Sanctions Risk Management Symposium

Transcription

1 Sanctions Risk Management Symposium in cooperation with September 18, :00 PM 4:45 PM Navigating the Sanctions and Export Controls Requirements of Multiple Jurisdictions John Boscariol Head of International Trade & Investment Law Group David McLean Deputy Head of OFSI and Head of Enforcement & Engagement Saskia Rietbroek Principal (Moderator) Hera Uy Smith Global Sanctions Compliance Officer Associated Foreign Exchange (AFEX) McCarthy Tétrault 1 September 18-19, 2017 The Princeton Club New York, NY

2 Sanctions Risk Management Symposium in cooperation with David McLean Deputy Head and Head of Enforcement & Engagement Office of Financial Sanctions Implementation (OFSI What is the OFSI and how UK sanctions law could affect you extraterritorially 2 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

3 Sanctions Risk Management Symposium in cooperation with Office of Financial Sanctions Implementation (OFSI) Who We Are Part of HM Treasury UK Competent Authority for financial sanctions Part of the wider UK Government sanctions approach led by UK s Foreign Office Operational from April 2016 part of increased UK Government focus on financial sanctions 3 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

4 Sanctions Risk Management Symposium in cooperation with What We Do Implementation of UN & EU financial sanctions in UK Terrorist asset freezing Outreach and guidance Licencing Compliance & Enforcement civil enforcement directly, criminal enforcement via support to UK s National Crime Agency Not trade sanctions implemented by UK s Department of International Trade, enforced by Revenue & Customs Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY 4

5 Sanctions Risk Management Symposium in cooperation with Why Do We Do It? OFSI will be a centre of excellence for financial sanctions, raising awareness and providing clear guidance to promote compliance with financial sanctions, providing a professional service to the public and industry, and working closely with other parts of government to ensure that sanctions breaches are rapidly detected and effectively addressed. (former) Chancellor of the Exchequer, 31 March 2016 From April 2017 breaching financial sanctions is a serious crime in the UK up to 7 years in prison Civil penalties the greater of 1m or 50% of the value of the breach 5 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

6 Sanctions Risk Management Symposium in cooperation with Why does this matter to you? Financial sanctions apply more broadly than simply to the persons subject to them. EU financial sanctions (incl. where they implement UN sanctions) apply within territory of EU and to all EU persons, wherever they are in the world. UK financial sanctions apply within territory of UK and to all UK persons, wherever they are in the world. All individuals and legal entities who are within or undertake activities within UK s territory must comply with EU and UK financial sanctions that are in force. All UK nationals and UK legal entities established under UK law, including their branches, must also comply with UK financial sanctions that are in force, irrespective of where their activities take place. All EU nationals and legal entities established under EU law must comply with EU financial sanctions that are in force, irrespective of where their activities take place. 6 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

7 Sanctions Risk Management Symposium in cooperation with What should you do? Don t break sanctions! Think extraterritorially Know your risk sensible and effective risk management Know your structures how exposed are your businesses to sanctions regimes Know your jurisdictions what applies, how and why Know your agencies have you got all necessary licences? Financial sanctions vs export controls Get professional advice Talk to regulators/competent authorities Do business (which doesn t break sanctions) 7 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

8 Sanctions Risk Management Symposium in cooperation with John Boscariol Head of International Trade & Investment Law Group McCarthy Tétrault 8 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

9 Sanctions Risk Management Symposium in cooperation with Canada s Export Controls and Economic Sanctions 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 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 Criminal Code) Compliance convergence Criminal Code ( terrorist groups ) Domestic industrial security Defence Production Act, Controlled 9 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

10 Sanctions Risk Management Symposium in cooperation with Challenges in Interaction With Other Regimes Canadian measures may be broader than those of the U.S., other countries Russia / Ukraine over 300 designated persons Belarus, Burma, Libya, North Korea Iran even post-jcpoa Canadian sanctions measures diverging from those of the U.S. and Europe Importance of home grown strategies for enforcement, disclosures and compliance 10 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

11 Sanctions Risk Management Symposium in cooperation with Challenges in Interaction With Other Regimes (Cont.) 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 prohibition against compliance with 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 11 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

12 Sanctions Risk Management Symposium in cooperation with Challenges in Interaction With Other Regimes (Cont.) Canadian measures can be in direct conflict with those of the U.S. Canadian human rights / employment laws and potential conflict with U.S. prohibitions on doing business with nationals of sanctioned countries (Cuba) U.S. export controls under International Traffic in Arms Regulations Department of Defense Trade Controls (US State) U.S. export controls under Export Administration Regulations (CCL) - Department of Commerce 12 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

13 Sanctions Risk Management Symposium in cooperation with Challenges in Interaction With Other Regimes (Cont.) Significant differences (vs US and other countries) in administration and guidance on economic sanctions few court cases and no FAQs, guidelines, rulings, opinions no consolidated lists no established voluntary disclosure process no deferred or non-prosecution agreements 13 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

14 Sanctions Risk Management Symposium in cooperation with John W. Boscariol McCarthy Tétrault LLP International Trade and Investment Law Direct Line: LinkedIn: Twitter: Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

15 Sanctions Risk Management Symposium in cooperation with Hera Uy Smith Global Sanctions Compliance Officer Associated Foreign Exchange (AFEX) 15 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

16 Sanctions Risk Management Symposium in cooperation with Extraterritorial Application of U.S. Sanctions U.S. nexus U.S. citizens, residents, companies Owned and controlled subsidiaries of U.S. entities USD, access to the U.S. financial system Secondary Sanctions Iran, Cuba, and North Korea Conflict of Law Issues Canadian Law UK Law 16 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

17 Sanctions Risk Management Symposium in cooperation with Extraterritorial Application of U.S. Sanctions 17 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

18 Sanctions Risk Management Symposium in cooperation with Risk-based Approach Consider: Sanctions regulations Business revenue Reputational Risk Partner bank policies Trend: Global Internal Policy Border cities and ports between China and North Korea; Crimean region; Iran 18 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

19 Sanctions Risk Management Symposium in cooperation with Questions? 19 September 18-19, 2017 The Princeton Club New York, NY

20 Sanctions Risk Management Symposium in cooperation with Bonus Slides Provided by 20 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

21 Sanctions Risk Management Symposium in cooperation with Joint Comprehensive Plan of Action (JCPOA) July 2015 Phased sanctions relief for Iran P5+1 (China, France, Germany, Russia, UK and US), EU and Iran January 2016: Implementation Day U.S. sanctions relief under the JCPOA can be snapped back if Iran fails to comply with the JCPOA Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

22 Sanctions Risk Management Symposium in cooperation with U.K. Office of Financial Sanctions Implementation (OFSI) Falls under Her Majesty s Treasury; Helps to ensure that financial sanctions are properly understood, implemented and enforced in the UK; Can impose penalties for serious financial sanctions breaches; 22 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

23 Sanctions Risk Management Symposium in cooperation with Brexit U.K. s withdrawal from the European Union Decided by referendum vote on June 23, U.K. is set to leave the E.U. by March 2019 Legal and compliance effects are still taking shape. 23 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

24 Sanctions Risk Management Symposium in cooperation with Relevant Canadian Government Agencies Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) Global Affairs Canada (GAC) Economic Law Section and Export Controls Division Office of the Superintendent of Financial Institutions (OSFI) Public Prosecution Service of Canada (PPSC) Royal Canadian Mounted Police (RCMP) Canada Border Services Agency (CBSA) Canadian Security Intelligence Service (CSIS) 24 Navigating the Turbulent Currents of International Sanctions and Export Controls September 18-19, 2017 The Princeton Club New York, NY

25 Growing Impact of Canadian Trade Controls 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 Slide 25

26 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 Slide 26

27 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

28 Hot Canadian Economic Sanctions Issues drive into new markets Burma Cuba Iran business involving Russia or Ukraine technology transfers cloud computing conflicting US and Canadian trade and investment controls on Cuba Slide 28

29 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 Slide 29

30 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 even post-jcpoa Canadian sanctions measures diverging from those of the United States and Europe importance of home grown compliance policies Slide 30

31 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 Slide 31

32 Key Issues in Interaction With US and Other Regimes 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 Slide 32

33 Key Issues in Interaction With US and Other Regimes 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 Slide 33

34 Key Issues in Interaction With US and Other Regimes key recommendations of Canada s House of Commons Foreign Affairs Committee properly resource and reform the structures for sanctions regimes comprehensive, publically available, written guidance for public and private sectors regarding interpretation of sanctions regulations produce and maintain a comprehensive, public and easily accessible list of all individuals and entities targeted by Canadian sanctions containing all information necessary to assist with proper identification independent administrative process by which designated individuals and entities can challenge in a transparent and fair manner clear rationale for the listing and delisting of persons Slide 34

35 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 Slide 35

36 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 36

37 United Nations Act Regulations countries, groups and individuals subject to sanctions under United Nations Act: Al-Qaida and Taliban Iraq Democratic Republic of the Congo Iran Sudan Lebanon Libya Yemen Somalia Eritrea terrorists and terrorist organizations North Korea Central African Republic South Sudan Slide 37

38 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 Slide 38

39 Canada s Autonomous Sanctions: Iran 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 Slide 39

40 Canada s UN Sanctions: Iran 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 Slide 40

41 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 41

42 Canada vs United States 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 USowned foreign entities involvement of US persons use of recusals other US touchpoints Slide 42

43 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) Slide 43

44 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 Slide 44

45 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 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 Slide 45

46 Russia / Ukraine Economic Sanctions Measures 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 Slide 46

47 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 on Magnitsky sanctions: 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 47 Government response to HoC Foreign Affairs Committee recommendations

48 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 Slide 48

49 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 Slide 49

50 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 Slide 50

51 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 Slide 51

52 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 Slide 52

53 Critical FEMA 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 Slide 53

54 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 Slide 54

55 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 Slide 55

56 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) Slide 56

57 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 Slide 57

58 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 Slide 58

59 John W. Boscariol McCarthy Tétrault LLP International Trade and Investment Law Direct Line: LinkedIn: Twitter: John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca