The conventional wisdom
Most sanctions screening programs treat ownership thresholds like airport security: you're either over 50% and subject to restrictions, or you're under and you're clear. Compliance teams build their due diligence around this binary: check the cap table, confirm no designated person holds a majority stake, move on. It's clean, defensible, and fits neatly into a risk matrix.
This approach has institutional momentum. Your sanctions screening vendor probably defaults to 50% as the control threshold. Your training materials likely present it as the trigger point. Your escalation procedures kick in when someone crosses that line. The logic seems sound: if regulations specify 50%, that's where you draw the line.
Why this approach is incomplete
Global Affairs Canada's October 2026 guidance on deemed ownership provisions under the Special Economic Measures Act and the Justice for Victims of Corrupt Foreign Officials Act exposes a critical gap in this thinking: you're measuring the wrong thing.
The 50% threshold isn't a safe harbor. It's one of three control tests, and the guidance makes clear that ownership interests held by multiple designated persons aggregate toward that threshold. Two designated persons each holding 25%? That's 50%. Three holding 17% each? You're over. The entity becomes subject to dealings prohibitions even though no single designated person holds a majority and the entity itself isn't listed.
More problematic: the 50% test is just the first criterion. Control also exists when a designated person can change the composition or powers of an entity's board, or when circumstances indicate they can direct the entity's activities. These tests don't require any specific ownership percentage. A designated person holding 30% of shares might control board appointments through a shareholders' agreement. A 15% shareholder might be the entity's largest investor relative to a fragmented cap table, giving them de facto influence.
Your binary ownership check misses all of this.
The evidence
The guidance identifies specific arrangements that establish control without majority ownership:
- The ability to appoint or remove a majority of board members, even if the designated person holds less than 50% of shares
- Control of a majority of voting rights through shareholder agreements
- Constitutional provisions granting dominant influence (check those Articles of Association)
- Being the largest shareholder relative to others, regardless of absolute percentage
Then there's the "de facto" influence test, which the guidance describes as considering "all the circumstances." This includes buyback clauses favoring a designated person, recent share transfers (especially without evidence of fair market value payment to an independent party), and the use of family members or former employees as apparent owners.
The guidance explicitly calls out trusts, shell companies, and limited liability companies used to obscure connections. If you're only checking direct shareholdings in your screening workflow, you're not seeing the structures designed specifically to evade that check.
Consider the aggregation point: your current process probably flags Entity A when Designated Person 1 owns 60%. Does it flag Entity B when Designated Persons 1, 2, and 3 each own 20%? If not, you have a gap that the deemed ownership provisions close.
What to do instead
Start by revising your control assessment methodology. You need three parallel analyses, not one:
First, aggregate ownership across all designated persons with interests in the entity. This requires tracking not just individual stakes but the combined exposure. If your screening system can't sum ownership across multiple designated persons automatically, you need manual review triggers at lower thresholds. Consider flagging any entity where designated persons collectively hold 40% or more for manual aggregation.
Second, map governance rights separately from equity ownership. Pull shareholder agreements, Articles of Association, and board appointment provisions. The question isn't "who owns what" but "who can change the board composition." A designated person with board control triggers the deemed ownership provision regardless of their equity stake.
Third, build a de facto influence assessment for any entity where designated persons hold meaningful (even if non-controlling) stakes. The guidance lists the relevant factors: largest shareholder status, contractual dominant influence provisions, recent transfers, use of proxies. You're looking for circumstantial indicators of control, which means you need more information than a corporate registry provides.
This requires different data sources. Corporate registries give you formal ownership. You need access to shareholder agreements, constitutional documents, and beneficial ownership registries. For higher-risk relationships, you may need to request this documentation directly from the counterparty.
Operationally, this means your 50% ownership flag becomes one of several control indicators, not a binary decision point. Any entity with designated person involvement above 25% should trigger enhanced review. Any entity where a designated person holds board appointment rights or is the largest shareholder requires control analysis regardless of percentage.
When the conventional wisdom is right
The 50% threshold remains relevant as a clear control indicator. If a designated person holds 50% or more individually, you don't need to assess board rights or de facto influence. The first criterion is met, and the deemed ownership provision applies. The threshold gives you a bright line for obvious cases.
The conventional approach also works when you're dealing with widely held public companies where no shareholder (designated or otherwise) holds more than a few percent and board appointments follow standard corporate governance. If your counterparty is a TSX-listed company with dispersed ownership and no designated persons among major shareholders or directors, your standard screening catches the risk.
Where the conventional wisdom fails is in the middle: private companies, joint ventures, family-held businesses, and structures with multiple minority investors. These are exactly the contexts where designated persons use indirect control mechanisms. A Russian oligarch subject to sanctions doesn't hold 51% of a European subsidiary in their own name. They hold 30% directly, their brother holds 15%, a trust holds 10%, and they control board appointments through a shareholders' agreement.
Your screening program needs to catch that structure. The 50% threshold won't.
The October 2026 guidance doesn't introduce new obligations. It clarifies how existing deemed ownership provisions apply. If you're still treating 50% as a safe harbor, you're measuring compliance against a standard that doesn't exist in the regulation. Aggregate the interests, check the governance rights, and assess the influence. Control isn't always a number on a cap table.
