When it comes to sanctions compliance, increasing geopolitical uncertainty is pushing governments to tighten regulatory expectations. As a result, firms must do more to stay ahead of risk and go beyond 50% checks and consider potential risk in more holistic ways. In late July, Canada rolled out “deemed ownership” provisions which create new regulatory obligations regarding sanctions compliance.
The Deemed Ownership rule of Canada adds the following criteria to sanction compliance:
(1) If a person controls an entity other than a foreign state, any property that is owned — or that is held or controlled, directly or indirectly — by the entity is deemed to be owned by that person.
What is meant by control?
(2) For the purposes of subsection (1), a person controls an entity, directly or indirectly, if any of the following criteria are met:
(3) The person holds, directly or indirectly, 50% or more of the shares or ownership interests in the entity or 50% or more of the voting rights in the entity;
(4) The person is able, directly or indirectly, to change the composition or powers of the entity’s board of directors; or
(5) It is reasonable to conclude, having regard to all the circumstances, that the person is able, directly or indirectly and through any means, to direct the entity’s activities.
Only one of these criteria needs to be satisfied to deem a person has control. This is a very broad test and goes above and beyond the 50% rule required in other countries.It is also likely that others will adopt this approach, including beyond sanctions compliance.Establishing control and related parties is critical to fighting illicit finance and requires a multi factor approach to determining risk.
Sigma’s AI-enabled software platform, Sigma360, helps firms optimize data to drive smarter decisions across risk and compliance. With respect to the Deemed Ownership rule, the following risk insights provided by Sigma’s platform can be up and running in your firm the same day in many instances. Sigma360 is a flexible platform that can deploy out-of-the box, alongside your internal data or as an addition to existing systems to bolster tech-enabled approaches to risk management.
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