LexSage

Ten Compliance Problems Canadian
Companies Face In Complying With
Canada’s Economic Sanctions Laws

January 30, 2017

Canadian companies are required to comply with Canada’s economic sanctions laws – and it is not an easy task. Currently, Canada imposes multi-lateral economic sanctions pursuant to the United Nations Act against 16 countries (Central African Republic, Democratic Republic of Congo, Eritrea, Ivory Coast, Iran, Iraq, Lebanon, Liberia, Libya, North Korea, Sierra Leone, Somalia, South Sudan, Yemen, and Al Quaida/Taliban/Terrorist Entities).  Canada also imposes unilateral economic sanctions (somewhat coordinated with major trading partners such as the United States, the European Union, Australia) pursuant to the Special Economic Measures Act against 9 countries (Burma/Myanmar, North Korea, Iran, Libya, Russia, South Sudan, Syria, Ukraine and Zimbabwe). Canada also freezes the assets of certain corrupt foreign officials from two countries (Ukraine and Tunisia) pursuant to the Freezing Assets of Corrupt Foreign Officials Act. Canada also has also imposed broad based sanctions against North Korea by adding North Korea to the Area Control List.

For the most part, Canada imposes targeted sanctions. Canada imposes a number of different forms of economic sanctions that are layered in some cases.  Types of economic sanctions include:

1. Country-based or territory sanctions;
2. Targeted individual sanctions;
3. Targeted sector of government (such as military, nuclear);
4. Targeted sectors of the economy, including private business (e.g., petroleum exploration and production, financial, etc.); and
5. Comprehensive embargoes.

Often the types of sanctions are layered, which means that more than one type of sanction can apply .  For example, a regulation implementing Canada’s sanctions can include a country based sanction (Iran), targeted individual sanctions against persons in the regime, targeted sanctions to address nuclear non-proliferation concerns and targeted sectoral sanctions against various industries within the country. Canadian companies, large and small, are required to know about the laws (and the targets) and implement internal controls to ensure that they do not engage in prohibited activities.

Ten Compliance Problems For Canadian Businesses:

There are many more than 10 problems with Canada’s economics sanctions regime.  However, let’s start with some of the basics.

1. Many Canadian companies do not know where to find information about Canada’s economic sanctions laws. This is a problem because if businesses are not aware of the laws, they are more likely to not comply with the laws.  The best place to look for information is on the Global Affairs web-site.  I will make it easy for you to find the list of Canada’s sanctions – here is a link to the current sanctions list.  Please refer to Canada-US Blog and the LexSage website for more information. We try to post relevant information regularly.
2. Even if Canadian businesses can find the laws, the Government of Canada does not publish guidance with respect to the interpretation of the laws.  While there are announcements about the implementation of new regulations (new sanctions), there is little else.  Global Affairs has published a few “Frequently Asked Questions” and answers. Canada does not have a consolidated list of announcements. Instead, each country that is subject to sanctions has a separate listing of announcements.
3. Canada does not publish regular guidance to assist companies in understanding what business activities are prohibited and what business activities that would otherwise be considered to be legal are risky.  There are no “red flags” guidance documents.
4. When Canada implements a list of designated/listed persons, the Government of Canada publishes a list of names as a schedule to a Regulation published in the Canada Gazette.  Birth dates, addresses, businesses and other information that would be helpful for risk assessment is not provided.  Canadian businesses must look to information published by other jurisdictions for guidance.  SMEs have limited resources (and knowledge) to look elsewhere.
5. Canada does not publish a single consolidated list of designated/listed persons under Canada’s economic sanctions laws. As a result, it is necessary to review all the regulations promulgated under the Special Economic Measures Act, United Nations Act and Freezing of Assets of Corrupt Foreign Officials Act separately. People are added and removed from the lists – as a result, it is necessary to revisit the lists regularly.
6. Canada imposes different penalties under different sanctions laws and does not use definitions consistently across its sanctions regimes.  For example, the definition of “property” is different in the various economic sanctions laws/regulations.
7. Canada has not prepared resources for Canadian businesses that cover concepts such as re-exports and re-transfers. Canadian businesses are expected to ensure that foreign agents, distributors, representatives and even customers do not re-transfer goods in a manner that is contrary to Canadian economic sanctions laws.
8. Canada does not offer resources to assist Canadian companies in compliance with Canada’s economic sanctions laws. Unlike the United States and the European Union, Global Affairs does not have resources dedicated to answering questions of Canadian businesses.
9. One due diligence tool is an End-Use Certificate. However, Canada has not posted a precedent End-Use Certificate or guidance on what should be contained in an End-Use Certificate.  We prepare company specific End-Use Certificates (and accompanying compliance programs) for clients that are based on our experience in the area of Canada’s export controls and economic sanctions.
10. Due to uncertainty, Canadian companies may avoid doing business with persons in sanctioned countries.  As a result, Canadian businesses miss opportunities or lose business to companies in foreign jurisdictions (e.g. the United States) which offer more guidance and assistance to their businesses.

This article is not intended to suggest that Canada does not have robust laws.  The problems discussed above have been identified as a result of actual work for clients in the area of economic sanctions laws. The problems are discussed to convey that it is not easy for businesses to comply with economic sanctions laws in Canada without assistance.  Sanctions are a complicated concept and the targeted nature of sanctions puts their effectiveness on the shoulders of business.  Businesses must refrain from engaging in otherwise legal business activities so that the sanctions have teeth.

For more information about Canada’s economic sanctions laws, please contact Cyndee Todgham Cherniak at 416-307-416 or cyndee@lexsage.com.