Forbidden Compliance: The Application of
EU and Canadian Anti-Boycott and Blocking
Measures to U.S. Economic Sanctions and
Export Controls
John W. Boscariol
January 29, 2015
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 2
Navigating Between Conflicting U.S.
and Canadian Trade Controls
¬ navigating Canadian and U.S. trade controls
¬ generally close alignment of policies
¬ adoption of most stringent rules
¬ critical exceptions
¬ U.S. ITAR/EAR licensing
¬ Cuban trade or investment opportunities
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 3
The United States, Canada and Cuba
¬ problem, whether or not you trade with Cuba
¬ Canada’s expanding economic relationship with
Cuba
¬ Canada is one of Cuba’s largest trading partners
¬ Canadian exports to Cuba - machinery, agrifood products,
sulphur, electrical machinery, newsprint
¬ Canadian imports from Cuba - ores, fish and seafood, tobacco,
copper and aluminum scrap and rum
¬ Canada is one of Cuba’s largest source of foreign
direct investment
¬ Canadian FDI - nickel and cobalt mining, oil and gas, power
plants, food processing
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 4
The United States, Canada and Cuba
¬ expanding extraterritorial reach of U.S trade embargo
¬ 1962 – imposition of full trade embargo under Trading
With the Enemy Act
¬ 1975 – elimination of general license allowing trade by
foreign non-banking entities
¬ had to apply for specific license and demonstrate independent operation
re decision-making, risk-taking, negotiation and financing
¬ 1990 – Mack Amendment proposed outright prohibition
on issuance of licenses to foreign affiliates of U.S. firms
¬ 1992 – Cuban Democracy Act
¬ 1996 – Helms-Burton Act extends aspects of Cuban embargo
to non-U.S. companies that have no connection with
U.S. entities
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 5
Current U.S. Measures vs. Cuba
¬ Cuban Assets Control Regulations
¬ administered by U.S. Treasury’ Office of Foreign Assets Control
¬ prohibition on foreign entities owned or controlled by U.S. persons from doing
business with Cuba
¬ Export Administration Regulations
¬ administered by the U.S. Department of Commerce’s Bureau of Industry and
Security
¬ requires that a re-export license be applied for where U.S. content is 10% or more
¬ Helms-Burton Act
¬ Title III – private right of action vs. “traffickers” in “confiscated property” (right
suspended)
¬ Title IV – bar on entry in the United States for traffickers, their spouses and minor
children
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 6
Canadian Response to U.S. Trade
Embargo of Cuba
¬ diplomatic
¬ NAFTA/WTO?
¬ primarily FEMA and the 1996 FEMA Order
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 7
The Foreign Extraterritorial Measures
Act
¬ extraterritorial anti-trust motivations
¬ authorization for Attorney General to make orders where foreign
state or tribunal takes measures impairing Canada’s interests
regarding international trade or infringing on Canadian
sovereignty
¬ Canadian Attorney General can
¬ prohibit production or disclosure of records before foreign
tribunals
¬ declare that judgements of foreign tribunals not be recognized
or enforceable in Canada
¬ require notification of directives or other communications
relating to such measures
¬ prohibit compliance with such directives or measures
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 8
The Foreign Extraterritorial Measures
Act (cont’d)
¬ “Helms-Burton amendments”
¬ block recognition or enforcement of Title III
judgements
¬ restrict production of records for Title III actions
¬ “clawback” of damages from successful Title III
plaintiffs
¬ recovery of defense expenses prior to Title III
judgement
¬ criminal penalties
¬ corporation – up to CDN$1.5 million
¬ individual – up to CDN$150,000 and/or five years
imprisonment
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 9
The Foreign Extraterritorial Measures
Act (cont’d)
¬ also used to block other extraterritorial measures
¬ January 19, 2015 FEMA order against application of
Buy America rules to U.S. procurement
¬ $15 million upgrade of British Columbia ferry terminal
leased by State of Alaska from Prince Rupert Port
Authority
¬ prohibits any person in Canada from complying with Buy
America requirements or any directives, intimations of
policy or other communications supporting the
application of these requirements
¬ on January 21, 2015, Alaska cancelled the project
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 10
The Foreign Extraterritorial Measures
Act (cont’d)
¬ 1996 “blocking” order
¬ obligation to notify Canadian Attorney General
of certain communications
¬ prohibition against complying with certain U.S.
trade embargo measures
¬ penalty exposure: up to $1.5 million and/or 5
years imprisonment
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 11
The Foreign Extraterritorial Measures
Act (cont’d)
¬ applies to
¬ any “Canadian corporation” - a corporation that
is registered or incorporated under the laws of
Canada or of a province and that carries on
business in whole or in part in Canada
¬ and its directors, officers, managers and
employees in a position of authority
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 12
The Notification Obligation
“Every Canadian corporation and every director and
officer of a Canadian corporation shall forthwith give
notice to the Attorney General of Canada of any
directive, instruction, intimation of policy or other
communication relating to an extraterritorial measure
of United States in respect of any trade or commerce
between Canada and Cuba that the Canadian
corporation, director or officer has received from a
person who is in a position to direct or influence the
policies of the Canadian corporation in Canada.”
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 13
The Non-Compliance Obligation
“No Canadian corporation and no director, officer,
manager or employee in a position of authority of a
Canadian corporation shall, in respect of any trade or
commerce between Canada and Cuba, comply with
an extraterritorial measure of United States or with any
directive, instruction, intimation of policy or other
communication relating to such a measure that the
Canadian corporation or director, officer, manager or
employee has received from a person who is in a
position to direct or influence the policies of the
Canadian corporation in Canada.”
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 14
What is an “Extraterritorial Measure of
the United States”?
¬ defined as the U.S. Cuban Assets Control Regulations
and any law, ruling, guideline or other communication
having a purpose similar to that of the CACRs “to the
extent that they operate or are likely to operate so as
to prevent, impede or reduce trade or commerce
between Canada and Cuba”
¬ “trade or commerce between Canada and Cuba”
defined as trade (i) between Canadian entities and
Cuban entities and (ii) between Canadian entities and
Canadian nationals or corporations that are
designated as Cuban nationals or corporations
pursuant to an extraterritorial measure of the United
States (e.g., “specially designated nationals”)
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 15
What is an “Extraterritorial Measure of
the United States”? (cont’d)
¬ U.S. laws that may be considered “extraterritorial
measures of the United States”:
¬ Cuban Assets Control Regulations
¬ Export Administration Regulations
¬ Helms-Burton (?)
¬ other
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 16
FEMA Enforcement Experience (or lack
thereof)
¬ there has never been an attempted prosecution under the
Canadian blocking order
¬ no case law or administrative/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 pyjamas
¬ nationalistic sensitivities
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 17
Canadian Controls on U.S.-Origin Items
¬ FEMA and Canadian restrictions on supplying
U.S.-origin goods and technology to Cuba
¬ U.S.-origin goods and technology (ECL item
5400) – “designed to ensure Canada is not
used as a diversionary route to circumvent
U.S. embargoes”
¬ includes U.S. trade embargoes of Cuba, Iran,
Syria and North Korea
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 18
Canadian Controls on U.S.-Origin Items
(cont’d)
¬ ECL item 5400: a permit is required for the
export of all U.S.-origin goods from Canada
¬ excludes “goods that have been further
processed or manufactured outside of the
United States so as to result in a substantial
change in value, form or use of the goods or in
the production of new goods”
¬ old 50% rule of thumb rule
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 19
Canadian Controls on U.S.-Origin Items
(cont’d)
¬ available GEP No. 12 permits export of
U.S.-origin goods and technology to all
destinations except Belarus, Cuba, North
Korea, Iran and Syria
¬ no written DFATD policy for granting permits
for export of U.S.-origin goods and
technology to these countries
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 20
Canadian Controls on U.S.-Origin Items
(cont’d)
¬ experience suggests DFATD’s administrative policy
currently permits U.S.-origin goods and technology to
be transferred to Cuba in three circumstances:
¬ a U.S. licence has been obtained or
¬ humanitarian purposes (for the “basic necessities of
human life”) or
¬ in support of a previously permitted export or Canadian
operations
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 21
Resolving Conflicts between Canadian
and U.S. Law on Cuba
¬ when apparent conflicts arise, key issues to be
addressed include:
1. Is the U.S. measure at issue subject to the FEMA
Order?
- is it an “extraterritorial measure of the United States”?
2. Does the U.S. measure operate or is it likely to operate
to reduce or impede trade or commerce between
Canada and Cuba?
- compliance with the U.S. measure may not reduce trade
or commerce between Canada and Cuba
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 22
Resolving Conflicts between Canadian
and U.S. Law on Cuba (cont’d)
3. Is the communication at issue in the nature of
a directive or intimation of policy?
-
depending on the context, a simple statement
as to what U.S. law provides regarding trade
with Cuba may not be notifiable
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 23
Resolving Conflicts between Canadian
and U.S. Law on Cuba (cont’d)
4. Is the source of the communication in a
position to direct or influence the policies of
the Canadian corporation in Canada?
-
consider the position or authority of the person
that has made the communication to the
Canadian entity
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 24
Resolving Conflicts between Canadian
and U.S. Law on Cuba (cont’d)
5. Does the Canadian entity’s act or omission
constitute “compliance”?
- by following a particular course of action, is the Canadian
entity actually complying with applicable U.S. law?
- what is the reason for the act or omission?
- is the reason compliance with Canadian law?
- are there other reasons unrelated to the U.S. trade
embargo?
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 25
Resolving Conflicts between Canadian
and U.S. Law on Cuba (cont’d)
6. If the issue concerns goods or technology to
be supplied to Cuba, what is their U.S.-origin
content?
- if they are of U.S.-origin, Canadian law may not
allow for their export to Cuba
- need to consider and possibly apply for
Canadian export permit
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 26
Managing the Relationship Between U.S. and
Canadian Export Controls and Trade Sanctions
¬ critical conflict points
¬ training programs
¬ compliance manuals
¬ communications and instructions
¬ server accessibility
¬ meetings and telephone conversations
¬ M&A due diligence
¬ contracts – e.g., supply agreements with U.S. companies,
intercompany agreements, purchase orders, etc.
¬ end-use certificates
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 27
Managing the Relationship Between U.S. and
Canadian Export Controls and Trade Sanctions
(cont’d)
¬ cannot simply adopt U.S. trade control policies
for Canadian operations
¬ export control and trade sanctions compliance
manuals and any related directives should be
“home grown”
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 28
Managing the Relationship Between U.S. and
Canadian Export Controls and Trade Sanctions
(cont’d)
¬ when potential conflicts arise:
¬ case-by-case analysis, very context-specific
¬ addressing exposure of U.S. citizens in Canada
¬ involvement of Canadian and U.S. counsel
¬ cultural - sovereignty issues particularly
sensitive
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 29
Canadian Rules on Boycotts and
Discriminatory Practices
¬ in addition to export controls, trade embargoes, asset
freezes and blocking orders
¬ Canada’s federal boycott policy
¬ provincial discriminatory business practice legislation
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 30
Canada’s Boycott Policy
¬ October 21, 1976 federal policy; does not prohibit
compliance with international economic boycotts
¬ identifies “unacceptable” activities taken in connection with
such boycotts
¬ requiring a firm or individual to engage in discrimination
based on race, nationality, etc. of another Canadian firm
¬ refusing to purchase from or sell to another Canadian firm
¬ refusing to sell Canadian goods to any country or refraining
from purchasing from any country
¬ restricting commercial investment or other economic activity
in any country
¬ sanction is denial of government support and assistance in
such transactions
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 31
Provincial Discriminatory Business
Practices Legislation
¬
Discriminatory Business Practices Act (Ontario)
¬
prohibits refusing to engage in business with others where:
¬
refusal is an account of on “attribute” (e.g., geographical location)
of the others or of a third person with whom the others do
business; and
¬
refusal “is a condition of the engaging in business” of the
company making the refusal and another person
¬
prohibits entering into a contract in which one party refuses to
engage in business with another person on account of an
attribute of that other person or of a third person with whom that
person conducts business
¬
prohibits seeking or providing negative statements of origin
¬
requires reporting of requests to engage in discriminatory
business practices
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 32
Provincial Discriminatory Business
Practices Legislation (cont’d)
¬ penalty/sanction exposure
¬ cause of action for damages against person who
contravenes
¬ banned for providing goods or services to Ontario
government for five years
¬ up to $100,000 fine
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 33
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
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 34
Examples of Conflicts
Example 1:
A U.S. company conducts export compliance training at
its Canadian subsidiary. U.S. staff travel to Canada,
provide employees and officers of the Canadian
company with export control manuals and training
sessions which identify Cuba, among other countries,
as being subject to the OFAC rules. Is the Canadian
company required to make a notification to the
Attorney General?
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 35
Examples of Conflicts (cont’d)
Example 2:
A European-based company has a subsidiary in the
United States and a subsidiary in Canada. The CEO of
U.S. subsidiary advises her Canadian counterpart that
her company should not be supplying products to
Cuba. Is the Canadian subsidiary required to notify
the Attorney General?
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 36
Examples of Conflicts (cont’d)
Example 3:
The Canadian subsidiary in Example 2 uses the systems of
its U.S. sister company to process orders that it receives.
In order to avoid penalties under the CACRs, the Canadian
subsidiary develops a new order system that red flags
Cuban orders so that they are processed in Canada. Has
the Canadian company violated the non-compliance
obligation?
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 37
Examples of Conflicts (cont’d)
Example 4:
An Asian multi-national has a subsidiary in the United States
which in turn has a subsidiary in Canada. The Canadian company
receives a request to provide engineering services to a Cuban
mining project. The Canadian company refuses because the
CACRs prevent U.S.-owned foreign subsidiaries from doing
business with Cuba. However, another Canadian company, a
direct subsidiary of the Asian parent, steps in to provide the
services. Is there a requirement to notify the Attorney General
of any directions that may have been given to the Canadian
company that refused the order? Is there a violation of the
non-compliance obligation?
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 38
Examples of Conflicts (cont’d)
Example 5:
A Canadian investor participating in an hotel project in
Cuba backs out of the deal when she realizes that the
financial terms are not worth the risk, and she fears
exposure to Title III actions under Helms-Burton. Has
the Canadian investor violated her non-compliance
obligation?
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 39
Examples of Conflicts (cont’d)
Example 6:
A Canadian distributor sources widgets from the United
States and receives an order to ship to Cuba. He
applies for a U.S. re-export license, perhaps in the
hope that they are considered medical supplies, but is
refused. He advises his customer that he is unable to
ship. Has he violated the non-compliance obligation?
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group
Slide 40
Examples of Conflicts (cont’d)
Example 7:
A Canadian manufacturer uses U.S.-origin components
to produce widgets. The components comprise over 50
percent of the value of the widgets. It refuses a
purchase order for Cuba assuming the shipment would
not qualify for a Canadian export permit. Could this
constitute a violation of the non-compliance
obligation?
McCarthy
John
W. Boscariol,
Tétrault S.E.N.C.R.L.,
McCarthy Tétrault
s.r.l. /LLP,
mccarthy.ca
International Trade and Investment Law Group