Canada’s attempt to seize and forfeit a Russian oligarch’s holdings will be a major test of how the federal government balances sanctions and Charter rights, says an Ottawa trade lawyer.
On Monday, Foreign Minister Mélanie Joly said she plans to use a new law to confiscate and divert assets held by people who have been sanctioned.
The first case involves Roman Abramovich, an ally of Russian President Vladimir Putin who partially owns the steel company Evraz, which has facilities in Regina and Calgary. Abramovich is also the former owner of Chelsea Football Club in England.
Canada will try to seize and forfeit US$26 million, or about C$36 million, from Granite Capital Holdings Ltd., a firm Abramovich owns, and divert the money to the reconstruction of Ukraine.
William Pellerin, an Ottawa-based trade lawyer with the firm McMillan LLP, said the case could raise questions of constitutional law and jurisdiction and shape future attempts at extracting cash from sanctioned individuals.
“It’s not yet happened in any G7 country, or Australia,” Pellerin said.
“We’re really leading the charge here.”
Pellerin’s clients include firms navigating Canada’s sanctions on Russia, and he said Ottawa’s move represents a major shift, since sanctions are generally meant to change behaviour instead of punishing someone.
“The idea is … the oligarchs apply pressure on the Putin regime to stop the invasion … and if the war goes away, you unfreeze the assets and whoever had money or property in Canada, that property gets unblocked and everyone goes off on their merry way,” he said.
“There won’t be an incentive to change behaviour anymore, because the money is gone.”
Pellerin said the bank holding Abramovich’s cash would have frozen his assets back on March 10 when he was sanctioned. They most likely reported the money to the RCMP, who would have then informed Global Affairs Canada, Pellerin said.
An order-in-council reveals the money was held by Citco Bank Canada and suggests someone froze an attempt to have the cash moved to a bank in the Cayman Islands. Citco’s parent company in London, England would not confirm how it proceeded.
“Due to our commitment to confidentiality, we are unable to comment on our clients — past or present — or their underlying investors,” spokeswoman Millie Fairbairn wrote in an email.
“However, Citco has robust screening processes in place to scan our systems in order to identify any sanctioned parties and report to the relevant authorities as required.”
Ottawa’s first step will be to file an application at a court in whichever jurisdiction the money is held, Pellerin said, most likely the Ontario Superior Court.
Government lawyers will then have to prove to a judge what percentage of the funds are owned by Abramovich, to convince the court to have the money forfeited to the Crown.
Abramovich will be able to have counsel contest that move, and Pellerin anticipated a few grounds of argument.
The lawyers might argue that the move breaches Charter rights surrounding privacy the reasonableness of search and seizures, which don’t apply to foreigners outside Canada, but can apply to their corporations and holdings in Canada.
They also might argue that Ottawa lacks jurisdiction, since provinces generally govern property rights and the case does not involve criminal law, which is a federal responsibility.
“That’s an interesting question for constitutional scholars. I’m not one of them,” Pellerin said.
He also said lawyers could argue that the move breaches the investment-protection agreement that Canada and Russia signed decades ago. This type of agreement allows expropriation for public policy reasons, which normally includes compensation. Previous cases involve things like buying out land in order to build a freeway, and not seizing bank accounts.
Pellerin said that any of these three arguments could make the proceedings into a test case that would shape how Ottawa proceeds on clawing back funds held by other sanctioned people.
He also noted that Russia may retaliate, a move that is easier to do when one country has tried forfeiting assets, as opposed to multilateral sanctions where all United Nations members refuse dealings with someone involved in terrorism or drug trafficking.
Moscow may try to freeze Canadian-owned mines, for example.
“There would be easily a quid pro quo of Canadian assets in Russia, or of assets with a with a strong Canadian nexus.”
Russia’s ambassador to Canada said Joly’s announcement this week amounts to “an attempt of robbery in broad daylight” and warned that others will fear their investments are at risk if people have views that don’t align with Ottawa.
“The embassy advises not to carry on business (within Canada) for the foreseeable future,” Oleg Stepanov wrote Monday on social media.
“As a trade partner for Russia, Canada’s value now unfortunately equals to zero.”
Joly said on Monday that the RCMP is independently pursuing investigations into people Ottawa has sanctioned who hold assets in Canada.
She said part of the reason Canada has sanctioned so many Russians is to keep in line with restrictions placed by allies in Europe and the U.S., so that they don’t try moving the money into Canadian accounts.
Joly hopes European countries follow suit on trying to forfeit oligarch cash, but Pellerin noted the continent has much closer economic ties with Russia.