LexSage

A "Catch 22" For Canadian
Corporations Trading With Cuba –
Canada's Foreign Extraterritorial
Measures Act

November 30, 2017
Authored by Heather D. Innes

It is legal under Canadian law for Canadian persons, including Canadian corporation, branches of U.S. companies and subsidiaries of U.S. companies to do business with Cuba. Canadian persons and Canadians outside Canada may sell goods and services to Cuba, with the exception of goods covered by Canada’s export control and economic sanctions laws. For example, there are restrictions under Canadian laws relating to the sale of U.S. origin goods to Cuba. Because it is legal under Canadian law to sell goods and services to Cuba and Canada is a sovereign country, the sanctions under U.S. anti-Cuba laws pose a dilemma under Canadian law. The interplay between the U.S. anti-Cuba laws and Canadian law creates a “Catch 22” situation for certain Canadian organizations.

For example, Canada’s Foreign Extraterritorial Measures Act (FEMA) creates requirements and reporting obligations in the context of certain international trading activities. FEMA is also known as Canada’s “blocking” legislation as it was enacted in 1985 to block the extra-territorial application of foreign laws to Canadian business. More specifically, FEMA was enacted to block the extra-territorial application of United States anti-Cuba laws to Canadian corporations.

Under FEMA, where Canada’s Attorney General is of the opinion that another country’s laws or rulings (its measures) may adversely affect Canadian interests in relation to international trade or commerce, he/she may issue an order prohibiting any person in Canada from complying with those laws or rulings. Only one such order has been issued, the order issued in respect of the United States anti-Cuba laws (the Foreign Extraterritorial Measures (United States) Order, 1992 – the “FEMA United States Order”).

So, what does this mean for corporations carrying on business in Canada? The FEMA United States Order:

1. Requires a Canadian corporation and its officers and directors to forthwith give notice to the Attorney General of Canada of any directive, instruction, intimation of policy or other communication relating to the United States anti-Cuba extraterritorial measures (“Policies or Directives”) where such Policies or Directives are received from a person who is in a position to direct or influence the policies of the Canadian corporation in Canada; and
2. Prohibits any Canadian corporation, director, officer, manager or employee in a position of authority from acting or omitting to act for the purpose of complying with the Policies or Directives or any of the U.S. anti-Cuba laws (including the U.S. Cuban Assets Control Regulations) to the extent that they operate or are likely to operate to prevent, impede or reduce trade or commerce between Canada and Cuba. The action taken or omission to act is prohibited even if compliance is only one of its purposes.

Many organizations, particularly those with a U.S. parent, may be unaware of the FEMA United States Order requirements and prohibitions, unwittingly and in good faith implementing North American, or perhaps global compliance programs that require full compliance with all applicable laws, including US. Export compliance laws. Does this sound familiar?

For organizations with roots or connections or activities in the U.S., it is not unusual to see this type of policy. Often, contracts with U.S. parties, be they suppliers, purchasers, joint venture partners or other persons, include similar provisions to protect the U.S. person from violations of U.S. law. While these provisions seem well-intentioned and consistent with a corporate policy to comply with all applicable laws, the very fact that you have agreed to ensure that you do not violate any of the U.S. anti-Cuba laws, may be a notifiable event under the FEMA United States Order.

So, what can you do? There is little guidance and no case law to provide direction and neither FEMA nor the FEMA United States Order provides further clarification as to when an action/omission taken for bona fide business purposes will constitute a prohibited or notifiable action. However challenging, Canadian corporations need to find ways to comply with both sets of requirements. It is important that policies and contracts make clear that compliance efforts will be undertaken only to the extent permitted under and otherwise in full compliance with all applicable Canadian laws.

Additionally, in-house counsel should :

(i)  Review corporate policies for violating directives;
(ii) Review and revise training programs to ensure that there are no notifiable requirements/directives and the training clearly identifies the FEMA obligations;
(iii) Review standard form contracts to ensure compliance with FEMA; and
(iv) Ensure that your officers, directors, managers and employees in a position of authority or those who are in any manner involved in your export activities or your procurement process are aware of the FEMA requirements and prohibitions and know who to call when they have questions or concerns. Those who may be involved in mergers and acquisitions or joint ventures also need to be fully aware of the FEMA obligations.

If you aren’t sure if you are compliant with the FEMA requirements, seek the assistance of an external trade law specialist.

Failure to comply with FEMA requirements and prohibitions carries penalties ranging from:

(a) for individuals:

i. on summary conviction, a fine up to $15,000 and/or imprisonment for up to two years; and
ii. on conviction on indictment, a fine up to $150,000 and/or imprisonment up to five years; and

(b) for corporations:

i. on summary conviction, a fine up to $150,000; and
ii. on conviction on indictment, a fine up to $1,500,000.

For more information about compliance or to request assistance in developing a compliance program, please contact Heather Innes at 416-350-1234 or at heather@lexsage.com or Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.