Canada | Deloitte LLP & Deloitte Tax Law LLP | January 21, 2015
Canadian Customs and Global Trade Alert
Doing business in Russia?
Canada imposes further sanctions targeting Russian oil & gas industry
Introduction of oil & gas sectoral sanctions
On December 19, 2014 Canada announced the imposition of additional sanctions against Russia, targeting the oil & gas
1
industry.
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These new measures prohibit any person (defined as individual or entity) in Canada and any Canadian outside Canada from
exporting, selling, supplying or shipping 19 specified goods (listed in column 1 of Schedule 4 to the Special Economic
Measures (Russia) Regulations (the Regulations), wherever situated, to Russia or to any individual or entity in Russia if those
goods are for use in:
1. offshore oil exploration or production at a depth greater than 500 metres;
2. oil exploration or production in the Arctic; or
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3. shale oil exploration or production.
The Regulations also prohibit any person in Canada and any Canadian outside of Canada from providing any financial
assistance, technical or other services related to those specified goods.
It is important to underscore the fact that these new prohibitions apply to transactions regardless of whether the end-user of
such goods or services is listed as a “designated person” in Schedule 1, 2, or 3, to the Regulations.
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Regulations Amending the Special Economic Measures (Russia) Regulations (SOR/2014-316).
Defined as a person who is a citizen within the meaning of the Citizenship Act or a body corporate incorporated or continued by or under the laws of Canada or
of a province.
2
These new prohibitions do not apply to a contract that was entered into force prior to December 19, 2014.
This marks the tenth amendment to the Regulations since they first came into force on March 17, 2014, bringing the Canadian
sanctions against Russia more in line with those imposed by both the United States and the European Union. There are,
however, some notable differences:
1.
Unlike the sectoral sanctions imposed by the United States, Canada’s restrictions extend only to those specified
goods for use in offshore oil, arctic oil or shale oil exploration and production. That is, if the goods are only for use in
offshore gas, arctic gas or shale gas exploration and production, the prohibitions do not apply.
2.
The sanction regimes of the United States and the European Union extend to parts, components, accessories and
attachments that are for use in or with the restricted goods. Canada has yet to clarify whether the new prohibitions will
extend to parts, components, accessories and attachments if they are for use in or with the 19 specified goods.
3.
The restrictions on offshore oil & gas production and exploration imposed by the United States and the European
Union apply at a depth of greater than 500 feet and 150 metres, respectively. Currently, Canadian restrictions affect
offshore oil & gas production and exploration at a significantly greater depth of 500 metres.
Extension of the definitions of “new debt” and “new equity”
The amendments also expand the prohibitions on any person in Canada and any Canadian outside of Canada from transacting
in, providing or otherwise dealing in “new debt” or “new equity” to designated persons listed in Schedules 2 and 3 of the
Regulations.
Under previous versions of the Regulations, “new debt” was considered to include bonds, loans and debentures. The definition
of new debt has now been expanded considerably to include prohibitions on extensions of credit, loan guarantees, letters of
credit, bank drafts, bankers’ acceptances, discount notes, treasury bills, commercial paper and similar instruments.
Previous versions of the Regulations defined the term “new equity”. Under that definition the Regulations prohibited any person
in Canada and any Canadian outside of Canada from transacting in, providing or dealing in capital funding through the
transaction of shares in exchange for an ownership interest to designated persons listed in Schedule 2 to the Regulations.
The most recent version of the Regulations has expanded the prohibition relating to new equity. The Regulations now prohibit
any person in Canada and any Canadian outside of Canada from transacting in, providing financing for or otherwise dealing in
new securities, including shares or any other ownership interest.
Additions of individuals to Schedule 1 of the Regulations
As of December 19, 2014, 11 new individuals were added to Part 1 of Schedule 1 of the Regulations, bringing the total number
of individuals listed on Schedule 1 to 77.
It is also of note that nine new individuals were also added to the Schedule to the Special Economic Measures (Ukraine)
Regulations.
What can companies do to comply?
Non-compliance with sanctions can result in serious financial penalties, reputational damage and significant operational delays.
Canadian companies in Canada and Canadian companies operating abroad should immediately review their operations and
transactions involving Russia to determine the impact of these expanded sanctions. It will be important to continue to exercise
extensive due diligence for all transactions involving Russia. This should include, for example, documenting end-use and endusers, screening all parties in a transaction to determine whether any party may be listed as a “designated person” and
providing training to those within your organization. It is also important to consider whether the transaction may be subject to
any other sanctions regimes, such as those imposed by the United States and the European Union.
To discuss how these sanctions may impact your business and the steps you can take to reduce the risk of non-compliance,
please contact Ali Brady (604) 640-3071 or Dan Kiselbach (604) 640-3821.
Deloitte LLP
Ali Brady, Manager
Indirect Tax
604-640-3071
alibrady@deloitte.ca
Deloitte Tax Law LLP
Daniel Kiselbach, Partner
Barrister & Solicitor
604-640-3821
dkiselbach@deloittetaxlaw.ca
Deloitte LLP
2 Queen Street East, Suite 1200
Toronto, ON M5C 3G7 Canada
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