A trading company receives a wire transfer from an overseas subsidiary. The bank places a hold on the funds. On investigation, the compliance team discovers the payment has been frozen under Canada's autonomous sanctions regime – not because the company itself appears on any list, but because a minority shareholder in the remitting entity was designated months earlier. The account sits frozen. Payroll is due. Contracts are in default. What happens next?
Release of blocked funds under Canada requires a permit (a case-by-case authorisation granted by Global Affairs Canada under the Special Economic Measures Act ("SEMA"), the primary instrument governing Canada's autonomous sanctions regime) or a demonstration that the freeze does not apply in the first place. As of June 2026, there is no general-licence mechanism in the Canadian regime equivalent to OFAC's standing general licences; every release of blocked property travels through a specific permit application assessed on its individual facts.
This guide walks through the governing authority, the permit process step by step, the ownership and control analysis that determines whether funds are caught in the first place, the cross-regime picture for businesses that also operate under OFAC or OFSI, the most common risk flags, and when to involve sanctions counsel.
Who administers Canada's sanctions regime and what law applies?
Global Affairs Canada ("GAC") administers Canada's autonomous financial sanctions under SEMA, which grants the Governor in Council authority to impose measures – including asset freezes and dealings prohibitions – against foreign states, entities, and individuals. The regime is distinct from Canada's obligations under United Nations Security Council resolutions, which are implemented separately through the United Nations Act and its regulations. A business encountering a Canadian freeze needs to identify at the outset which legislative track applies, because the procedure for obtaining relief differs.
For most commercial counterparties, the SEMA track is the operative one. GAC publishes a consolidated list of designated persons and entities under the various SEMA regulations, and it is this list that drives Canadian financial-institution screening. The Freezing Assets of Corrupt Foreign Officials Act provides a further, separate track for specific categories of foreign politically exposed persons. In our cross-border practice, the most commercially significant Canadian freezes arise under the SEMA regulations, and the balance of this guide addresses that track.
Unlike OFAC, which publishes extensive guidance on the mechanics of its programmes and a large body of licensing FAQs, GAC's published guidance on the SEMA permit process is comparatively sparse. That asymmetry makes specialist advice more important at an early stage – not less. Have you confirmed which regulation is the source of the freeze before you engage with the bank?
Does the freeze actually apply? Ownership and control under SEMA
Before filing a permit application, a business must determine whether the freeze applies to the funds at all. This is not always obvious, and a wrong assumption – either that funds are freely available when they are not, or that a freeze applies when it does not – creates real legal exposure in either direction.
Canada's SEMA regulations prohibit dealings with designated persons and, critically, with entities owned or controlled by them. The ownership and control test (which captures a non-listed entity through its connection to a listed person) under the Canadian regime is not purely mechanical. It does not apply a fixed numerical threshold equivalent to OFAC's 50 percent rule (the test under which OFAC treats any entity owned 50 percent or more in the aggregate by blocked persons as itself blocked, regardless of control). Instead, Canadian ownership-and-control analysis looks at the totality of the relationship: direct and indirect ownership, board control, contractual control rights, and practical influence.
That divergence from the OFAC position matters enormously for businesses with US relationships. A counterparty structure that falls below the OFAC 50 percent threshold and is therefore not blocked for US purposes may still be caught under SEMA on a control analysis. Conversely, a structure that clearly crosses the OFAC threshold on aggregated ownership may not be owned or controlled under SEMA if the designated person exercises no operational control. The tests do not move in lockstep. In our experience, businesses that apply OFAC logic to a Canadian freeze question frequently reach the wrong answer.
The starting point is a disciplined ownership-chain map: who owns what percentage at each tier, who controls the board, who has contractual veto rights, and who in practice directs the entity's affairs. Only once that map is complete can the SEMA ownership-and-control question be answered with any confidence.
Step-by-step: how to apply for a SEMA permit to release blocked funds
A SEMA permit application for release of blocked funds follows a defined, though administratively demanding, sequence. The steps below reflect the operative process as of June 2026; because the regime is updated periodically, verify current requirements with GAC or with sanctions counsel before submitting.
- Confirm the legal basis of the freeze. Identify which SEMA regulation and which designation are the source. The permit that releases the funds must be grounded in the correct regulation. A permit issued under the wrong regulatory instrument has no effect.
- Establish that the applicant has standing. GAC accepts permit applications from the person or entity whose funds are frozen, and in some cases from financial institutions that have placed the hold. Confirm who the applicant is and whether joint or co-applicant filings are appropriate.
- Prepare the factual record. The application must explain the commercial relationship, the source and route of the funds, the nature of the transaction giving rise to the freeze, the ownership and control structure of all relevant parties, and – critically – the ground on which the permit should be granted. GAC considers humanitarian grounds, legal obligations (including pre-existing contractual obligations), and other grounds depending on the regulation in play.
- Prepare supporting documentation. Corporate structure charts, shareholder registers, board resolutions, transaction records, correspondent-bank communications, and any legal analysis of the ownership question are typically required. Gaps in the documentary record are the most common cause of delay or refusal.
- Submit to GAC and manage the review period. Applications are submitted directly to GAC's Sanctions Policy and Operations Division. GAC does not publish fixed statutory response times for permit applications. In practice, processing times vary considerably depending on the complexity of the ownership structure, the regulation involved, and GAC's current caseload. A business should not assume a short review window; the funds may be inaccessible for an extended period during review.
- Respond to GAC queries. GAC will typically request supplementary information or clarifications. Prompt, complete, and accurate responses shorten the review. Delayed or incomplete responses extend it.
- Receive and implement the permit decision. If a permit is granted, it will be time-limited and will specify permitted dealings precisely. Conditions must be followed to the letter; any dealing outside the permit's scope remains prohibited. If the application is refused, the applicant may consider resubmission on different grounds, a petition for reconsideration, or judicial review before the Federal Court.
The decision sequence above looks linear. In practice, steps 2, 3, and 4 overlap, and the factual-record preparation is almost always the longest stage. It is also the stage where incomplete legal analysis of the ownership question most frequently causes submissions to fail.
How does the Canadian permit process compare to OFAC and OFSI?
For businesses that operate across borders – and most businesses seeking release of blocked funds do – understanding how Canada's process compares to those of OFAC and OFSI is not a theoretical exercise. It shapes strategy. If US and Canadian sanctions apply simultaneously, a permit from GAC does not authorise a dealing that also requires an OFAC licence, and vice versa. The stricter prohibition always governs.
Under OFAC, the licensing regime distinguishes between specific licences (case-by-case, applied for via OFAC's online portal) and general licences (standing authorisations that permit defined categories of transactions without a separate application). The general-licence mechanism means that certain routine dealings – maintenance of a blocked account, legal services to a blocked person, wind-down of a contract – may not require a specific licence at all. Canada has no equivalent general-licence mechanism under SEMA. Every authorised release of Canadian-blocked funds requires a specific permit.
Under OFSI, the UK regime, a specific licence is similarly required for case-by-case transactions. OFSI does issue general licences for defined purposes, but the OFSI general-licence scheme, while expanded in recent years, covers narrower categories than OFAC's. The OFSI regime also imposes a mandatory reporting obligation: if a person knows or suspects that it holds blocked funds, it must report to OFSI. The Canadian regime does not have an identical mandatory-reporting rule for holders of blocked property, though the obligations of financial institutions under their own regulatory regimes will often produce the same practical effect.
Processing timelines also differ. OFAC publishes guidance indicating that specific-licence applications are typically processed within a defined period, though complex cases take longer. GAC does not publish equivalent timeline guidance. In our experience advising clients with multi-regime exposures, the Canadian permit track is often the most administratively opaque of the three, which makes early engagement with counsel – and early engagement with GAC – especially important.
One further divergence: the grounds for a permit differ by regime. OFAC licences are assessed against a policy standard set out in the relevant programme's regulations. OFSI applies statutory licensing criteria under the Sanctions and Anti-Money Laundering Act. GAC assesses SEMA permit applications against grounds specified in the applicable regulation, which vary between programmes. A ground that supports a successful OFAC licence application – for example, the protection of existing contractual rights – may be framed differently under SEMA and may receive different weight. Do not assume that a licence granted by one authority means GAC will follow suit.
Risk flags and common failure points
Several patterns appear repeatedly in blocked-funds matters that become more difficult to resolve than they should be. Recognising them early saves time, cost, and in some cases irrecoverable legal exposure.
- Acting on the funds before confirming the freeze applies (or does not apply). A financial institution that releases frozen funds without a permit, and a customer that instructs such a release, both face potential liability under SEMA. The fact that a business believed in good faith that the funds were not caught does not automatically provide a defence. The ownership-and-control analysis must be done before any dealing is attempted.
- Incomplete ownership mapping. Applications that present a partial or inaccurate ownership structure are frequently delayed for supplementary information requests or, in more serious cases, create credibility problems with the regulator. Map the entire chain before submitting.
- Assuming the bank's position is correct. Financial institutions apply their own screening logic, which may be conservative and may not perfectly track the legal analysis under SEMA. A bank freeze is a starting point for the legal analysis, not a conclusion. In a number of matters we have seen, the bank's compliance hold was not supported by a correct reading of the designation and the ownership-and-control question.
- Failing to address multi-regime exposure in the permit application. If the funds also involve a US nexus – dollar-denominated payments, a US correspondent bank, or US-person involvement – the Canadian permit application should not be filed in isolation. An OFAC specific-licence application may need to run in parallel. Filing one without the other can create a situation where one authority grants relief that the other authority's prohibition still blocks.
- Treating the permit as permanent. SEMA permits are time-limited. A business that has obtained a permit must monitor its expiry and re-apply if the need for relief continues. Operating on an expired permit is a breach of the regime.
- Missing adjacent obligations. A Canadian freeze may trigger reporting and record-keeping obligations under applicable anti-money laundering rules as well as under SEMA. Those obligations are not suspended while a permit application is pending. Compliance counsel and AML counsel should be engaged at the same time.
In a recent matter, a financial-services group with operations in both Canada and the United Kingdom discovered that a counterparty's parent entity had been designated under a SEMA regulation some weeks before an intragroup payment was instructed. The payment had been processed by the Canadian correspondent bank, which had not yet updated its screening lists. The funds were frozen retrospectively when the designation came to light. The group needed to address both the SEMA permit question and a parallel OFSI assessment of whether the UK leg of the same transaction was caught. We assisted in mapping the ownership chain across four jurisdictions, prepared the GAC permit application, coordinated with the parallel OFSI analysis, and structured the group's response to the bank's escalation. The matter illustrated clearly why a siloed, single-jurisdiction approach to a multi-regime freeze is rarely sufficient.
A common myth: the freeze will lift automatically once sanctions are removed
A persistent misconception among businesses encountering a Canadian freeze for the first time is that blocked funds will automatically become available if the underlying designation is lifted or if Canada removes a sanctions programme. This is not correct.
When a designation is revoked or a programme is wound down, the legal prohibition on dealings with the previously blocked property is removed. But blocked funds held in an account do not move automatically. The financial institution holding the funds will typically require a formal instruction, a legal opinion, or a GAC communication confirming that the prohibition has ended and that the release is lawful. Delays of weeks or months are common even after designations are lifted, because financial institutions apply their own risk assessments and require documentary comfort before releasing. A business that assumes the funds will flow the day after a designation is revoked will frequently be disappointed. A proactive approach – engaging with the institution and with GAC in advance of an expected delisting – materially reduces that gap.
The same point applies when funds are released under a permit rather than under a revocation. The permit authorises the dealing; it does not instruct the bank to release. A separate, permit-compliant release instruction must be prepared and issued within the permit's permitted scope and timeframe.
When to involve sanctions counsel
The regime is technical, the documentation requirements are demanding, and a poorly constructed permit application can prejudice a subsequent submission or, in a multi-regime matter, create inconsistencies that complicate parallel proceedings. The question is not whether to involve counsel, but when.
The answer is: before you deal with the funds in any way, and before you submit anything to GAC. The ownership-and-control analysis that determines whether the freeze actually applies is a legal question. The permit grounds and the framing of the factual record are legal judgments. If the matter also involves OFAC, OFSI, or another regime, the strategy for those tracks must be co-ordinated. Engaging counsel after the first submission has been filed – especially if that submission contained incorrect or incomplete ownership information – is more expensive and more difficult than engaging before.
If a transaction has already been flagged, or a bank has already placed a hold, an early review can preserve options that narrow with time. Contact Calder & Vance at info@caldervance.com for a confidential assessment of the position.
Related practices
- Frozen account management under BIS / EAR – managing US export-control licence requirements for frozen-account situations
- Release of blocked funds: cross-border guide – multi-regime comparison of the release process across OFAC, OFSI, EU, and Canada
- Release of blocked funds under the EU regime – EU Council regulation derogation procedure and the EU General Court route