Economic Sanctions: Canada s s New Compliance Minefield. John W. Boscariol

Transcription

1 Economic Sanctions: Canada s s New Compliance Minefield John W. Boscariol jboscariol@mccarthy.ca June 13, 2011 Toronto i.e. Canada Canadian & U.S. Export Controls Workshop

2 Growing Impact of Canadian Trade Controls 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 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 particular concerns regarding products and technology having a potential military application

3 2 What Are Canada s Trade Controls? export and technology transfer controls 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)

4 3 Today s Focus Canadian economic sanctions - hotspots Iran Libya Cuba breaking developments Syria, Egypt, Tunisia core elements of your compliance strategy three key vulnerabilities

5 Canada s Economic Sanctions Legislation Special Economic Measures Act and United Nations Act can include: 4 ban on providing goods, services, technology assets freezes cannot deal with listed individuals, companies, organizations ban on facilitation monitoring and reporting obligations application to persons in Canada and Canadians outside Canada permit process

6 United Nations Act Regulations 5 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 Sierra Leone Lebanon Iraq Somalia Eritrea (coming) terrorists and terrorist organizations Liberia North Korea Libya

7 Special Economic Measures Act Regulations 6 authority for Canada to impose economic sanctions absent or in additional to a UN Security Council resolution five currently in force Iran Libya Syria Burma Zimbawe North Korea (being drafted)

8 7 Transactions Involving Iran United Nations Act regulations (March 2007) export and import ban on nuclear, uranium enrichmentrelated activities ban on related technical assistance, investment, services asset freeze on designated individuals and entities United Nations Act regulations (June 2010) activities related to investing in commercial activity in Canada involving uranium mining, production or use of specified nuclear materials and technology assets freeze on additional individuals and entities export and supply ban on additional nuclear and military related items

9 8 Transactions Involving Iran Special Economic Measures Act (July 2010): making any new investment in the Iranian oil and gas sector exporting or otherwise providing to Iran items used in refining oil and gas establishing correspondent banking relationships with Iranian financial institutions providing or acquiring financial services to allow an Iranian financial institution (or a branch, subsidiary or office) to be established in Canada, or vice versa purchasing any debt from the Government of Iran dealing with designated persons involved in nuclear, chemical, biological or missile proliferation exporting or otherwise providing to Iran arms and related material not already banned and items that could contribute to Iran s proliferation activities (listed goods in Schedule 2) providing a vessel owned or controlled by, or operating on behalf of the Islamic Republic of Iran Shipping Lines with services for the vessel s operation or maintenance.

10 9 Transactions Involving Iran Export and Import Permits Act ECL item 5400 controls export and transfer of US-origin goods and technology require a permit for transfer from Canada to Iran conditions for obtaining a permit extraterritorial US sanctions Export Administration Regulations license requirements and other US sanctions rules (OFAC) US Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (amends to Iran Sanctions Act)

11 R. v. Yadegari July 6, 2010, first successful prosecution under the Iran sanctions regulations under United Nations Act 10 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

12 11 Transactions Involving Libya effective February 27, 2011 combined SEMA and UNA regulation target arms and related materials, technical and financial assistance dealings with Qadhafi family and associates (UNA) dealings with Libya, including governments and their departments, institutions, agencies, and Central Bank (SEMA)

13 Transactions Involving Libya 12 asset freezes for each of UN and SEMA designated persons SEMA (asset freeze against Libya ) dealing in property of designated person and facilitating such dealings or providing financial or related service making goods available to designated person providing financial or financial-related service for benefit of designated person causing, assisting or promoting something prohibited

14 Transactions Involving Libya 13 vagueness of asset freeze and definition of Libya significant risk that any involvement of Libya in a transaction will be covered significant due diligence required permit application process uncertainty over entities owned or controlled by designated persons application of March 17, 2011 UN Security Council Resolution which targets additional Libyan entities, including Libyan National Oil Corporation and Libyan Investment Authority

15 Transactions Involving Syria 14 May 24, 2011, imposition of economic sanctions against Syria under SEMA asset freeze against 25 listed individuals associated with the current Syrian regime and 7 government entities involved in security and military operations ban on the export or transfer from Canada to Syria of goods and technology subject to export controls exceptions for payments from designated persons pursuant to contract entered into before they became designated permit process

16 Penalty Exposure 15 contravention of UNA Act regulations subject to criminal penalties of up to $100,000 and/or imprisonment of up to ten years contravention of SEMA regulations subject to criminal penalties of up to $25,000 and/or imprisonment of up to five years

17 16 Freezing Assets of Corrupt Foreign Officials Act permits Canadian government to freeze assets or restrain property of politically exposed foreign persons at written request of foreign state or where foreign state is in state of turmoil or political uncertainty March 23, 2011 regulations enacted with respect to Tunisia and Egypt, targeting former leaders, family members and associates listed by name regulations prohibit dealings with listed persons and impose duty to report to RCMP criminal penalties of up to $25,000 and/or imprisonment for up to five years

18 17 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

19 18 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

20 19 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

21 Canadian Response to U.S. Trade Embargo of Cuba 20 diplomatic NAFTA/WTO? primarily FEMA and the 1996 FEMA Order

22 21 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

23 22 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.

24 23 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.

25 What is an Extraterritorial Measure of the United States? U.S. laws that may be considered extraterritorial measures of the United States : Cuban Assets Control Regulations Export Administration Regulations Helms-Burton (?) other 24

26 25 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

27 Critical FEMA Conflict Points 26 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

28 What Are Your Red Flag Destinations? raise red flag where you have knowledge, suspicions, or reason to believe that technology, goods or services are ultimately destined for or may be accessed or used in or by any of the following countries or entities: 27 Myanmar (formerly Burma) Belarus Syria Libya Sudan Iraq terrorists and terrorist organizations Al-Qaida and Taliban Zimbabwe Afghanistan Pakistan Cuba Guinea Iran Democratic Republic of the Congo Eritrea Côte d Ivorie Liberia Sierra Leone North Korea Lebanon Somalia Tunisia Egypt

29 Core Elements of Your Export Control and Economic Sanctions Compliance Program basic components should include: corporate compliance manual screens and lists appointment of compliance officers internal audit procedures correction / voluntary disclosure process training programs contracts conflict procedures 28

30 If you remember only three things 29 key areas of vulnerability interplay between Canadian and U.S. trade controls technology transfer controls screening all transactions against all sanctions programs

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