls. As of July 2026, verify all current positions before relying on them.
This guide sets out the governing legal authority, the step-by-step assessment methodology, where the Canadian test diverges from those of OFAC, OFSI, and the EU, the risk flags that most frequently cause errors, and when to involve sanctions counsel.
What is the legal basis for ownership and control assessments under Canada?
SEMA and its thematic regulations constitute the primary legal basis for ownership and control assessments in Canada, administered by GAC. SEMA confers the authority to prohibit dealings with designated persons and to extend those prohibitions to entities owned or controlled by them. The prohibitions are broad: a person must not knowingly deal in property owned or controlled by a designated person, must not provide financial or related services for their benefit, and must not make goods or services available to them.
The concept of control under SEMA is not defined by a single bright numerical line. Instead, control is assessed by reference to the factual circumstances: who can direct the management or policies of the entity? Who can appoint or remove directors? Who holds contractual or structural rights that allow one party to determine outcomes? These questions require documentary evidence, not merely a shareholding register. A listed person holding 35 percent of an entity may still control it through a shareholder agreement, a casting vote, or operational dependency – and that control relationship is sufficient to bring the entity within the prohibition.
GAC issues guidance on the application of SEMA's prohibitions, and practitioners should treat that guidance as the authoritative interpretive reference. The relevant thematic regulations – covering, for instance, certain country-specific programmes – supplement SEMA and may add further specific prohibitions. Neither SEMA nor the regulations require a specific ownership percentage as the exclusive trigger; the ownership limb and the control limb are alternative routes to designation capture, not cumulative ones.
Step 1 – Identify designated persons in the ownership and control chain
The starting point for any assessment is a systematic screening of the full ownership chain against the Consolidated Canadian Autonomous Sanctions List and, where relevant, the United Nations Security Council Consolidated List, which Canada implements directly. Neither a person-level screen nor a screen of only the direct counterparty is sufficient.
In practice, a compliant screen maps each layer of the ownership structure: direct shareholders, intermediate holding companies, and ultimate beneficial owners at every tier. Where a corporate structure contains special-purpose vehicles, nominee arrangements, or trusts, each must be individually assessed. The UN Consolidated List – maintained by the UN Security Council committees – creates an independent obligation, and entities caught under UN measures are simultaneously caught under Canadian law.
Publicly available registry sources are a starting point, not a conclusion. Corporate registries vary in depth and update frequency across jurisdictions. A gap in the public record is not a clean bill of health. In a recent matter, a manufacturing firm with European operations identified a listed beneficial owner only at the third tier of a multi-jurisdiction holding structure; the first two tiers carried no flags at all. The lesson is that the depth of the search must match the complexity of the structure.
Record every source consulted, the date of each search, and the version of each list checked. The date matters because designations are added and removed; a screen conducted today does not protect against a designation made next month on a party already contracted with. Ongoing monitoring is a separate and equally important obligation.
Step 2 – Apply the ownership test and the control test in sequence
Once designated persons have been identified in the ownership chain, the next step is to determine whether the entity being assessed is itself caught through ownership, control, or both. The two tests are applied in sequence, but a positive result under either is sufficient.
Under the ownership limb, the question is whether one or more designated persons own the entity, directly or indirectly, whether individually or in combination. Aggregation matters: two designated persons each holding 24 percent do not individually satisfy a hypothetical bright-line majority test, but in combination their holdings represent a significant stake, and depending on governance rights, that combination may ground a control finding. Canada does not apply a fixed percentage threshold for the ownership limb; the assessment is qualitative as well as quantitative.
Under the control limb, the analysis focuses on effective control over the entity's management, policies, or assets. Relevant indicators include: the ability to appoint or remove board members; the holding of veto rights over material decisions; operational dependence (where the entity exists primarily to facilitate the designated person's activities); and contractual arrangements that constrain the entity's independent decision-making. A corporate parent may hold a minority stake but still control through a management agreement or through de facto operational dominance.
How does this compare with the position under OFAC? Under OFAC, the 50 percent rule (OFAC's rule treating entities owned 50 percent or more in the aggregate by blocked persons as themselves blocked) is a binary, ownership-focused mechanical test. Control – in the sense of management influence short of 50 percent ownership – does not independently trigger OFAC's blocking rules. Canada's dual-limb approach is broader. A business that has cleared OFAC's ownership screen cannot assume it has cleared the Canadian test.
How does Canada's test compare with OFSI and EU positions?
Cross-border businesses frequently manage obligations under multiple concurrent regimes. Understanding where the Canadian approach converges with and diverges from OFSI's and the EU's rules is operationally essential. The divergences are material enough to require separate analysis for each regime.
Under OFSI, the UK financial-sanctions authority, the test also encompasses both ownership and control, and the control limb similarly captures situations where a designated person holds influence over the management of an entity without holding a majority stake. In that respect, the UK and Canadian approaches are structurally comparable. A key practical difference is enforcement posture and reporting obligations. OFSI imposes a mandatory obligation to report knowledge or reasonable cause to suspect that a person is designated or has committed a financial-sanctions offence, and OFSI's enforcement guidance sets out a short reporting window. Canada's reporting obligations under SEMA are separate and should be verified against the current text of the applicable regulations before relying on any generalisations.
Under the EU's ownership and control tests, derived from the relevant Council regulations and implemented by EU member state authorities, the analysis similarly captures both direct and indirect ownership and control. The EU General Court has developed a body of case-law on the evidentiary standard required to ground a control finding, and that jurisprudence offers useful analytical tools even where EU law does not directly apply. Practitioners advising on Canadian matters often draw on EU General Court reasoning as a disciplined framework for working through indirect-control questions – while ensuring that the Canadian regulatory authority's own guidance governs the conclusion.
Switzerland (SECO), Australia (DFAT), Singapore, Japan, and the UAE each operate distinct ownership-and-control frameworks. Some apply numerical thresholds; others apply purely qualitative tests. Where a cross-border transaction implicates multiple regimes, the stricter prohibition governs – a principle our practice applies as a default across multi-regime assessments. Does your screening programme apply the strictest applicable test, or does it default to the jurisdiction of incorporation?
Step 3 – Assess indirect exposure and layered structures
Indirect exposure is the most frequently missed category in ownership and control assessments. It arises where a clean entity at the first layer sits beneath a tainted entity at a higher tier, or where the entity assessed is itself a counterparty to a contract funded or directed by a designated person elsewhere in the chain.
Under SEMA, providing financial or related services for the benefit of a designated person is prohibited. This means that the analytical question is not merely whether the direct counterparty is caught, but whether a transaction will ultimately benefit a designated person through the counterparty. A clean subsidiary wholly owned by a designated parent is itself caught under the control limb. A transaction with that subsidiary thus engages the prohibition, even if the subsidiary carries no direct designation and appears clean on a surface screen.
Layered structures – where a designated person owns an intermediate holding company, which in turn holds a majority stake in the target entity – are assessed by working through each layer. In our experience, the structural complexity that creates indirect exposure is often intentional, but it can also arise from historical ownership changes that left a listed person as a residual shareholder at a mid-chain level. Due diligence records for M&A transactions should map the full pre-acquisition ownership history of the target, not only its current structure.
Trusts and nominee arrangements present additional challenges. Where a designated person is the beneficial owner of a trust, the assets held by the trust are treated as property owned by the designated person for SEMA purposes. Nominee shareholders whose instructions originate with a designated principal do not break the chain of control. Identifying these structures requires document review beyond the immediate corporate registry: shareholder agreements, trust deeds, loan arrangements, and operating agreements may all be relevant.
Risk flags and common errors in Canadian ownership assessments
Certain patterns recur in matters we review. Each represents a point where an otherwise competent compliance process has produced an unreliable result.
The first and most common error is over-reliance on automated screening tools without manual verification of ambiguous results. A screening tool that matches on name alone without address, nationality, date of birth, and identifier cross-checking generates both false positives and false negatives. False positives cause unnecessary transaction delays; false negatives create legal exposure. The tool is a starting point; the analyst's judgment closes the loop.
The second error is failing to aggregate. Two listed persons each holding a minority stake may individually look immaterial. Without aggregation logic in the screening process, the combined holding – which may well ground a control finding – goes undetected. Aggregation must be applied across all lists consulted, including the UN Consolidated List, not only the Canadian list.
The third error is a static assessment. An ownership structure reviewed at onboarding or at signing may have changed by the time of performance, payment, or delivery. Sanctions lists are updated regularly, and a person not listed at the time of contract may be listed before completion. Monitoring obligations extend through the life of a transaction, not just to its inception.
The fourth error – and one that often carries the greatest consequence – is failing to consider the control limb at all. Where no designated person holds a clear majority, some practitioners close the assessment. That is incorrect under SEMA. The control analysis must be conducted independently of the ownership analysis. A controlling minority is still control.
If a transaction has already been flagged, or a filing has been refused, an early review can preserve options that narrow with time. For a confidential review of a potential breach or a screening programme gap, contact Calder & Vance at info@caldervance.com.
When should you involve sanctions counsel?
Not every ownership and control question requires external counsel. Where a structure is straightforward, the designated person is unambiguously identified at the first tier, and no control indicators are present below that tier, an experienced in-house team can complete the assessment reliably. Counsel adds most value in four situations.
First, where the ownership structure is complex, multi-jurisdictional, or involves trusts, nominees, or contractual control rights that do not appear on the face of a corporate registry. These structures require document review and analytical judgment that goes beyond standard screening workflows.
Second, where the position under Canadian law needs to be assessed alongside obligations under OFAC, OFSI, EU, or other concurrent regimes. The interaction of multiple ownership-and-control tests is not additive; the analyses must be conducted separately under each applicable regime, and a conclusion under one does not satisfy another.
Third, where a designated person appears in the chain and the question is whether a licence, authorisation, or specific exemption is available under SEMA to permit the transaction notwithstanding the designation. Licensing decisions under SEMA involve a structured assessment of the purpose of the transaction, the nature of the benefit, and GAC's current enforcement priorities. We regularly advise on the framing of those applications.
Fourth, where a potential breach has been identified – whether through an internal audit, a counterparty disclosure, or a regulatory inquiry. The appropriate response to a potential violation under SEMA is a question for qualified sanctions counsel. Voluntary disclosure decisions, the framing of an initial response to a regulator, and the scope of any internal investigation all require legal privilege and specialist advice from the outset.
The position above covers the standard case. Your facts – the counterparty structure, the nature of the goods or services, the jurisdictions involved, and the listed persons in the chain – change the analysis. To discuss an ownership and control question under Canada or any concurrent regime, contact Calder & Vance at info@caldervance.com.
A common misconception: passing the OFAC 50 percent screen is not enough
One persistent myth in cross-border compliance is that clearing the OFAC 50 percent rule is sufficient to confirm that a counterparty is clean across all major regimes. This belief surfaces regularly among firms whose primary sanctions exposure has historically been US-centric.
Under OFAC, a non-listed entity is blocked only if listed persons own it at the 50 percent threshold in the aggregate. Below that line, and in the absence of a separate designation, OFAC does not treat the entity as blocked. Under SEMA, that same entity may still be caught if a listed person exercises control over it – regardless of the ownership percentage. A 30 percent shareholder who holds board appointment rights and veto powers over material decisions controls the entity under a Canadian analysis, even if OFAC's mechanical test produces a clean result.
The consequence is practical and immediate. A firm that runs only an OFAC ownership screen and proceeds on the basis of a clean result may be committing a violation of Canadian law on the same transaction. We regularly advise multinationals on exactly this gap in their screening programmes. A programme designed to satisfy one regime's test is not a programme designed to satisfy all relevant regimes. The appropriate standard is the strictest applicable test across all jurisdictions where the business has a nexus.
Related practices
- Compliance audit and testing – Australia – Sanctions screening audit and programme testing under the Australian autonomous sanctions regime.
- Ownership and control assessments – EU – Methodology and regime comparison for EU Council regulation ownership and control tests.
- Ownership and control assessments – EU (advanced) – Indirect control, trust structures, and EU General Court evidentiary standards.