Criminal Issues Arising in International Trade: Canada s Economic Sanctions

Transcription

1 Criminal Issues Arising in International Trade: Canada s Economic Sanctions 20 th Transnational Crime Conference IBA Criminal Law Committee & IBA Business Crime Committee Lisbon, Portugal John W. Boscariol McCarthy Tétrault LLP May 19, 2017

2 Growing Impact of Canadian Trade Controls Slide 1 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) penalty exposure operational exposure reputational exposure 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

3 Slide 2 What Are Canada s Trade Controls? export and technology transfer controls Import Control List Export Control List, Area Control List economic sanctions Special Economic Measures Act United Nations Act Freezing Assets of Corrupt Foreign Officials Act Criminal Code ( terrorist groups ) domestic industrial security Defence Production Act, Controlled Goods Program other legislation of potential concern blocking orders (Cuba) anti-boycott policy and discriminatory business practices laws anti-bribery law (Corruption of Foreign Public Officials Act and US FCPA) compliance convergence

4 Slide 3 Challenges with Canada s Trade Controls 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

5 Slide 4 Hot Canadian Economic Sanctions Issues new drive into Burma, Cuba, Iran anything to do with Russia and Ukraine technology transfers cloud computing conflicting US and Canadian trade and investment controls on Cuba

6 Slide 5 Key Issues in Interaction With US and Other Regimes screen 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

7 Slide 6 Key Issues in Interaction With US and Other Regimes Canadian measures may be broader than those of the United States and other countries Russia / Ukraine over 300 designated persons Belarus, Burma, Libya, North Korea Iran will Canada s new government relax sanctions? importance of home grown compliance policies

8 Slide 7 Key Issues in Interaction With US and Other Regimes 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 criminal penalty exposure: up to $1.5 million and/or 5 years imprisonment provincial business discriminatory practices legislation

9 Key Issues in Interaction With US and Other Regimes Slide 8 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

10 Key Issues in Interaction With US and Other Regimes Slide 9 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 RCMP/CSIS mandatory for property of designated persons when GAC becomes aware of potential violation, immediate notification to RCMP

11 Implications for Economic Sanctions Compliance and Enforcement Slide 10 internal compliance programs must be home grown training and internal communications screening process and providers coordination of internal investigations and disclosures involving multiple jurisdictions

12 Canada s Economic Sanctions Legislation Special Economic Measures Act and United Nations Act can include: ban on providing goods, services, technology assets freezes cannot deal with listed individuals, companies, organizations ban on facilitation monitoring and reporting obligations Freezing Assets of Corrupt Foreign Officials Act Ukraine, Tunisia, Egypt (until March 2016) application to persons in Canada and Canadians outside Canada permit process and enforcement (GAC, CBSA and RCMP) also, Criminal Code terrorist groups Slide 11

13 Slide 12 United Nations Act Regulations countries, groups and individuals subject to sanctions under United Nations Act: Al-Qaida and Taliban Côte d Ivorie Democratic Republic of the Congo Iran Sudan Lebanon Libya Yemen Iraq Somalia Eritrea terrorists and terrorist organizations Liberia North Korea Central African Republic South Sudan

14 Slide 13 Special Economic Measures Act Regulations authority for Canada to impose economic sanctions absent or in addition to a UN Security Council resolution currently in force Iran Syria Burma Zimbabwe North Korea Russia Ukraine (including Crimea region) South Sudan

15 Canada s Autonomous Sanctions: Iran Slide 14 effective February 5, 2016, broad trade embargo measures have been removed, leaving only: SEMA prohibitions on activities involving 202 listed persons SEMA prohibitions on supplying any Schedule 2 items and related technical data United Nations restrictions export and technology transfer controls

16 Canada s UN Sanctions: Iran Slide 15 Canada s United Nations Act Iran regulations amended in accordance with UN Security Council Resolution 2231 list of designated persons (and regular reporting for FS firms) very long list of prohibited goods and technology prohibitions on provision of property and financial services in connection with prohibited items uranium mining restrictions shipping and aircraft restrictions sourcing ban on arms and related materials prohibitions against facilitation

17 Export Controls: Iran export and technology transfer controls under Export and Import Permits Act Notice to Exporters No. 196 (Feb 5, 2016): policy of denial for transfer of certain Export Control List items: certain Group 1 dual-use (cybersecurity, sensors, special materials, aerospace and propulsion, etc.) all Group 2 (munitions), Groups 3 and 4 (nuclear) certain Group 5 (strategic items) all Group 6 (missile technology, GPS) certain Group 7 (chemical weapons materials, containment facilities, human toxins) exceptions for items for civil aircraft Slide 16

18 Canada vs United States Slide 17 new disconnect between US and Canadian sanctions against Iran re-exports/re-transfers of US-origin items to Iran US takes jurisdiction with as little as 10% US-origin differs from ECL 5400 test applied by Canadian authorities Iranian visitors / temporary resident employees access to US technology are you US-owned or controlled? OFAC General License H authorizes certain transactions for US-owned foreign entities involvement of US persons use of recusals other US touchpoints

19 Slide 18 Prosecutions: 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)

20 Slide 19 Prosecutions: 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 April 14, 2014 guilty plea and $90,000 penalty

21 Russia / Ukraine Economic Sanctions Measures designated person restrictions on range of activities involving over 300 listed entities and individuals broad prohibitions asset freeze debt financing prohibition (30 or 90 days maturity) equity financing prohibition Slide 20 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

22 Russia / Ukraine Economic Sanctions Measures Slide 21 prohibitions on dealing with Crimea region of Ukraine, including: investment and related services importing, purchasing, acquiring, shipping or otherwise dealing in goods exported from the region exporting, selling, supplying, shipping or otherwise dealing in goods destined for the region; transferring, providing or communicating technical data or services; providing or acquiring financial or other services related to tourism

23 Russia / Ukraine Economic Sanctions Measures export control policy (GAC 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 Slide 22

24 Slide 23 The Cuban Conundrum 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

25 Slide 24 The Cuban Conundrum (cont d) 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 Canadian companies that have no connection with U.S. entities

26 Slide 25 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

27 Slide 26 The Foreign Extraterritorial Measures Act 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

28 Slide 27 FEMA Enforcement Experience there has never been an attempted prosecution of 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

29 Critical FEMA Conflict Points Slide 28 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

30 Slide 29 Best Practice #1 Screening for Designated Persons lists of 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 activity research partner, collaborator, purchaser, borrower, ultimate user, vendor, creditor, broker, service provider

31 Slide 30 Best Practice #2 Contract Clauses and Certifications trade control clauses for agreements with borrowers, vendors, customers, research partners, etc. designated person compliance with trade controls and certifications product information, including ECL/ECCN classification end-use certification indemnification notification of investigations or inquiries, cooperation

32 Slide 31 Best Practice #3 Using Voluntary Disclosure Mechanisms in certain circumstances, can be an effective tool coordinate with several government depts Export Controls Division Economic Law Division CBSA RCMP PWGSC Controlled Goods Directorate (mandatory reporting) other (e.g., Canadian Nuclear Safety Commission)

33 Slide 32 Best Practice #4 Controlling Technology Transfers higher risk vs export shipments process governing virtual meetings tele/video conference plans/drawings marking server access upload/download cloud computing

34 Slide 33 Best Practice #5 Home Grown Compliance Policies trade control compliance in the shadow of the United States Canadian controls can be more onerous than US controls e.g., encryption, Russia, Belarus, Burma, North Korea Canadian controls over US-origin goods and technology conflicts Cuba ITAR

35 John W. Boscariol McCarthy Tétrault LLP International Trade and Investment Law Direct Line: LinkedIn: Twitter: