A Canadian bank receives a payment instruction from a corporate client. A routine screening run flags that one of the named beneficiaries appears on the Consolidated Canadian Autonomous Sanctions List (the principal Canadian list of designated persons). The funds arrive. What does the bank do next? Does it return the payment, hold the funds, or seek authorisation? The answer is not obvious, and the cost of getting it wrong is not trivial.
Under Canada's autonomous sanctions regime, a financial institution or any other person in Canada that holds funds or property belonging to a designated person is required to freeze those assets immediately and report them to Global Affairs Canada. The legal basis is the Special Economic Measures Act ("SEMA") and, for certain regimes, the Justice for Victims of Corrupt Foreign Officials Act. There is no automatic licence to deal: frozen property stays frozen until a permit is issued or the designation is lifted.
This briefing explains who administers the regime, what the freeze obligation covers, how the permit process works for frozen-account management, where the Canadian rules diverge from OFAC and OFSI, and what risk flags practitioners should monitor before making any move with a frozen account.
Who administers frozen-account management under Canada?
The Canadian autonomous sanctions regime is administered by Global Affairs Canada (GAC), which maintains the Consolidated Canadian Autonomous Sanctions List, publishes country-specific regulations under SEMA, and considers permit applications from persons seeking authorisation to deal with frozen property. Enforcement of financial-sanctions obligations – including the freeze and reporting duty – sits primarily with GAC, working alongside the Royal Canadian Mounted Police and, for financial institutions, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Criminal prosecution of violations is a matter for the Public Prosecution Service of Canada.
This multi-agency structure is worth understanding at the outset. A financial institution holding frozen funds answers to GAC on whether the freeze is properly maintained and whether a permit is required. It answers to FINTRAC on suspicious-transaction reporting. And it answers to its prudential supervisor on the controls it has in place. In our experience, the separation of these channels causes firms to treat them as alternatives rather than parallel obligations. They are not: all three apply concurrently.
GAC publishes country-specific sanctions regulations and a consolidated list. The list is updated without a fixed publication schedule, so automated screening that is refreshed only weekly carries genuine gap risk. Firms that hold assets subject to a freeze must keep their identification records current, because the designee's name or identifying particulars may change as GAC corrects or updates an entry.
What does Canada's sanctions regime require for frozen accounts?
SEMA and the country-specific regulations prohibit any person in Canada, and any Canadian anywhere in the world, from dealing in the property of a designated person. "Dealing" is broadly drafted: it covers transferring, assigning, providing, selling, converting, disbursing, or otherwise moving or using property. It also covers receiving property that is or becomes the property of a designated person.
The freeze obligation is automatic. Once a person or entity is designated under a Canadian sanctions regulation, their property in Canada is frozen by operation of law. No separate court order is required. A financial institution holding funds in an account whose beneficial owner is a designated person must freeze those funds immediately on identifying the designation. There is no grace period in the regulations themselves – although GAC guidance acknowledges that identification may take time where ownership chains are complex.
Two points of scope are particularly important for cross-border businesses. First, the obligations apply to Canadians outside Canada. A Canadian subsidiary of a non-Canadian group remains subject to SEMA wherever it operates. Second, the regulations apply to property "in Canada" for institutions not incorporated or resident in Canada – which means that a non-Canadian bank's Canadian branch is caught by the freeze obligation for any account it holds in Canada, even if the account relationship is managed from abroad. Have you assessed whether your Canadian branch or subsidiary operates any accounts that could fall within the regime?
The reporting obligation runs alongside the freeze. Anyone who holds or controls the property of a designated person must report that fact to GAC. The report must describe the nature and value of the property. Subsequent changes to the property – including any disbursement made under a permit – must also be reported. GAC uses these reports to maintain its own picture of frozen assets across the system.
How does the permit process work for licensed dealings?
A permit under the relevant country-specific regulations is the mechanism by which GAC authorises an otherwise prohibited dealing with frozen property. The permit is issued in writing and is specific to the dealing described in the application. There are no broad general licences of the kind that OFAC issues for certain categories of transaction: each application is assessed on its own facts.
GAC considers permit applications on a case-by-case basis. The grounds on which a permit may be issued include basic living expenses of designated individuals, legal fees and costs incurred in connection with legal proceedings, extraordinary expenses, or where the permit is required to give effect to a judgment, order, or award. The grounds are set out in the relevant regulations and are not open-ended: a deal that does not fit a stated ground cannot be authorised by permit. Applicants must identify the precise legal basis for their request.
What does the application need to contain? In practical terms, GAC expects the applicant to identify the designated person and their connection to the frozen property, to describe the proposed dealing in precise terms, to explain why the dealing is required, and to match the request to the applicable regulatory ground. Supporting documentation – contracts, invoices, account statements, ownership structures – should accompany the application. Incomplete applications are returned or queried, and delays follow.
There is no published statutory processing timeline for GAC permit applications. In our experience, straightforward applications for living expenses or legal fees are processed more quickly than applications for commercial dealings or those involving contested ownership chains. Where a dealing is time-sensitive – because a payment falls due or an insolvency proceeding is under way – the application should be submitted well in advance and the time-pressure explained to GAC at the outset.
The position above covers the standard case. Your facts – the counterparty, the nature of the frozen property, the ownership chain, and the ground you seek to rely on – change the analysis considerably.
For an assessment of your exposure under the Canadian regime and advice on preparing a permit application, contact Calder & Vance at info@caldervance.com.
How does Canada's approach compare with OFAC and OFSI?
Cross-border B2B clients regularly deal with frozen assets that are caught by more than one regime simultaneously, and the Canadian approach differs from its closest comparators in ways that matter operationally. Understanding those differences prevents a firm from assuming that a licence issued by one authority clears the path everywhere.
Under OFAC (the US Office of Foreign Assets Control), the standard ownership test treats a non-listed entity as blocked when designated persons hold 50 percent or more in the aggregate – directly or through intermediaries. OFAC issues both specific licences (case-by-case authorisations) and general licences (standing authorisations for defined categories of transaction). A general licence can, depending on its scope, permit certain routine dealings without a separate application. Canada does not have an equivalent general licence infrastructure: each dealing requires its own permit unless the regulations contain an explicit carve-out.
Under OFSI (the UK Office of Financial Sanctions Implementation), the ownership test combines both ownership (more than 50 percent) and control – meaning a designated person's ability to direct the affairs of an entity even without majority ownership. OFSI can issue licences on grounds that include legal services, certain payments for basic needs, and prior obligations, and it has a published turnaround target for routine licence applications. Canada's permit regime does not carry a published turnaround target in equivalent terms, but the grounds available are conceptually similar.
The EU regime under the relevant Council regulations uses an ownership and control test comparable to OFSI's and provides for competent authorities in each Member State to issue authorisations. Unlike Canada, some EU Member States have issued broader standing derogations for certain routine dealings with frozen accounts, particularly for legal fees. A firm operating in both the EU and Canada cannot assume that a Member State authorisation extends to its Canadian operations or vice versa.
One principle is consistent across all four regimes: where two or more apply to the same asset, the stricter prohibition governs. A permit from GAC does not override a concurrent OFAC prohibition. In our cross-border practice, we regularly advise clients to map all applicable regimes before applying for any single permit, because an incomplete regulatory picture leads to a permit that cannot in fact be used.
What is the ownership and control test under Canadian law?
Canada's sanctions regulations employ an ownership and control test to determine whether a non-listed entity is caught because of its relationship to a designated person. The test is relevant when a firm holds assets in an account whose legal owner is not itself on the Consolidated List but may be connected to a listed person through shareholding or governance arrangements.
The Canadian test asks whether a designated person owns or controls the entity. Ownership follows a percentage threshold that mirrors the approach in comparable regimes: an entity is treated as caught where a designated person holds a sufficient percentage of its shares or interest. Control covers direct and indirect influence over an entity's affairs – including through contractual arrangements, board representation, or operational direction – and does not require majority ownership. This means that a company whose major shareholder is not listed may still be caught if a designated person exercises practical control over its decisions.
Mapping the control question is analytically more demanding than a mechanical threshold test. Documents that may be relevant include shareholder agreements, board composition records, management contracts, and any agreement giving a third party veto rights over material decisions. Where the relevant documents are governed by foreign law or held outside Canada, gathering them takes time. Firms that identify a possible control link should begin the document-gathering exercise before applying for a permit, not during the process.
For financial institutions, the obligation is continuous. A counterparty that was clean on original onboarding can become caught by a subsequent designation. Periodic rescreening against updated lists – including the Consolidated Canadian Autonomous Sanctions List, the UN Security Council Consolidated List, OFAC's SDN List (the list of Specially Designated Nationals and blocked persons), and relevant EU lists – is a practical necessity. If a transaction has already been flagged or a filing has been refused, an early review can preserve options that narrow with time.
To discuss a permit application or a review of your ownership analysis, write to Calder & Vance at info@caldervance.com.
How is frozen-account management enforced under Canada?
Non-compliance with Canadian sanctions obligations is a criminal offence under SEMA and the country-specific regulations. The maximum penalty on conviction on indictment is a significant custodial term and a substantial fine. Corporate entities are subject to prosecution separately from their officers and directors, and individuals within an organisation can be personally liable for a contravention carried out in the course of their duties.
GAC does not publish a civil penalty regime equivalent to OFAC's enforcement programme or OFSI's monetary penalties infrastructure. Enforcement in Canada runs primarily through criminal prosecution rather than through administrative monetary penalties. That does not mean the exposure is lighter – it means the route to liability is different, and the threshold for GAC referral to prosecutors is behaviour that constitutes knowing or wilful non-compliance rather than procedural error.
There is, nonetheless, a voluntary self-disclosure (VSD) culture developing in the Canadian sanctions space. GAC encourages reporting of compliance failures, and early, voluntary disclosure of a contravention is treated as a mitigating factor when authorities consider how to respond. A firm that identifies a breach – a frozen payment wrongly released, a reporting obligation missed, a permit condition not observed – should take legal advice promptly on whether and how to make a disclosure. The decision is not straightforward: the form of the disclosure, its timing, and its content all affect how it is received.
Record-keeping is a connected enforcement risk. The regulations require persons who deal with frozen property under a permit to maintain records of those dealings and to make them available to GAC on request. A firm that cannot demonstrate compliance through contemporaneous records faces a materially more difficult position in any regulatory inquiry. In our practice, record-keeping failures are consistently among the factors that convert a manageable compliance issue into a more serious enforcement concern.
Common risk flags and when to involve counsel
Frozen-account management under the Canadian regime generates a predictable set of risk flags that practitioners encounter regularly. Identifying them early is the difference between a controlled process and an unplanned enforcement exposure.
The first risk flag is inherited ownership. A business acquires a company or a portfolio of accounts. One of the underlying account holders, or a shareholder in an acquired entity, is subsequently designated – or turns out to have been designated before completion. The acquirer's freeze and reporting obligations attach immediately. Due diligence that screens only counterparty names and not ultimate beneficial owners creates exactly this exposure.
The second is jurisdictional overlap. A single frozen account may be caught by the Canadian regime, OFAC, OFSI, and EU measures simultaneously. A firm that obtains a Canadian permit and releases the funds without checking the position in other applicable regimes risks a breach elsewhere. We regularly advise on mapping the full jurisdictional picture before any move is made.
The third is the self-executing freeze. Unlike some regimes where a regulatory authority must designate and notify separately, SEMA designations take effect when the country-specific regulation is made or amended. A firm that is not monitoring the official gazette and GAC's list updates in near-real time may be operating a frozen account without knowing it. Automated screening set against a list that was last refreshed before a new regulation was gazetted does not provide protection.
The fourth is permit condition breach. A permit issued by GAC is specific and conditional. Using it beyond its stated scope – for instance, by applying it to a transaction not described in the application, or by failing to file a post-dealing report – is itself a violation. Permit conditions are not boilerplate; they must be read carefully and their requirements tracked through completion of the dealing.
A widely held but incorrect assumption is that a permit application is routine and does not require legal input. In fact, the grounds for a permit are defined in the regulations, the application must be precisely matched to those grounds, and incomplete or misdirected applications create delay and, in time-sensitive situations, actual loss. Early involvement of experienced sanctions counsel is not a cost; it is a risk-management measure with a direct effect on outcome.
Related practices
- Frozen-account management: BIS/EAR licensing service – licensing and authorisation support for US export-control matters involving frozen property.
- Frozen-account management under OFAC: explained – how the OFAC regime treats frozen assets and the licence process in the United States.
- Frozen-account management under OFAC (further analysis) – deeper analysis of OFAC ownership rules and cross-border intersections.