A payment firm operating between Canada and a third market receives a compliance alert: funds held in a correspondent account have been frozen by its Canadian bank. The underlying counterparty may have a connection to a designated person. The clock is already running. What does the firm do next, and how long does it have to act before options begin to close?
The release of blocked funds under Canada is governed by the Special Economic Measures Act ("SEMA") and the country-specific regulations made under it, administered by Global Affairs Canada ("GAC"). A permit – GAC's equivalent of a specific licence – is the primary lawful route to unblocking or accessing frozen assets. As of June 2026, the procedure requires a written application to GAC supported by evidence that the transaction falls within a permitted ground, and response timelines vary by the complexity of the file.
This guide sets out the governing regime, the application procedure step by step, the points at which matters most commonly go wrong, and how the Canadian approach compares to OFAC and OFSI – the two regimes most often in play for businesses operating across the Atlantic or into North America.
What governs blocked funds in Canada – and who decides?
SEMA and the regulations made under it are the legal basis for asset-blocking in Canada; GAC is the competent authority responsible for both issuing permits and enforcing the prohibitions. Canada's autonomous sanctions regime operates alongside its obligations under UN Security Council resolutions, which are given domestic effect through the United Nations Act and associated regulations. The two instruments sit in parallel: a business must check both before concluding that a permit under SEMA is the only requirement.
GAC's Sanctions Bureau within the Trade Controls and Technical Barriers Bureau handles permit applications. It is a relatively small team, and that has a practical consequence: response times on contested or fact-heavy applications are not fixed by statute at a short window. In our experience, applicants who submit thin initial packages face lengthy back-and-forth with the Bureau and often a materially longer wait than those who front-load the evidence.
The prohibitions themselves operate on a strict-liability basis. A Canadian person – or any person in Canada – who deals in the property of a designated person, or facilitates a transaction involving that property, commits an offence under SEMA regardless of intent. That strict-liability framing concentrates the minds of Canadian financial institutions, which routinely freeze funds on a precautionary basis when a screening alert fires, even before there is a formal determination of designation.
The position above describes the standard Canadian framework. Your facts – the nature of the asset, the identity of all parties in the chain, the applicable country-specific regulation, and any UN overlay – change the analysis materially. For an early assessment of where your blocked-funds matter sits, contact Calder & Vance at info@caldervance.com.
Step 1: Establish the basis of the block before applying
Before filing anything with GAC, a business must confirm precisely why the funds are frozen, because the answer shapes every subsequent step. Is the block the result of a direct designation of the account holder? Does it arise from the ownership and control test – the Canadian rules treating property as blocked when a designated person owns or controls the legal or beneficial interest? Or is the freeze precautionary, imposed by the bank on its own authority pending a determination?
Each of these paths leads to a different application. A precautionary freeze by a bank may resolve through a legal clarification letter – demonstrating that the account holder is not a designated person and is not owned or controlled by one – without a formal permit application at all. A direct designation, by contrast, requires either a permit or a successful delisting. Conflating the two at the outset is one of the most common and costly mistakes we see.
The ownership and control analysis in Canada broadly tracks the approach taken under OFSI in the United Kingdom and under EU Council regulations, though the specific tests are not identical. Under SEMA and its regulations, property in which a designated person holds a direct or indirect interest is caught, not only property that is legally owned outright. The practical effect is that even a minority beneficial interest can bring property within the prohibition if the designated person holds it. That is a broader framing than the mechanical 50 percent or more ownership threshold that OFAC applies under the US regime.
Step 2: Build the application package for GAC
A GAC permit application must include a clear description of the transaction or activity for which authorisation is sought, identification of all parties, the grounds on which the permit is claimed, and supporting evidence. GAC's published guidance sets out the categories of permissible grounds – humanitarian considerations, legal fees in specified circumstances, winding down pre-existing contracts, and others – but the list is not open-ended, and an application that cannot identify a recognised ground will fail regardless of its merits on equity grounds.
The evidence standard matters. GAC will not issue a permit on assertion. Documentary support must establish the identity of all parties in the ownership and control chain, the nature and provenance of the funds, and the specific way in which the proposed transaction fits within the claimed ground. We regularly advise clients to commission a focused ownership-chain analysis before the application is filed, because gaps in that analysis will surface during GAC's review – at which point the Bureau will ask for further information and the clock restarts.
One practical point that applicants often miss: the application is not simply addressed to the Sanctions Bureau. Depending on the asset class and the applicable country-specific regulation, additional notification to or coordination with the Canada Revenue Agency, FINTRAC, or the relevant financial institution may be required in parallel. Omitting those steps does not toll the prohibition; a business can be in technical non-compliance during the review period if it has not structured the interim arrangements correctly.
How does Canada's permit process compare with OFAC and OFSI?
Canada's permit process is the functional equivalent of an OFAC specific licence or an OFSI licence – a case-by-case authorisation to conduct an otherwise prohibited transaction – but there are structural differences that matter in a multi-regime situation.
Under OFAC, the process is structured around specific and general licences. OFAC publishes a substantial body of general licences – standing authorisations that permit defined categories of transaction without a separate application. The equivalent in Canada is narrower: GAC's general permits are more limited in scope, and businesses cannot assume that an OFAC general licence has a precise Canadian counterpart. In our cross-border practice, we have acted for businesses that had a valid OFAC general-licence basis for a transaction but still required a specific GAC permit to complete the Canadian leg.
OFSI in the United Kingdom offers a licensing regime under SAMLA (the Sanctions and Anti-Money Laundering Act) with published grounds, a reasonable-excuse defence in some circumstances, and a statutory obligation on OFSI to give reasons for a refusal. Canada's SEMA framework does not contain an equivalent statutory reasons requirement in the same explicit form, which makes a refusal harder to challenge procedurally. Does your counsel know how to use that asymmetry when building the strongest possible initial application?
A further cross-border point: because a significant volume of international payments clears through US correspondent banks, a transaction involving blocked funds in Canada may simultaneously engage OFAC's jurisdiction over the US-dollar clearing leg. In that case the business needs both a GAC permit and a determination that the OFAC position is satisfied – either through a general licence or, if none applies, an OFAC specific-licence application. Failing to address the US leg while pursuing the Canadian permit is a pattern we see regularly, and it produces the outcome where the Canadian authorisation is obtained but the payment still cannot move.
If a transaction has already been flagged, or a filing has been refused, an early review can preserve options that narrow with time. Contact Calder & Vance at info@caldervance.com for a confidential review.
Step 3: Manage the interim period and reporting obligations
While a permit application is pending, the prohibition remains fully in force. A business cannot, pending the outcome, continue to deal in the blocked property on the basis that authorisation has been applied for. That sounds obvious, but in practice it creates acute difficulty for financial institutions that hold blocked funds in accounts that accrue interest, for businesses with ongoing contractual obligations, and for parties managing operational costs – legal fees, storage, insurance – associated with blocked assets.
GAC's approach to interim arrangements is pragmatic in some cases: a specific permit can be sought for defined interim dealings, such as paying reasonable costs of maintaining blocked assets or meeting essential expenses. But this requires a separate application or an express scope within the main application. It is not implicit in the filing.
Reporting obligations under SEMA and the associated regulations run in parallel with the permit process. A Canadian financial institution that holds blocked property is required to report that holding to GAC. The obligation is on the institution, not on the underlying account holder, but the practical effect for the account holder is that GAC will already have information about the asset by the time the permit application arrives. That means the application must be consistent with what has already been reported. Inconsistencies – even ones that arise from a genuine difference in how the holding was characterised – generate questions from GAC and delay.
Risk flags: where release of blocked funds applications fail
Applications under SEMA fail for a small number of recurring reasons. Identifying them early is the difference between a successful release and a prolonged enforcement exposure.
- Incorrect characterisation of the basis of the block. Applying for a permit to release funds when the correct route is a clarification of non-designation, or vice versa, wastes time and can prejudice the correct application when it is eventually filed.
- Incomplete ownership chain analysis. GAC will probe the full chain of beneficial ownership and control. An application that presents only the direct legal owner without analysing intermediate layers will attract information requests and, in some cases, refusal.
- Failure to address the UN overlay. Where the applicable country-specific regulation implements a UN Security Council resolution, the permit ground must be consistent with the UN instrument. A GAC permit cannot authorise what the UN resolution prohibits. Businesses with multi-layered exposure sometimes focus only on the Canadian autonomous-sanctions layer and miss the UN dimension entirely.
- No OFAC analysis for USD-denominated assets. As described above, the US correspondent-banking exposure is a parallel requirement, not a downstream one. It must be assessed at the same time.
- Late engagement of counsel. Permit applications submitted under time pressure – because a contractual deadline has arrived, or because a bank has issued a notice requiring the account holder to take steps – almost always produce thinner packages than those filed after careful preparation. GAC's review is document-intensive; the quality of the initial submission largely determines the speed of the outcome.
A common assumption among in-house teams is that once a permit application is filed, the matter is effectively resolved and the business can turn its attention elsewhere. In practice, GAC may issue requests for additional information at any stage of its review. The timelines for responding to those requests are not always generous. Missing a GAC information request or responding inadequately is not a procedural inconvenience; it can result in the application being decided on the existing record, which may be insufficient for approval.
When should you involve sanctions counsel?
The honest answer is: before you file. There is a widespread assumption – it is one we encounter regularly from in-house teams and from smaller financial institutions – that a blocked-funds permit application is an administrative form-filling exercise that requires no specialist input. In straightforward cases with a single regime, a clear non-designation, and a well-defined permitted ground, that view is not wholly wrong. But those conditions are the exception, not the rule, in cross-border practice.
Counsel adds the most value at three points. First, at the characterisation stage: determining whether the correct route is clarification, a permit, or a delisting, and whether the US or UN layer engages. Second, at the application-drafting stage: structuring the evidence package, framing the permitted ground, and anticipating GAC's questions. Third, during the review period: managing information requests, maintaining the interim arrangements, and – if the application is refused – advising on the grounds for reconsideration or challenge.
The AUDIENCE_MYTH we hear most often is that involving external sanctions lawyers will slow the process down. In our experience, the opposite is true. A well-prepared application is processed faster and generates fewer information requests than an underprepared one. And a matter that reaches refusal because the initial application was deficient can take considerably longer to resolve from that point than a matter correctly structured from the outset.
Related practices
- Frozen account management under BIS and the EAR – US export-control licence and account-release procedures for BIS-regulated matters
- Release of blocked funds under Canada: advanced issues – detailed treatment of complex ownership, UN overlay, and multi-regime coordination
- Release of blocked funds: cross-border guide – comparative procedure across OFAC, OFSI, EU, and Canada in a single reference