On October 18, 2017, the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) (the Act) received royal assent and became effective in Canada. On November 3, 2017, the Governor in Council enacted the Justice for Victims of Corrupt Foreign Officials Regulations under the Act (together with regulations, Magnitsky Law).
Based on recent press, readers may be familiar with the background on why the Magnitsky Law was passed. This blog post does not cover the why, but rather the implications of this law for compliance with anti-money laundering (AML) requirements.
Prohibitions on dealings
The Magnitsky Law imposes prohibitions on dealings with foreign nationals who listed in the schedule to the regulations. The schedule currently lists 52 foreign nationals who are also inadmissible to Canada under the Immigration and Refugee Protection Act.
The Magnitsky Law prohibits persons in Canada and Canadians outside Canada from:
- dealing, directly or indirectly, in any property, wherever situated, of the listed foreign national;
- entering into or facilitating, directly or indirectly, any financial transaction related to a dealing described above;
- providing or acquiring financial or other related services to, for the benefit of, or on the direction or order of the listed foreign national; and
- making available any property, wherever situated, to the listed foreign national or to a person acting on behalf of the listed foreign national.
Duty to determine and disclose
Financial institutions are required by Canada’s federal financial regulator, Office of the Superintendent of Financial Institutions (OSFI), to implement the necessary measures to search for the names of designated persons and freeze assets subject to the regulations and determine whether they are in possession or control of property that they have reason to believe is the property of a foreign national who is subject to an order or regulation.
As with other existing searching and reporting requirements, the obligation to search for designated names is a continuing one. For example, at a minimum, it is OSFI’s expectation that financial institutions be able to search their records for designated names at least on a weekly basis, and more frequently if need be. New clients’ names should be checked against the names of designated persons as part of, or as soon as reasonably possible after, the process of account opening or otherwise entering into a business relationship.
Financial institutions that are subject to the AML requirements are required to obtain and record prescribed information on the persons who own or control, directly or indirectly, 25% or more of clients that are corporations and other entities. It is OSFI’s expectation that financial institutions will search these records to determine if they are dealing with a corporation or an entity that may be owned or controlled, directly or indirectly, by a designated person under the regulations.
If Canadian financial institutions have property in their possession or control that they have reason to believe is owned, held or controlled by or on behalf of a foreign national, or they have information about a transaction or proposed transaction in respect of property covered by the regulations, they are required to report such information to the Royal Canadian Mounted Police or the Canadian Security Intelligence Service without delay.
The Magnitsky Law requires financial institutions and a number of provincially regulated institutions to report monthly to their principal regulatory agency or body, whether or not they are in possession or control of any property that they have reason to believe is the property of a foreign national subject to an order or regulation. Where they are in possession or control of such applicable property, these institutions must report the number of persons or dealings involved and the total value of the property.