McCarthy Tétrault LLP / mccarthy.ca Economic Sanctions and Enforcement Compliance Focus on Canada: Deciphering the Interaction of Canadian Sanctions with

McCarthy Tétrault LLP / mccarthy.ca

Economic Sanctions and Enforcement Compliance

Focus on Canada: Deciphering the Interaction of Canadian Sanctions

with US and EU Sanctions Regimes

John W. BoscariolWashington, DC

April 28, 2015


Growing Impact of Economic Sanctions

¬ what’s driving this? ¬ since 9/11, new emphasis of Canadian authorities on security (vs.

government revenues) ¬ more recently, increased penalties, enforcement by U.S.

authorities ¬ pressure from U.S. affiliates, suppliers and customers (and U.S.

government)¬ but Canada now a “sanctions hawk”

¬ Canadian companies are now more concerned than ever

before about whom they deal with, where their products and technology end up, and who uses their services

¬ financings, banking relationships, mergers and acquisitions

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John W. Boscariol, International Trade and Investment Law


Canada’s Trade Controls

¬ export and technology transfer controls ¬ Export Control List & A Guide to Canada’s Export Controls¬ Area Control List (Belarus and North Korea)

¬ domestic industrial security¬ Defence Production Act, Controlled Goods Program

¬ economic sanctions¬ Special Economic Measures Act¬ United Nations Act¬ Criminal Code¬ Freezing Assets of Corrupt Foreign Officials Act

¬ other trade control legislation¬ blocking orders (Cuba)¬ anti-boycott policy and discriminatory business practices laws¬ anti-bribery law (Corruption of Foreign Public Officials Act and FCPA)

¬ compliance convergence

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Canada’s Economic Sanctions Regime

¬ challenges

¬ measures take effect immediately – no consultations

¬ measures change often, in response to developing international events

¬ measures are “layered” ¬ multiple Canadian regulatory regimes¬ measures in the country in which you’re doing business ¬ US extraterritorial measures

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¬ United Nations Act ¬ implementation of UN Security Council Resolutions

¬ Special Economic Measures Act

¬ impose economic sanctions absent or in addition to a UN Security Council Resolution

¬ Freezing Assets of Corrupt Foreign Officials Act

¬ politically exposed persons

¬ Criminal Code – terrorist groups

¬ Area Control List under Export and Import Permits Act

¬ Belarus and North Korea

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¬ Special Economic Measures Act and United Nations Act key measures (depending upon the country program) ¬ ban on providing or acquiring goods, services,

technology/data ¬ assets freezes – cannot deal with listed individuals,

companies, organizations (“designated persons”) – includes facilitation

¬ ban on investment ¬ aircraft, shipping, transport restrictions¬ travel bans¬ sectoral measures ¬ monitoring and reporting obligations

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¬generally apply to persons in Canada and Canadians outside of Canada

¬permits generally available for anything that is prohibited under the sanctions measures ¬ apply to Economic Law Division of Department of Foreign

Affairs, Trade and Development (DFATD)

¬no general permits/licenses have been issued, although exemptions may be available¬ grandfathering

¬enforced by Canada Border Services Agency and Royal Canadian Mounted Police (RCMP)

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¬consequences of non-compliance

¬ criminal penalties¬ fines in an amount that is appropriate in the opinion of the Court¬ up to 10 years imprisonment

¬ CBSA detention and seizure

¬ operational costs

¬ reputational costs

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United Nations Act Regulations

¬ targeted countries and groups

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¬ Al-Qaida and Taliban

¬ Côte d’Ivorie

¬ Democratic Republic of Congo

¬ Iran

¬ Sudan

¬ Yemen¬ Central African Republic

¬ Lebanon

¬ Iraq

¬ Somalia

¬ Eritrea

¬ terrorists and terrorist organizations

¬ Liberia

¬ North Korea

¬ Libya



Special Economic Measures Act Regulations

¬ targeted countries ¬ Iran¬ Syria¬ Burma¬ Zimbabwe ¬ North Korea¬ Ukraine¬ Russia¬ South Sudan

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Freezing Assets of Corrupt Foreign Officials Regulations

¬ politically exposed persons ¬ Egypt¬ Tunisia¬ Ukraine

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Russia / Ukraine Economic Sanctions Measures

¬ designated person restrictions – 273 entities and individuals¬ broad prohibition on range of activities¬ debt financing prohibition (30 or 90 days maturity)¬ equity financing prohibition

¬ prohibitions against supply of listed goods or related financial, technical or other services for use in¬ offshore oil exploration or production at a depth greater than

500 meters; ¬ oil exploration or production in the Arctic; or ¬ shale oil exploration or production

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Russia / Ukraine Economic Sanctions Measures

¬ export control policy (DFATD Export Controls Division)¬ no permit if material benefit to Russian military

¬ March 25, 2015 unanimous Parliamentary motion:¬ imposition of “sanctions against foreign nationals involved in the

detention, torture and death of Sergei Magnitsky.”¬ government to “explore sanctions as appropriate against any

foreign nationals responsible for violations of internationally recognized human rights in a foreign country, when authorities in that country are unable or unwilling to conduct a thorough, independent and objective investigation of the violations”

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Iran Economic Sanctions Measures

¬ UN Act regulations (2007 & 2010)¬ 121 designated entities and individuals¬ military, nuclear

¬ SEMA regulations (2010-2013)¬ 613 designated entities and individuals¬ oil & gas, mining, shipping¬ financial services ban¬ supply ban – “purposes of a business carried on in or operated from

Iran”¬ sourcing ban¬ investment ban¬ technical data restrictions

¬ Export and Import Permits Act (ECL) – US-origin goods and technology

¬ extraterritorial US measures

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Prosecutions Under Iran Economic Sanctions¬ R. v. Yadegari

¬ July 6, 2010, first successful prosecution under the Iran sanctions regulations under United Nations Act

¬ attempted shipment to Iran through Dubai dual-use pressure transducers

¬ could be used in heating and cooling applications as well as in centrifuges for enriching uranium

¬ Ontario provincial court judge found that Yadegari “knew or was wilfully blind that the transducers had the characteristics that made them embargoed”

¬ also violations of Customs Act, Export and Import Permits Act, Nuclear Safety and Control Act, and Criminal Code

¬ sentenced to 51 months imprisonment (slight reduction on appeal)

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Prosecutions Under Iran Economic Sanctions

¬ R. v. Lee Specialties Ltd.

¬ first prosecution under Special Economic Measures Act

¬ attempted shipment of 50 Viton O-rings to Iran ($15 total value)

¬ although dual-use, these were prohibited goods listed on Schedule 2 to the Iran SEMA regulations

¬ multiple changes in account and shipping addresses

¬ detained by CBSA

¬ guilty plea and $90,000 penalty

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Burma Economic Sanctions Measures

¬ Canada had most aggressive sanctions of any country

¬ effective April 24, 2012 most Burma sanctions measures repealed

¬ currently¬ 44 entities and 38 individuals are designated

persons¬ arms and related material embargo (including

data transfers)

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Key Issues in Interaction With US and Other Regimes

¬ screening against Canadian lists¬ lists of over 2,000 designated persons – individuals, companies,

organizations¬ Special Economic Measures Act regulations¬ United Nations Act regulations¬ Freezing Assets of Corrupt Foreign Officials Act regulations ¬ Criminal Code anti-terrorism provisions

¬ any involvement in the transaction – purchaser, ultimate user, vendor, creditor, broker, service provider

¬ applies regardless of where Canadian company is doing business

¬ applies to non-Canadians in Canada

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¬ Canadian measures may be broader than those of the United States and other countries

¬ Russia / Ukraine – 273 designated persons

¬ Belarus, Burma, Libya, North Korea

¬ Iran

¬ importance of “home grown” compliance policies

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¬ Canadian measures can be in direct conflict with those of the United States¬ Foreign Extraterritorial Measures Act “blocking” order

in respect of US trade embargo of Cuba¬ obligation to notify Canadian Attorney General of certain

communications¬ prohibition against complying with certain U.S. trade

embargo measures¬ criminal penalty exposure: up to $1.5 million and/or 5

years imprisonment

¬ provincial business discriminatory practices legislation

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¬ Canadian measures can be in direct conflict with those of the United States¬ Foreign Extraterritorial Measures Act “blocking” order

in respect of US trade embargo of Cuba¬ there has never been a successful or an attempted

prosecution under the Canadian blocking order¬ no case law or administrative or prosecutorial guidelines¬ no guidance from the Canadian government¬ numerous investigations - American Express, Eli-Lilly, Heinz,

Red Lobster, Wal-Mart and others¬ Wal-Mart’s Cuban pajamas¬ nationalistic sensitivities

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¬ Canadian measures can be in direct conflict with those of the United States¬ Canadian human rights / employment laws and

potential conflict with ¬ US controls under International Traffic in Arms

Regulations – Department of Defense Trade Controls (US State)

¬ US Export Administration Regulations (CCL) - Department of Commerce

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¬ significant differences in administration and guidance on economic sanctions¬ no FAQs, guidelines, rulings, opinions¬ no consolidated lists¬ no voluntary disclosure process¬ no deferred or non-prosecution agreements

¬ reporting to DFATD¬ mandatory for property of designated persons¬ when DFATD becomes aware of potential

violation, immediate notification to RCMP

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Implications for Economic Sanctions Compliance and Enforcement

¬ internal compliance programs must be “home grown”

¬ training and internal communications

¬ screening process and providers

¬ coordination of internal investigations and disclosures involving multiple jurisdictions

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John W. BoscariolMcCarthy Tétrault LLPInternational Trade and Investment Law Groupwww.mccarthy.caDirect Line: 416-601-7835

E-mail: [email protected]: www.linkedin.com/in/johnboscarioltradelaw Twitter: www.twitter.com/tradelawyer

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McCarthy Tétrault LLP / mccarthy.ca Economic Sanctions and Enforcement Compliance Focus on Canada: Deciphering the Interaction of Canadian Sanctions with