I.E. Canada Webinar
Economic Sanctions Against Russia:
What Does That Mean for Canadian
Companies?
John W. Boscariol
December 12, 2014
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
1
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
2
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
3
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
4
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
5
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
6
7
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
8
Special Economic Measures Act Regulations
¬ targeted countries
¬
¬
¬
¬
¬
¬
¬
¬
Iran
Syria
Burma
Zimbawe
North Korea
Ukraine
Russia
South Sudan
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
9
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
10
Key Russia / Ukraine Economic Sanctions
Measures
¬ Special Economic Measures (Russia) Regulations
¬ Special Economic Measures (Ukraine) Regulations
¬ Freezing Assets of Corruption Foreign Officials
(Ukraine) Regulations
¬ export controls
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
11
Special Economic Measures (Russia) Regulations
¬ Schedule 1 Designated Persons (100 DPs)
¬ listing criteria - Governor in Council, on the
recommendation of the Minister, is satisfied that there are
reasonable grounds to believe that the person is
¬ (a) engaged in activities that directly or indirectly facilitate,
support, provide funding for or contribute to a violation or
attempted violation of the sovereignty or territorial integrity
of Ukraine or that obstruct the work of international
organizations in Ukraine;
¬ (b) a former or current senior official of the Government of
Russia;
¬ (c) an associate or family member of a person described in
paragraph (a) or (b);
¬ (d) an entity owned or controlled by, or acting on behalf of,
a person described in paragraph (a) or (b); or
¬ (e) a senior official of an entity described in paragraph (d).
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
12
Special Economic Measures (Russia) Regulations
¬ Schedule 1 Designated Persons
¬ prohibited for a person in Canada and any Canadian
outside Canada to
¬ (a) deal in any property, wherever situated, held by or on
behalf of a designated person whose name is listed in
Schedule 1;
¬ (b) enter into or facilitate, directly or indirectly, any
transaction related to a dealing referred to in paragraph (a);
¬ (c) provide any financial or other related service in respect
of a dealing referred to in paragraph (a);
¬ (d) make any goods, wherever situated, available to a
designated person listed in Schedule 1; or
¬ (e) provide any financial or related service to or for the
benefit of a designated person listed in Schedule 1.
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
13
Special Economic Measures (Russia) Regulations
¬ Schedule 2 and 3 Designated Persons (equity and debt
financing restrictions)
¬ listing criteria - Governor in Council, on the
recommendation of the Minister, is satisfied that there are
reasonable grounds to believe that the person is owned
or controlled by, or acting on behalf of, a person that is.
¬ (a) engaged in activities that directly or indirectly facilitate,
support, provide funding for or contribute to a violation or
attempted violation of the sovereignty or territorial integrity
of Ukraine or that obstruct the work of international
organizations in Ukraine; or
¬ (b) a former or current senior official of the Government of
Russia
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
14
Special Economic Measures (Russia) Regulations
¬ Schedule 2 and 3 Designated Persons (equity and debt
financing restrictions)
¬ Schedule 2
¬
¬
¬
¬
¬
¬
Gazprombank OAO
VEB
VTB Bank OAO
Bank of Moscow
Russian Agricultural Bank (Rosselkhozbank)
Sberbank
¬ Schedule 3
¬ OAO Novatek
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
15
Special Economic Measures (Russia) Regulations
¬ Schedule 2 Designated Persons debt financing
restrictions
¬ prohibited for any person in Canada and any Canadian
outside Canada to transact in, provide or otherwise deal
in a loan, bond or debenture, of longer than 30 days’
maturity in relation to
¬ a designated person listed in Schedule 2;
¬ the property of a designated person listed in Schedule 2; or
¬ the interests or rights in property of a designated person
listed in Schedule 2.
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
16
Special Economic Measures (Russia) Regulations
¬ Schedule 2 Designated Persons equity financing
restrictions
¬ prohibited for any person in Canada and any Canadian
outside Canada to transact in, provide or otherwise deal
in capital funding through the transaction of shares in
exchange for an ownership interest in relation to
¬ a designated person listed in Schedule 2;
¬ the property of a designated person listed in Schedule 2; or
¬ the interests or rights in property of a designated person
listed in Schedule 2
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
17
Special Economic Measures (Russia) Regulations
¬ Schedule 3 Designated Persons debt financing
restrictions
¬ prohibited for any person in Canada and any Canadian
outside Canada to transact in, provide or otherwise deal
in a loan, bond or debenture, of longer than 90 days’
maturity in relation to
¬ a designated person listed in Schedule 3;
¬ the property of a designated person listed in Schedule 3; or
¬ the interests or rights in property of a designated person
listed in Schedule 3.
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
18
Special Economic Measures (Ukraine) Regulations
¬ Designated Persons (74 DPs)
¬ listing criteria - the Governor in Council, on the
recommendation of the Minister, is satisfied that there are
reasonable grounds to believe that the person is
¬ (a) a person engaged in activities that directly or indirectly
facilitate, support, provide funding for or contribute to a
violation or attempted violation of the sovereignty or
territorial integrity of Ukraine or that obstruct the work of
international organizations in Ukraine;
¬ (b) an associate or family member of a person described in
paragraph (a);
¬ (c) an entity owned or controlled by, or acting on behalf of,
a person set out in paragraph (a);
¬ (d) an entity whose ownership or control was purported to
be altered by a person who has violated or attempted to
violate the sovereignty or territorial integrity of Ukraine; or
¬ (e) a senior official of an entity engaged in activities
described in paragraph (a) or of an entity described in
paragraph (c) or (d).
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
Special Economic Measures (Ukraine) Regulations
19
¬ prohibited for any person in Canada and any
Canadian outside Canada to
¬ (a) deal in any property, wherever situated, held by or on behalf
of a designated person;
¬ (b) enter into or facilitate, directly or indirectly, any transaction
related to a dealing referred to in paragraph (a);
¬ (c) provide any financial or other related service in respect of a
dealing referred to in paragraph (a);
¬ (d) make any goods, wherever situated, available to a
designated person; or
¬ (e) provide any financial or related service to or for the benefit
of a designated person
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
20
Freezing Assets of Corrupt Foreign Officials
(Ukraine) Regulations
¬ Ukraine asserted to the Government of Canada, in
writing, that listed persons have misappropriated
property of Ukraine or have acquired property
inappropriately by virtue of their office or a
personal or business relationship and Ukraine has
asked the Government of Canada to freeze the
property of those persons;
¬ Governor in Council is satisfied that each of those
persons is a politically exposed foreign person in
relation to Ukraine;
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
21
Freezing Assets of Corrupt Foreign Officials
(Ukraine) Regulations
¬ 18 politically exposed foreign persons
¬ persons in Canada and Canadians outside
Canada must not
¬ (a) deal, directly or indirectly, in any property,
wherever situated, of any politically exposed foreign
person;
¬ (b) enter into or facilitate, directly or indirectly, any
financial transaction related to a dealing referred to
in paragraph (a); or
¬ (c) provide financial services or other related
services in respect of any property of any politically
exposed foreign person
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
22
Policy for Export Control List Goods and Technology
¬ Minister of Foreign Affairs has publicly stated that
permits will not be issued for any controlled items
that would provide a material benefit to the
Russian military
¬ significant delays for permit applications for any
controlled items
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
23
Export Controls on Russia’s Energy Sector?
¬ Prime Minister Harper (August 6, 2014):
“We are also committed to imposing the necessary
regulations to enact export restrictions on
technologies used in Russia’s oil exploration and
extraction sector. Those will be implemented in
parallel with our allies.”
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
Key Issues in Interaction With US and
Other Regimes
24
¬ 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
25
¬ 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
26
¬ Canadian measures may be broader than those of
the United States and other countries
¬ Russia / Ukraine – approx 200 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
27
¬ 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
28
¬ 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
29
Key Issues in Interaction With US and
Other Regimes
¬ significant differences in administration and
guidance on economic sanctions
¬ enforcement issues
¬ Lee Specialties Iran SEMA violations guilty plea
(April 14, 2014)
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
Key Issues in Interaction With US and
Other Regimes
30
¬ Canada does not have a voluntary disclosure
program for sanctions violations
¬ voluntary disclosures or mandatory report to Royal
Canadian Mounted Police
¬ if violation is suspected by DFATD during permit application
process, they will notify RCMP
John W. Boscariol, International Trade and Investment Law
McCarthy Tétrault LLP /
mccarthy.ca
31
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: [email protected]
LinkedIn: www.linkedin.com/in/johnboscarioltradelaw
Twitter: www.twitter.com/tradelawyer
McCarthy Tétrault LLP /
mccarthy.ca