Economic Sanctions and Enforcement
Compliance
Focus on Canada: Deciphering the Interaction of
Canadian Sanctions
with US and EU Sanctions Regimes
John W. Boscariol
Washington, DC
April 28, 2015
McCarthy Tétrault LLP /
mccarthy.ca
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
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
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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
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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
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
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
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
3
Canada’s Economic Sanctions Regime
¬ 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
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
4
Canada’s Economic Sanctions Regime
¬ 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
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
5
Canada’s Economic Sanctions Regime
¬ 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)
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
6
Canada’s Economic Sanctions Regime
¬ 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
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
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United Nations Act Regulations
¬ targeted countries and groups
¬ Al-Qaida and Taliban
¬ Côte d’Ivorie
¬ Democratic Republic
of Congo
¬ Iran
¬ Sudan
¬ Yemen
¬ Central African Republic
¬ Lebanon
John W. Boscariol, International Trade and Investment Law
¬ Iraq
¬ Somalia
¬ Eritrea
¬ terrorists and terrorist
organizations
¬ Liberia
¬ North Korea
¬ Libya
McCarthy Tétrault LLP /
mccarthy.ca
9
Special Economic Measures Act Regulations
¬ targeted countries
¬
¬
¬
¬
¬
¬
¬
¬
Iran
Syria
Burma
Zimbabwe
North Korea
Ukraine
Russia
South Sudan
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
10
Freezing Assets of Corrupt Foreign Officials
Regulations
¬ politically exposed persons
¬ Egypt
¬ Tunisia
¬ Ukraine
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
11
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
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
12
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”
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
13
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
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
14
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)
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
15
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
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
16
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)
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
Key Issues in Interaction With US and
Other Regimes
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¬ 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
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
Key Issues in Interaction With US and
Other Regimes
18
¬ 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
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
Key Issues in Interaction With US and
Other Regimes
19
¬ 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
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
Key Issues in Interaction With US and
Other Regimes
20
¬ 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
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
Key Issues in Interaction With US and
Other Regimes
21
¬ 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
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
22
Key Issues in Interaction With US and
Other Regimes
¬ 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
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
23
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
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
John W. Boscariol
McCarthy Tétrault LLP
International Trade and Investment Law Group
www.mccarthy.ca
Direct Line: 416-601-7835
E-mail: jboscariol@mccarthy.ca
LinkedIn: www.linkedin.com/in/johnboscarioltradelaw
Twitter: www.twitter.com/tradelawyer
McCarthy Tétrault LLP /
mccarthy.ca