On March 5, 2014, the federal government introduced targeted economic sanctions against the representatives of the former government of Ukraine by regulations made under the Freezing Assets of Corrupt Foreign Officials Act(FACFOA). The Freezing Assets of Corrupt Foreign Officials (Ukraine) Regulations (Ukraine Regulations) impose an asset freeze in respect of the assets of senior officials of the former Ukrainian government and their associates and family members who are suspected to have misappropriated state funds or obtained property inappropriately, and prohibit the provision of any financial or other related services to such designated persons. Although it was initially announced that these measures would be introduced under the Special Economic Measures Act, the Ukraine Regulations are enacted under FACFOA. They came into force effective immediately.
The Ukraine Regulations apply to every person in Canada and every Canadian outside Canada and prohibit:
- dealing, directly or indirectly, in any property, wherever situated, of any designated person;
- entering into or facilitating, directly or indirectly, any financial transaction related to the property of any designated person; and
- providing financial services or other related services in respect of any property of any designated person.
Regulated financial institutions are required under FACFOA to determine, on a continuing basis, whether they are in possession or control of property that they have reason to believe is the property of a person designated by regulation. This requirement now applies in respect of persons designated under the Ukraine Regulations as well.
The Office of the Superintendent of Financial Institutions (OSFI) has issued a notice reminding federally regulated financial institutions that they are expected to search their customer records to:
- identify financial assets to which the asset freeze applies;
- identify prohibited financial transactions; and
- ensure that financial services provided to designated persons are blocked and reported to the Royal Canadian Mounted Police (RCMP).
In addition, OSFI indicated that it expects financial institutions to search their records related to persons who own or control, directly or indirectly, 25 per cent or more of clients that are corporations and other entities in order to determine whether they are dealing with a corporation or an entity that may be owned or controlled by a person designated under the Ukraine Regulations. OSFI expects these searches to be conducted on a weekly basis or more frequently if necessary.
All businesses are required to disclose without delay to the RCMP property reasonably believed to be that of a designated person under the Ukraine Regulations, together with information about any related transaction. Financial institutions are not required to separately report their search results under the Ukraine Regulations to their principal regulator.
Financial institutions and other entities that are subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act will need to factor in the money-laundering risks associated with the developments in Ukraine in their risk-assessment processes. Such risk assessment should not be limited to the designated list under the Ukraine Regulations.