LexSage

Canada Imposes Very Strict/Limiting
Export Controls And Economic
Sanctions Against North Korea

July 5, 2017
Authored by Cyndee Todgham Cherniak

North Korea just launched an intercontinental ballistic missile and Canada has unreservedly condemned this action.  It is time for Canadian exporters to review the rules about exporting goods to North Korea – to not take a moment to do so may be regretted.  First, North Korea is on Canada’s Area Control List.  The Area Control List is a regulation promulgated under the Export and Import Permits Act.  Second, Canada has also imposed economic sanctions under the United Nations Act and the Regulations Implementing the United Nations Regulations on the Democratic People’s Republic of Korea (DPRK), which enact in Canada’s laws multilateral UN sanctions against North Korea. Third, Canada has also imposed unilateral economic sanctions against North Korea under the Special Economic Measures Act and the Special Economic Measures (DPKR) Regulations, which impose sanctions above and beyond UN sanctions (“Canada’s Unilateral Economic Sanctions”).  Canada’s restrictions against North Korea are some of the most severe and restrictive in the world.

Area Control List

Since North Korea is on the Area Control List, many of the economic sanctions are redundant insofar as goods are concerned.  The general rule is that exports of all goods and all technology to North Korea is prohibited (including benign items such as paperclips or soap).

The general prohibition is contained in subsection 13(1) of the Export and Import Permits Act:

“No person shall export or transfer, or attempt to export or transfer, any goods or technology included in an Export Control List or any goods or technology to any country included in an Area Control List except under the authority of and in accordance with an export permit issued under this Act.”

What this means is that exporting any type of goods or technology to North Korea is prohibited.  Transferring any any type of goods or technology to North Korea is prohibited.  Attempting to export or transfer any type of goods or technology to North Korea is prohibited.  It is only under an authority of an export permit granted by the Minister of Foreign Affairs or the Minister of International Trade that any goods or technology is going to be permitted to be exported by a Canadian entity, or any person, to North Korea.  The export permit applications will be reviewed on a case-by-case basis (See Notice to Exporters No. 172).  The Ministers will not issue any export permits, with very limited exceptions.

Persons cannot do indirectly what they cannot do directly.  Goods and technology cannot be diverted to North Korea via another country.    Subsection 15(1) of the Export and Import Permits Act provides:

“Subject to subsection (2), and except with the authority in writing of the Minister, no person shall knowingly do anything in Canada that causes or assists or is intended to cause or assist any shipment, transhipment, diversion or transfer of any goods or technology included in an Export Control List to be made, from Canada or any other place, to any country included in an Area Control List.”

What this means is that exporting goods and technology to another destination (e.g., China) in a manner that causes the goods or technology to end up in North Korea is prohibited. Knowingly assisting in the export of goods and technology to North Korea is prohibited.  Transshipping goods and technology to North Korea is prohibited.  Diverting goods and technology to North Korea is prohibited.  Let’s be very frank – if a Canadian good ends up as a part on a North Korean ballistic missile, the Canadian government will conduct an investigation as to how the goods got into the hands of the North Koreans.  If a Canadian good is seen in a photograph of a North Korean laboratory, the Canadian government will conduct an investigation as to how the goods got into the hands of the North Koreans. It is not just the Canadian government that will be asking questions, other governments will be asking questions also.

Subsection 18(1) of the Export and Import Permits Act prohibits aiding and abetting:

“No person shall knowingly induce, aid or abet any person to contravene any of the provisions of this Act or the regulations.”

What this means is that aiding or abetting any person selling or transferring goods and technology (not just Canadian goods and technology) to North Korea (directly or indirectly) is prohibited.

Economic Sanctions

Canada takes the above restrictions steps further on its economic sanctions prohibitions.  Pursuant to sections 2-9 of the Canada’s Unilateral Economic Sanctions, the following are prohibited (with limited exceptions):

• Exports: it is prohibited for any person in Canada and any Canadian outside Canada to export, sell, supply or ship any goods, wherever situated, to North Korea or any person in North Korea or to deal in any goods destined for North Korea or any person in North Korea;
• Technical data exports: it is prohibited for any person in Canada and any Canadian outside Canada to transfer, provide or communicate, directly or indirectly, technical data to North Korea or any person in North Korea;
• Imports: it is prohibited for any person in Canada and any Canadian outside Canada to import, purchase, acquire or ship any goods that are exported, supplied or shipped from North Korea, whether the goods originated in North Korea or elsewhere;
• Investments: it is prohibited for any person in Canada and any Canadian outside Canada to make an investment in any entity in North Korea that involves a dealing in any property, wherever situated, held by or on behalf of North Korea, any person in North Korea, or a national of North Korea who does not ordinarily reside in Canada;
• Financial Services: it is prohibited for any person in Canada and any Canadian outside Canada to provide or acquire financial services — including those that are intended to facilitate an investment in any entity — to, from or for the benefit of or on the direction or order of North Korea or any person in North Korea;
• Ships From North Korea: it is prohibited for any person to dock in Canada or pass through Canada any ship that is registered in North Korea unless such docking or passage is necessary to safeguard human life;
• Aircraft From North Korea: it is prohibited for any person to land in or fly over Canada an aircraft that is registered in North Korea, unless such landing or flying is necessary to safeguard human life; and
• Aiding & Abetting: it is prohibited for any person in Canada and any Canadian outside Canada to do anything that causes, assists or promotes or is intended to cause, assist or promote any act or thing prohibited.

Canada imposes the following multilateral UN-related restrictions against North Korea:

• Deal in Property of Designated Persons: it is prohibited for any person in Canada or any Canadian outside Canada to knowingly deal in any property in Canada that is owned, held or controlled, directly or indirectly, by a designated person, by a person acting on behalf of or at the direction of a designated person or by a person that is owned, held or controlled by a designated person or enter into or facilitate any transaction related to such a dealing;
• Investments/financial dealings with Designated Persons: it is prohibited for any person in Canada or any Canadian outside Canada to knowingly provide any financial or related services in respect of any property in Canada that is owned, held or controlled, directly or indirectly, by a designated person, by a person acting on behalf of or at the direction of a designated person or by a person that is owned, held or controlled by a designated person;
• Indirect Dealings with Designated Persons: it is prohibited for any person in Canada or any Canadian outside Canada to knowingly make available any property, or provide any financial or related services, directly or indirectly, to a designated person, to a person acting on behalf of or at the direction of a designated person or to a person that is owned, held or controlled by a designated person;
• Bulk Cash Transfers: it is prohibited for any person in Canada or any Canadian outside Canada to knowingly supply or transfer, directly or indirectly, any bulk cash that is destined for North Korea, for any person in North Korea or for any national or to knowingly receive any bulk cash from North Korea, from any person in North Korea or from any national;
• Provide Financial or Related Services: it is prohibited for any person in Canada or any Canadian outside Canada to knowingly provide financial or related services to North Korea, to any person in North Korea or to a person acting on behalf of or at the direction of North Korea or any person in North Korea that is intended to cause, facilitate or assist in any act or thing prohibited by these Regulations;
• Accept Financial or Related Services: it is prohibited for any person in Canada or any Canadian outside Canada to accept any financial or related services from North Korea, from any person in North Korea or from a person acting on behalf of or at the direction of North Korea or any person in North Korea that is intended to cause, facilitate or assist in any act or thing prohibited by these Regulations;
• Branch Operations:  it is prohibited for any entity referred to in subsection 11(1) to open a new branch in North Korea;
• Exports of Specific Products:  it is prohibited for any person in Canada or any Canadian outside Canada to knowingly sell, supply or transfer, directly or indirectly, any of the following products, wherever situated, that are destined for North Korea or for any person in North Korea (a) arms and related material; (b) luxury goods; and (c) aviation fuel including aviation gasoline, naptha-type jet fuel, kerosene-type jet fuel and kerosene-type rocket fuel, except for aviation fuel provided to North Korean passenger aircraft for its return flight to North Korea.  It is prohibited for any person in Canada or any Canadian outside Canada to knowingly sell, supply or transfer, directly or indirectly, any of the following products, wherever situated, that are destined for North Korea or for any person in North Korea goods listed in UN Security Council Resolutions and other international documents.  It is prohibited for any person in Canada or any Canadian outside Canada to knowingly provide technical assistance to North Korea, or to any person in North Korea, related to the sale, supply, transfer, manufacture, use or maintenance of such specific products.;
• Certain Training Services: It is prohibited for any person in Canada or any Canadian outside Canada to knowingly provide to any national teaching or training in disciplines which could contribute to proliferation-sensitive nuclear activities or the development of nuclear weapon delivery systems in North Korea, including teaching or training in advanced physics, advanced computer simulation and related computer sciences, geospatial navigation, nuclear engineering, aerospace engineering, aeronautical engineering and related disciplines;
• Imports of Specific Products: It is prohibited for any person in Canada or any Canadian outside Canada to knowingly import, purchase or acquire any of the products referred to in paragraph 6(1)(a) or subsection 6(2), wherever situated, from North Korea or from any person in North Korea any specific products. It is prohibited for any person in Canada or any Canadian outside Canada to knowingly import, purchase or acquire coal, iron, iron ore, gold, titanium ore, vanadium ore and rare earth minerals, wherever situated, from North Korea or from any person in North Korea.
• Ships/Vessels: There are numerous prohibitions applicable to Canadian vessels; and
• Aiding and Abetting: it is prohibited for any person in Canada or any Canadian outside Canada to knowingly do anything that causes, facilitates or assists in, or is intended to cause, facilitate or assist in, any act or thing prohibited.

These sanctions are far-reaching and severely limit any possible activity relating to North Korea.  A ministerial authorization is required to do any thing that is prohibited.  It is unlikely that a ministerial authorization will be issued.

Compliance With Canadian Law

Canadian entities need to take this very seriously.  It is time to ask about compliance.  While it is easy to adopt a policy of not selling goods and technology directly to North Korea, it is not as easy to ensure that goods sold to a third country are not ending up in North Korea. The North Koreans are smart and set up entities in countries, such as China, in order to get the goods and technology they wish. There are entities that are fronts for the North Koreans.  If you sell to one of these companies and the goods and/or technology ends up in North Korea, you will be investigated (if someone learns that your goods and/or technology was used in a ballistic missile or is being used by the North Koreans).  Please See “Canadian Companies Should Not Be Duped By North Korea”.

Last week the U.S. imposed penalties against entities who sold to Chinese companies with links to North Korea.  There is information publicly available about the names of entities who have links to North Korea.  These names can be researched.  These names appear on computerized lists of designated or sanctioned or flagged persons. It is now very important to adopt a compliance program or hire service providers to undertake such due diligence.

If you do not take the steps required, your company’s reputation may be ruined by investigations.  If you are prosecuted, you can face a fine (the amount of which will be set by a judge at the appropriate time – there is no limit in the Export and Import Permits Act).  You could go to jail for up to 10 years.  Think about it, if the goods and/or technology end up in a missile that kills people, the price you will have to pay will be high – very high.

Directors and officers of a corporation can be prosecuted in Canada.  Section 10 of the Export and Import Permits Act provides as follows:

“Where a corporation commits an offence under this Act, any officer or director of the corporation who directed, authorized, assented to, acquiesced in or participated in the commission of the offence is a party to and guilty of the offence and is liable on conviction to the punishment provided for the offence whether or not the corporation has been prosecuted or convicted.”

What this means is that the operating mind of the entity behind the sale or transfer to North Korea may be prosecuted.  An officer or director who turned a blind eye to the activities of employees can be prosecuted.  An officer or director who did not put in place a compliance program and signed off on sales/transfers to North Korea without undertaking due diligence may be prosecuted.

For more information about Canada’s export controls against North Korea, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.