Canada can now seize, sell off Russian assets. What's next?

Selling Russian-owned assets to pay forUkraine's reconstruction may sound 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 some issues are headed to court.

C-19, thebudget implementation bill,received royal assent last Thursday. Among its many measures are new powers to seizeand selloffassets owned by individuals and entities on Canada'ssanctions list. While thenew powers could be used inany international conflict, the Liberal government'scurrent priority is helpingvictims of the Russian invasion of Ukraine.

Canada'sstepped-up sanctions powers werediscussed withU.S. Treasury Secretary Janet Yellen during hervisit to Toronto last week.

"We think it's really important to extend our legal authorities because it's going to be really, really important to find the money to rebuild Ukraine," Finance Minister Chrystia Freelandtold Canadian and American reporters. "I can think of no more appropriate source of that funding than confiscated Russian assets."

That sentiment was shared by Ontario Sen.Ratna Omidvar whoproposedher own Senate legislation to enable similarasset seizurestwo years ago. At the time she was motivated to helpthe displaced Rohingya populationby sanctioning corrupt generals in Myanmar.

"Kleptocrats must pay for their crimes, not through simply being sanctioned and their assets being frozen, but by their assets being repurposed and confiscated," saidOmidvar.

Although C-19 will work a bitdifferently than herbill,Omidvarstill callsit a "good start" and supportsthe government's move.

"The question no longer is 'if we should confiscate,'" the senator said. "The question is: 'How should we repurpose? ... Who's involved? How do we provide accountability? How do we protect ourselves?'"

Test cases expected

Although some jurisdictions, notably Switzerland,already confiscateand return certain illicit assets, this move byCanada and potentiallyother G7 countries meeting in Germany this week isunprecedented.

Alliesagree on the imperativeofcranking up moreeconomic pressure on Russian President Vladimir Putin, butit's still a risky play.Otherhostile governments couldseize Canadian-owned assets abroad in retaliation. Italsomay violate customary international law, such asthe UN Articles on states responsibility.

Thenew powers targetassetsin Canada owned by an individual or entity on the federal government's sanctions list. Previously, authorities couldseize the proceeds of crime. With C-19, theycan confiscatethe assetsof sanctioned individuals whether they're acquiredlegally or illegally.

Is that fair? Omidvaranticipates the new powers beingchallenged in Canadian court."I keep thinking we need a couple of test cases," she said.

The senator'soriginal bill proposedseizingand redistributing assetsby court order, witha judge adjudicatingconcerns.

C-19 puts morepower in ministerial hands, something that is "faster and nimbler," Omidvar acknowledges, but also less transparent.

During debatein the Senate, Omidvarcalled on the government to take "politics out of the equation" so Canada would not be accused of inappropriate distribution of funds, "or worse, appropriation of funds for its own use."

When asked about the legality of these new powers earlier this month, Justice Minister David Lamettisaid "you don't have an absolute right to own private property in Canada," and compared it to other processes of government expropriation.

Adrien Blanchard, a spokesperson for Foreign Affairs Minister Melanie Joly, told CBC News that"necessary checks and balances" are providedin C-19, including a formal judicial process to forfeit any asset.

"Procedural fairness was a key consideration in the development of these measures, and forfeiture proceedings before a judge are not automatic,"Joly's spokesperson said.

Privacy ruleslimit disclosure

Omidvar'sbill would have created aregistry with the name of any person or entity associated with aseized assetand itsvalue. There's no such disclosure requirementin C-19, sothis could be adifficult process to track once it starts.

One or morecourt cases could triggermore public disclosure.

When the RCMP reported earlier this month that Canadian authorities have frozenthe equivalent of $124 million in assets so far, it was unable to revealwhat these assets are cash, bonds, cryptocurrency, corporate shares, real estate or other property because of the Privacy Act.

The minister of foreign affairs mayissue permitson a case-by-case basis to authorize activities or transactions that would otherwise be prohibited, but only to peoplein Canada or Canadians abroad. When asked if any such permits have been issued related to Canada's sanctions against Russia, Global Affairs Canada would not comment, again citingprivacy concerns.

One of the prominent Russian oligarchs on Canada's sanctions list, Roman Abramovich, holds around 30per cent of the shares of Evraz, a global steel manufacturer that employs over 1,800 people at its facilities in Western Canada.

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

Separate from itspowers toseize assets, the budget implementation bill also implements apublicly accessible beneficial ownership registry to make it easier to trace the ownership of anonymous shell companies. That could reveal more about Russian assets in Canada.

However, abusiness that's registered provincially instead of incorporatedfederally wouldonly appear in the national registry if provinces and territories agree to participate if they don't agree, there isa potential loophole, Omidvar warned her Senate colleagues during debate.

Who getsthe proceeds?

Omidvar'soriginal bill would have required the recipient of redistributed funds to report back to a court on its use.

C-19putsthe minister of foreign affairs in charge of who gets the money and what happens to it.

"Operationalizing this is going to be a little bit of a challenge," said fellow senatorand former G7 sherpaPeter Boehm."This is all very, very new."

The former senior Global Affairs officialsuggeststhe governmentneeds to getsafeguards in place.

"What is the mechanism? To whom should these assets go? Do they go to individuals? Do they go to state actors?" Boehmsaid, noting that Canada may want to coordinate with other like-minded countries and UN agencies, like the World Food Program. "There are a lot of questions there... we need to know and the Canadian people would want to know where this money is going and if it's being properly spent."

The G7 considered asset seizures previously, Boehm said. He expects theycould featureinat least behind-the-scenes conversations thisweek, if not the final communiqu.

"The leaders meetings internationally are timed, I think, very well," he said.

"Ukraine, historically... has struggled with corruption issues," said Rachel Ziemba, an adjunct senior fellow with the Centre for a New American Security who advises companies and countries on sanctions policy."There have been a lot of strides made... but it's still not at the level of a developed economy."

Working through the International Monetary Fund, or setting up a trust fund that would vet recipients and add more reporting to the process could add more certainty, she suggested.

Russian central bank hasreservesin Canada

Taxpayers in Canada, the U.S. or other countries don't want to bear the full cost of this war, Ziemba said, but as governmentsembark on asset seizures they alsohave to be concerned about themessage it sendson whatjurisdictions are safe for foreign investment.

"There are a lot of legal questions ahead," she said.

According to recent reporting on Russian Central Bank reserves, about $20 billion might be held in Canada a far more significantsumin the context of Ukrainian reconstructionthan the $124 million infrozen assets disclosedso far.

"The Russian Central Bank and some of its investment funds over the last decade [were]really focused on trying to reduce its exposure to U.S. dollars," Ziemba explains. Canadian reserve assets and government bonds were attractive because they were both stable and got more yield 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 so much they can hold much leverage," Ziemba said.

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

Yellen'sargued against doing this in the U.S., even though it could provide morefundsto rebuild Ukraine.

"That might send a message to other countries that are investing in [international currency and bond] markets," Ziemba said think ofChina'sbuying power, for example. "That, I think, is why the [U.S.] treasury department and even the [U.S. federal reserve] are wary of these moves."

Are asset sales imminent?

Earlier this month, CBC News asked Prime Minister Justin Trudeau whether Canada intended to sell the full amount of assets frozen so far. He declined to answer, saying "there are lots of conversations going on" and Canada was "a long way" from deciding how proceeds would be spent.

But when the Senate foreign affairs committee pre-studied C-19 in May, officials saidthe government willmove quickly.

"The intent is definitely to start identifying assets to pursue and to freeze and forfeit them shortly after royal assent is received for Bill C-19," said Alexandre Lvque, the assistant deputy minister for strategic policy at Global Affairs Canada.

In its report, thatSenate committee said the government needs "to monitor on an ongoing basis the ways in which repurposed funds are used and to learn from the early examples of the new powers being implemented."