Canada can now seize, sell Russian assets. And after?

Selling Russian-owned assets to pay for Ukraine’s reconstruction may seem like a logical approach to restitution, but as the Canadian government gains new powers to begin this process, questions remain about how it will work and whether certain issues will be taken to court.

C-19, the budget implementation bill, received royal assent last Thursday. Among its many measures are new powers to seize and sell assets belonging to individuals and entities on Canada’s sanctions list. While the new powers could be used in any international conflict, the Liberal government’s current priority is to help the victims of Russia’s invasion of Ukraine.

Canada’s increased sanctions powers were discussed with US Treasury Secretary Janet Yellen during her visit to Toronto last week.

“We think it’s really important to expand our legal powers because it’s going to be really, really important to find the money to rebuild Ukraine,” Finance Minister Chrystia Freeland told Canadian and American reporters. “I can think of no more appropriate source for this funding than the confiscated Russian assets.”

That sentiment was shared by Ontario Senator Ratna Omidvar who proposed her own Senate legislation to allow similar asset seizures two years ago. At the time, she was motivated to help the displaced Rohingya population by sanctioning corrupt generals in Myanmar.

“Kleptocrats must pay for their crimes, not simply by being punished and their assets frozen, but by reallocating and confiscating their assets,” Omidvar said.

Although C-19 works a little differently from his bill, Omidvar still calls it a “good start” and supports the government’s decision.

“The question is no longer ‘should we confiscate,'” the senator said. “The question is, ‘How should we redirect?… Who is involved? How do we ensure accountability? How do we protect ourselves?'”

Expected test cases

Although some jurisdictions, including Switzerland, are already confiscating and returning some illicit assets, this move by Canada – and potentially other G7 countries meeting in Germany this week – is unprecedented.

The allies agree on the imperative to increase economic pressure on Russian President Vladimir Putin, but this remains a risky game. Other hostile governments could seize assets belonging to Canadians abroad in retaliation. It may also violate customary international law, such as the UN’s articles on state responsibility.

The new powers target assets in Canada owned by a person or entity on the federal government’s sanctions list. Previously, authorities could seize the proceeds of crime. With C-19, they can confiscate the property of sanctioned persons, whether acquired legally or illegally.

Is it right? Omidvar anticipates that the new powers will be challenged in Canadian courts. “I still think we need a few test cases,” she said.

The senator’s original bill proposed seizing and redistributing assets by court order, with a judge ruling on concerns.

C-19 gives more power to ministers, which is “faster and more agile”, acknowledges Omidvar, but also less transparent.

During the Senate debate, Omidvar called on the government to remove “politics from the equation” so that Canada is not accused of improper distribution of funds, “or worse, appropriation of funds for its own use.” .

Asked about the legality of these new powers earlier this month, Justice Minister David Lametti said “you don’t have an absolute right to own private property in Canada”, and compared it to other government expropriation processes.

Adrien Blanchard, spokesperson for Foreign Affairs Minister Melanie Joly, told CBC News that “necessary checks and balances” are provided in C-19, including a formal court process to confiscate any assets.

“Procedural fairness was a key consideration in crafting these measures, and forfeiture proceedings before a judge are not automatic,” Joly’s spokesperson said.

Confidentiality rules limit disclosure

Omidvar’s bill would have created a registry with the name of any person or entity associated with seized property and its value. There is no such disclosure requirement in C-19, so this might be a difficult process to follow once it begins.

One or more court cases could trigger greater public disclosure.

When the RCMP reported earlier this month that Canadian authorities had so far frozen the equivalent of $124 million in assets, they were unable to reveal what those assets are – cash , bonds, cryptocurrency, shares of companies, real estate or other assets – due to the Privacy Act.

The Minister of Foreign Affairs may issue permits on a case-by-case basis to authorize activities or transactions that would otherwise be prohibited, but only to persons in Canada or to Canadians abroad. When asked if such permits had been issued in connection with Canada’s sanctions against Russia, Global Affairs Canada declined to comment, again citing confidentiality concerns.

One of the top Russian oligarchs on Canada’s sanctions list, Roman Abramovich, owns about 30% of the shares of Evraz, a global steelmaker that employs more than 1,800 people at its western Canadian facilities.

CBC News asked Evraz North America if any of its shares or business properties were among the assets frozen by Canada so far, but the company did not respond.

In addition to its asset seizure powers, the budget implementation bill also establishes a publicly accessible register of beneficial owners to facilitate the traceability of the ownership of anonymous front companies. This might say more about Russian assets in Canada.

However, a company that is provincially registered instead of federally incorporated will only appear in the national register if the provinces and territories agree to participate – if they don’t, there is a loophole. potential, Omidvar warned during the debate.

Who receives the product?

Omidvar’s original bill would have required the recipient of redistributed funds to account to a court for their use.

C-19 makes the Minister of Foreign Affairs responsible for knowing who gets the money and what happens to it.

“Operationalizing this is going to be a bit of a challenge,” said fellow senator and former G7 Sherpa Peter Boehm. “It’s all very, very new.”

The former senior Global Affairs official suggests the government needs to put safeguards in place.

“What is the mechanism? Who should these assets go to? Do they go to individuals? Do they go to state actors?” Boehm said, noting that Canada may want to coordinate with other like-minded countries and United Nations agencies, such as the World Food Program. “There are a lot of questions out there…we need to know and Canadians would want to know where that money is going and if it is being spent properly.”

The G7 has considered asset seizures before, Boehm said. He expects they can feature in at least the behind-the-scenes conversations this week, if not in the final release.

“Leadership meetings at the international level are timed, I think, very well,” he said.

“Ukraine, historically…has struggled with corruption issues,” said Rachel Ziemba, deputy senior researcher at the Center for a New American Security, which advises companies and countries on sanctions policy. “There has been a lot of progress made…but it’s still not at the level of a developed economy.”

Working through the International Monetary Fund or creating a trust fund that reviews recipients and adds more reporting to the process could add more certainty, she suggested.

The Russian central bank has reserves in Canada

Taxpayers in Canada, the United States or other countries do not want to bear the full cost of this war, Ziemba said, but as governments embark on asset seizures, they must also worry. of the message it sends on safe jurisdictions for foreigners. investment.

“There are a lot of legal issues ahead,” she said.

According recent reports on Russian Central Bank reservesaround $20 billion could be held in Canada – a much larger sum in the context of Ukrainian reconstruction than the $124 million in frozen assets disclosed so far.

“The Russian Central Bank and some of its investment funds over the past decade [were] really focused on trying to reduce its exposure to the US dollar,” says Ziemba. Canadian reserve assets and government bonds were attractive because they were both stable and yielded more than comparable investments in Japan or the European Union.

In other words: a small slice of Canada’s debt is held by Russia. “The only saving grace is that the amount they have is not enough for them to hold significant leverage,” Ziemba said.

Russia’s central bank is on Canada’s sanctions list. Should these reserves also be seized and handed over to Ukraine?

Yellen’s opposed this in the United States, even though it could provide more funds to rebuild Ukraine.

“This could send a message to other countries investing in [international currency and bond] markets,” Ziemba said – think of China’s purchasing power, for example. “That’s, I think, why the [U.S.] Treasury Department and even the [U.S. federal reserve] are wary of these movements.”

Are asset sales imminent?

Earlier this month, CBC News asked Prime Minister Justin Trudeau whether Canada intends to sell all of the assets frozen so far. He declined to respond, saying “there are a lot of conversations going on” and that Canada was “far” from deciding how the proceeds would be spent.

But when the Senate Foreign Affairs Committee pre-studied C-19 in May, officials said the government would act quickly.

“The intent is definitely to begin identifying assets to be searched for and freezing and confiscating them shortly after receiving Royal Assent for Bill C-19,” said Alexandre Lévêque, Assistant Deputy Minister. for Strategic Policy at Global Affairs Canada.

In its report, this Senate committee said the government should “continuously monitor how reallocated funds are used and learn from early examples of the new powers being implemented”.