Dancing Around Landmines: Hot Topics in U.S. and Canadian Sanctions Momentum Events Webinar November 20, 2014
Who we are Daniel Chapman Chief Compliance Officer and Counsel, Parker Drilling Company dan.chapman@parkerdrilling.com Vincent DeRose Partner, Borden Ladner Gervais VDerose@blgcanada.com Scott Maberry Partner, Sheppard, Mullin, Richter & Hampton smaberry@sheppardmullin.com 2
What we ll talk about Introduction to U.S. and Canadian sanctions Recent developments Compliance Questions 3
U.S. ECONOMIC SANCTIONS 4
What are sanctions? Sanctions regulate transactions May be imposed on individuals, entities, or vessels Based on U.S. foreign policy and national security goals Administered by U.S. Department of Treasury Office of Foreign Assets Control (OFAC) 5
What are sanctions? (continued) Sanctions may be implemented by: Freezing assets Import / export prohibition Export of services prohibition Facilitation prohibition Prohibiting certain specific transactions 6
What are sanctions? (continued) Different programs, different approaches: Comprehensive Selective Programmatic SDN List 7
Specially Designated Nationals Who can be designated? How do they get designated? Consequences Many SDNs are in non-sanctioned countries! 8
Jurisdiction: Who must comply? U.S. Persons U.S. citizens or permanent residents, wherever located U.S. companies Persons in the United States, regardless of nationality Cuba and Iran sanctions reach non-u.s. entities owned or controlled by a U.S. person 9
Who else? Any person can be liable for causing a violation Example: BNP Paribas 10
Prohibited export of services Providing service anywhere may be prohibited if benefit of service is received by sanctioned party Example: Consulting for non-u.s. company regarding business in sanctioned country 11
Prohibited facilitation Support for any activity that would be prohibited if performed by a U.S. person Examples of prohibited activity 12
Penalties Civil fines Generally, up to $250,000 or twice the amount of the underlying transaction for each violation Criminal penalties for willful violations Up to $20 million Imprisonment for up to 30 years 13
CANADIAN ECONOMIC SANCTIONS 14
Overview of Canada s Sanctions Laws CDN sanctions encompass a variety of measures: limitations on official and diplomatic contacts or travel restriction or prohibition of trade or other economic activity seizure or freezing of property 15
Overview of Canada s Sanctions Laws (continued) Who is bound by laws? all persons living in Canada (regardless of nationality). Persons includes Federal and Provincial corporations all Canadians outside of Canada Canada does not apply extraterritorial jurisdiction on non-canadians 16
Overview of Canada s Sanctions Laws (continued) The Legislation: Five principle statutes: United Nations Act; Special Economic Measures Act; Criminal Code of Canada; Freezing Assets of Corrupt Foreign Officials Act; and Export and Import Permits Act 17
Overview of Canada s Sanctions Laws (continued) Currently there exist: Comprehensive: Iran, North Korea, Belarus Selective: Russia, Ukraine, Zimbabwe Programmatic: terrorists 18
Overview of Canada s Sanctions Laws (continued) Penalties There exists a range of potential criminal penalties. These include: (a) (b) On summary conviction, a fine of not more than $100,000 or imprisonment for a term not more than one year; or On a conviction on indictment, an unlimited fine or imprisonment to a term of not more than 10 years. There also exists the potential for administrative monetary penalties (very modest compared to American penalties) 19
RECENT DEVELOPMENTS 20
Iran Sanctions Developments Discussions between the P5+1 (United States, UK, Germany, France, Russia, China) and Iran Goal: To reach a mutual plan to ensure Iran s nuclear program will be peaceful 21
The JPOA November 24, 2013, the P5 + 1 and Iran reached an initial understanding outlined in a Joint Plan of Action (JPOA) Iran committed to place limits on its nuclear program The P5+1 committed to provide limited, targeted, and reversible sanctions relief 22
U.S. Implementation of the JPOA Based on JPOA, U.S. government granted sanctions relief relating to specific sectors: Iran s export of petrochemical products and crude oil Iran s auto industry Gold and other precious metals Civil aviation Relief period: January 20, 2014 through November 24, 2014 U.S. government may revoke this relief at any time if Iran fails to meet its JPOA commitments 23
Iran s JPOA Commitments Halt uranium enrichment and dilute/convert a portion of existing enriched uranium Cease advancement of existing enrichment locations; no new locations Permit enhanced monitoring Provide requested information Permit access to workshops, storage facilities, mines/mills 24
Canadian Sanctions Against Iran Canada began imposing sanctions on Iran in 2010. Since May 29, 2013, the sanctions have effectively been comprehensive. 25
New Developments Canada has not been involved in discussions between the P5 + 1 and Iran. Canada has continued to maintain the full force of sanctions against Iran. Canada s comprehensive sanctions have not been affected by the P5 + 1 negotiations. 26
U.S. Sanctions Regarding Ukraine Property of specific individuals and entities blocked Focus on financial, energy, defense March 25, 2014: Civil export licensing suspended March 27, 2014: USML licensing suspended 27
Canadian Sanctions Regarding Ukraine On March 17, 2014, Canada imposed sanctions against Russia and Ukraine. For Ukraine, 54 individuals and 20 entities listed as designated persons. For Russia: 66 individuals and 34 entities as Schedule 1 designated persons. 6 entities as Schedule 2 designated persons, and 1 entity as a Schedule 3 designated person. 28
Canadian Sanctions Regarding Ukraine For designated persons (Ukraine) and Schedule 1 designated persons (Russia), Canada has imposed: A complete asset freeze Prohibitions dealing in any property, making any goods available to a designated person or providing any financial or related services to or for the benefit of a designated person. For Schedule 2 and Schedule 3 designated persons, Canada has imposed limits on certain types of debt and equity financing Canada has not directly targeted oil and gas sectors 29
EU Sanctions Regarding Ukraine Export Restrictions Ban on exporting dual-use goods and technology for military use in Russia Prohibited Services Related to banned exports Associated with oil exploration and production Insurance/reinsurance for goods on EU s Common Military List (CML) Restricted Access to Capital Markets EU nationals and companies can no longer provide loans to five major Russian state-owned banks. Individual Designations Asset Freeze Visa Ban 30
COMPLIANCE 31
Compliance Measures Tone at the top Policy and procedures Training Transaction due diligence Self-assessment Procedure for handling violations Record keeping 32
Red Flags Customer or its address is similar to one of the parties found on a prohibited parties list Customer is located in targeted geographic location and/or is involved in targeted industry Customer declines financing for transaction where financing is common Customer suggests unusual shipping route Customer declines routine installation, training, or maintenance services 33
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