Sanctions. Sanctions Spotlight. Kerri-Ann Bent

Transcription

1 Sanctions Sanctions Spotlight Kerri-Ann Bent

2 Sanctions Overview Sanctions are restrictions on Economic and Business activity related to certain countries, individuals, Entities, industries or types of activity, that governments (e.g. Canada, UK, US) or international bodies (e.g. the UN) put in place through laws and regulations. Sanctions targets include terrorists, narcotics (drugs) traffickers, repressive regimes (e.g. Iran and North Korea) and activities associated with restricted goods (e.g. Conflict Diamonds and weapons). Specially Designated Nationals: SDNs may be Resident anywhere in the world. Any entity known to be owned or controlled by an individual or entity, or a combination of multiple individuals or entities, named on one of the above lists. Sanctions are commonly referred to as List Based or Country Based : Lists of sanctioned countries, entities, and individuals change frequently in response to political events and human rights concerns e.g., Crimea, Russia, Iran, Myanmar (Burma).

3 Sanctions Toolbox Comprehensively Sanctioned Territories Crimea, Cuba, Iran, Syria, North Korea Significant Sanctions Sudan, Venezuela and Russia Limited Sanctions W. Balkans, Belarus, Burundi, Central African Republic, Côte d Ivoire, DR Congo, Iraq, Lebanon, Libya, Somalia, South Sudan, Ukraine, Venezuela, Yemen, Zimbabwe Restricted Persons Specially Designated Nationals ( SDNs ) Terrorists, WMD proliferators, human rights violators, transnational criminal organizations, narcotics traffickers, Magnitsky, rough diamonds, foreign sanctions evaders, etc. 3

4 Regulatory Authority United States Regulatory Authority Canada There are five federal statutes under which the Government of Canada imposes economic sanctions and trade restrictions. Canadian Sanctions apply globally to all Canadian Persons regardless of their location. Specific and General Licenses available Permits/Certificates and Licenses available Screening and Reporting is required Screening and Reporting is required Key Statutes include: Canadian sanctions are imposed under: Criminal Code - imposes specific reporting requirements and asset freeze obligations relating to terrorist property. The Criminal Code also sets out several offences relating to money laundering and the financing of terrorism. UNA United Nations Act - The Government of Canada enacts into Canadian law sanctions adopted by the UN Security Council through regulations made under the United Nations Act. SEMA Special Economic Measures Act - to impose sanctions on foreign jurisdictions and persons where the government is of the opinion that a grave breach of international peace and security has occurred that is likely to result in a serious international crisis. JVCFOA- Justice for Victims of Corrupt Foreign Officials Act - In 2017, SEMA was amended to additionally allow the Government of Canada to introduce sanctions against foreign states where gross and systematic human rights violations have been committed or against foreign public officials who are responsible for significant corruption (Sergei Magnitsky Law) The US Treasury (OFAC) restricts activity with targeted countries, governments, entities, individuals and industries. US Sanctions apply globally to all US Persons regardless of their location. TWEA Trading with the Enemy Act of 1917 Federal law used to restrict trade with hostile countries. The law gives the President the power to oversee or restrict any and all trade between the United States and its enemies in times of war. IEEPA International Emergency Economic Powers Act of 1977, enhanced act of is a United States federal law authorizing the President to regulate commerce after declaring a national emergency in response to any unusual and extraordinary threat to the United States ISDCA International Security and Development Cooperation Act OF The President may ban the importation into the United States of any good or service from any country which supports terrorism or terrorist organizations or harbors terrorists or terrorist organizations. CAATSA Countering Americas Adversaries Act (2017)- United States federal law that imposed sanctions on Iran, North Korea, and Russia.

5 Prohibitions/Requirements include: Dealings with Comprehensively Sanctioned Territories and their blocked governments (including state-owned/-controlled entities) Prohibitions on dealings, transactions, funds transfers, investments, exports, imports, etc. Prohibition on dealing in goods of sanctioned country origin Causing, conspiring, aiding or abetting violations by others Blocking and reporting of property interests of SDNs Reporting of rejected transfers Increasing disclosure obligations 5

6 Facilitation Indirect activity in support of Sanctions targets, involving sanctioned countries, or goods, services, or assets of either is prohibited Issuing, advising, confirming, negotiating, etc. letters of credit Providing/arranging trade financing Processing/clearing/settling individual transactions Approvals or directions Negotiation/drafting/review of commercial terms, contracts Bank guarantees; warranties Referral of business to non-us Persons Certain forms of IT support/access Strategizing business Changing policies or procedures to enable transactions Other support, including legal advice, technical, credit review, etc. Sanctions compliance advice is permissible and is not prohibited facilitation 6

7 Issues Invoice in US Dollar Non-US Factory in Europe Credits Correspondent Account at US Bank Debits Correspondent Account at US Bank US Bank Non-US Customer in Asia Credits Payment to Non-US Factory s Bank Account Payment Instruction Orders Payment from its Bank Account to Non-US Factory US Dollar Processing Non-US Bank in Europe US Person Service 7 Non-US Bank in Asia

8 Consent orders Fines Criminal charges Prison for individuals Penalties and Other Risks Reputational Risks Removal of licenses Consequences of Non-Compliance

9 Enforcement Case Study On January 13, 2017 Toronto-Dominion Bank ("TD Bank") entered into a settlement agreement with OFAC for apparent violations under the Cuba and Iran Sanctions program. OFAC also issued a Finding of Violation to TD Bank, based on activities carried out by their wholly owned subsidiary, Internaxx Bank SA in violation of the Cuba regulations. TD Bank allegedly engaged in a series of trade finance transactions that generally involved import-export letters of credit for TD Bank's Canadian customers. OFAC found that the bank failed to adequately screen these transactions for potential OFAC violations and consequently TD Bank maintained several accounts for and processed transactions to or through the United States on behalf of a Canadian company owned by a Cuban company. OFAC also concluded that TD Bank had several accounts in Canada and processed transactions for a "freight, cargo, and shipping business" that was a sales agent for an entity on the SDN list located in Iran.

10 CUBA Timeline February 1962 Kennedy administration imposes a complete economic embargo on Cuba October 1992 "1992 Blocking Order applies to the U.S. Cuban Assets Control Regulations or any other similar legislation that purports to affect trade between Canada and Cuba April 2009 President Obama eases restrictions on travel & remittances to Cuba January 2015 BIS issues License Exception allowing exports to Support the Cuban People (SCP) and to facilitate telecommunications November 2017 OFAC and BIS adds significant restrictions relating to financial transactions and travel by persons subject to US jurisdiction Internal Only March 1996 Congress passes the Helms Burton Act penalizing foreign companies conducting business with Cuba December 2014 President Obama and President Raul Castro announce the restoration of full diplomatic ties between the US and Cuba May 2015 State Department rescinds Cuba s designation as a State Sponsor of Terrorism January 2016 OFAC & BIS further expand authorizations for travel and allow financing for exports and re-exports of nonagricultural items June 2017 President Trump announced a new Cuba policy in a National Security Presidential Memorandum on Strengthening the Policy of the United States Toward Cuba (Cuba NSPM)

11 CANADA BLOCKING LEGISLATION The Foreign Extraterritorial Measures Act (1992 Order) blocks the extraterritorial application in Canada of the U.S. embargo against Cuba. Compliance: The 1992 Order prohibits a Canadian corporation, including its directors, officers, and employees, in respect of any trade between Canada and Cuba, from complying with an extraterritorial measure of the United States. Reporting: The 1992 Order also prohibits complying with any direction or communication relating to such a measure that the Canadian corporation has received from a person who is in a position to influence the policies of the Canadian corporation. There is also an obligation to notify the Attorney General of Canada of any such communications.

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13 IRAN Overview Sanctions related to Iran were enacted under the United Nations Act and the Special Economic Measures Act in response to Iran's nuclear and WMD programs. In 2012, Canada abandoned its diplomatic ties with Iran and closed its embassy in Tehran. Former Canadian minister of foreign affairs, John Baird, cited Iran s support for the Assad regime during the Syrian Civil War and non-compliance with United Nations resolutions on its nuclear program. In February 2016 amendments were made to Canada s sanctions against Iran under the Special Economic Measures (Iran) Regulations in order to contribute to international efforts to recognize the progress made under the JCPOA, while restricting Iran s access to sensitive goods from Canada, especially with respect to nuclear proliferation and the development of ballistic missiles. Until 2016, Canada had in place an all-encompassing set of trade restrictions in respect of Iran. The Government of Canada lifted most (but not all) of these restrictions in February 2016 when the International Atomic Energy Agency confirmed that Iran satisfied the commitments it made under the Joint Comprehensive Plan of Action, a program intended to ensure that the Iranian nuclear program is not used for the development of nuclear weapons.

14 US endorsement 17 September 2015 Implementation Day 16 January There is a 65 day snapback mechanism allowing the reintroduction of sanctions if Iran fails to meet its obligations May President Trump withdraws from the JCPOA deal EU remains committed and begins exploring use of Blocking Statutes Jul Aug Sep Jan Feb Jul 2017 Oct 2017 May 2018 Aug 2018 August 6, 2018 Snapback changes will be implemented. UN and EU endorsement 20 July 2015 JCPOA Timeline Internal Only February 5, 2016 Canada amended its Regulations implementing the United Nations Resolutions on Iran in order to implement the decisions of the Security Council under Resolution 2231 Although President Trump recertified the JCPOA deal in July and October 2017 he continued to express his disapproval. May 2018 We regret that the United States has chosen to step out of the Iran Nuclear Deal. However, For Canada s purpose, we make our decisions around foreign policy here in Ottawa, not in Washington, not elsewhere. -Trudeau

15 Russia

16 Recent Regulatory Updates Russia/Ukraine/Crimea March 17, 2014 Sanctions imposed as a result of the Russian occupation of the Crimea region of Ukraine in 2014 Blocking provisions were imposed against former Ukrainian government officials In July 2014 the Sectoral Sanctions were issued against entities operating in major sectors of the Russian economy to encourage behavioral change. Restrictions were specific to preventing new issuances of new debt or equity to entities of the Banking, Energy and Weapons manufacturing Industries New investment ban and prohibition on the exportation or importation of goods, technology, or services to or from the Russian-occupied Crimea region of Ukraine.

17 Canada calls on Russia to cooperate fully with the British investigation into the March 4 nerve attack in Salisbury, for which the Russian state bears responsibility. We will continue to maintain pressure, including through economic sanctions, until Russia meets its obligations under international law. We condemn Russia s illegal annexation and occupation of Crimea and condemn its continued support for the Assad regime in Syria, - Chantal Gagnon, a press secretary with the PMO, said in an to Radio Canada International. We regret PM Trudeau s confrontational rhetoric at yesterday s Toronto press-conference prompted by UK slanderous Russophobic hysteria. This language of ultimatums is totally unacceptable & counterproductive, especially for bilateral dialogue on important issues, like the Arctic. Russia in Canada (@RussianEmbassyC) Internal Only

18 Screening Challenges: Ownership -50% Rule Internal Only

19 Sectoral Sanctions A broad prohibition against dealing in the property of certain designated individuals, groups, and businesses that are listed in Schedule 1 to the Special Economic Measures (Russia) Regulations and the Special Economic Measures (Ukraine) Regulations A prohibition against dealing in, or providing financing for, equity securities or new debt of longer than 30 days maturity in relation to designated major Russian financial institutions or their property A prohibition against dealing in, or providing financing for, new debt of longer than 90 days maturity in relation to designated major Russian energy companies or their property A prohibition against exporting, selling, supplying, or shipping certain designated goods to Russia or to any person in Russia for use in shale oil, deep-water offshore oil, or Arctic oil exploration or production A broad prohibition against making investments in the Russian-controlled Crimea and the city of Sevastopol A broad prohibition on importing and exporting of any goods from or to the Russian-controlled Crimea and the city of Sevastopol. 19

20 Venezuela On May 30, 2018 the Association Concerning the Situation in Venezuela, of which Canada is a member, made a decision calling on its members to take economic measures against Venezuela. Her Excellency the Governor General in Council, on the recommendation of the Minister of Foreign Affairs, pursuant to subsections 4(1), (1.1), (2) and (3) of the Special Economic Measures Act, updated the Regulations Amending the Special Economic Measures (Venezuela) Regulations and added 14 more names to the Canada sanctions watch-list. The May 30, 2018 additions to the SEMA Designated Persons List includes Maduro s wife and family members of the late President Hugo Chavez. Designations are also made under the Magnitsky sanctions which are more expansive in their scope to cover property, services and financial services.

21 Magnitsky Sanctions It is important to realize that the names are only a starting point. The prohibitions and asset freezes extend to other persons where the activity benefits a designated person or is on the direction of order of a designated person. 1. This means that family members could be covered (such as children). 2. It also means that companies associated with the designated persons are covered (e.g., the designated person or a company owned by a designated person is a shareholder of the company). 3. Further, representatives and agents may be covered (e.g., a Venezuelan lawyer or holding company hired by a designated person who is soliciting goods, property or services, including financial services) may be covered. 21

22 Increased Screening Complexities Digital currency Sanctions - Recent order prohibits US persons from dealing in any digital currency issued by, for, or on behalf of the Government of Venezuela on or after January 9, 2018, including the "petro" and "petrogold. Businesses now need to determine whether certain agreements, financial instruments or components of complex transactions would fall under OFAC's simplified definition of debt and equity. The Ukraine-related sanctions apply to any entity owned 50 percent or more by a sanctioned person. Based on recent guidance from OFAC, this rule now applies to aggregate ownership by sanctioned persons. The individuals and companies designated under the Ukraine-related sanctions often have vast and sometimes nontransparent holdings throughout the world, meaning that businesses cannot simply screen counterparties' names against the OFAC lists. As a result, due diligence of counterparties should go beyond only screening counterparty names against watch lists to include analyzing ownership structures.