Economic Sanctions and Enforcement Compliance Focus on Canada

Economic Sanctions and Enforcement Compliance Focus on Canada: Deciphering the Interaction of Canadian Sanctions with US and EU Sanctions Regimes John W. Boscariol Washington, DC April 28, 2015 Mc. Carthy Tétrault LLP / mccarthy. ca

Growing Impact of Economic Sanctions ¬ 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) ¬ but Canada now a “sanctions hawk” ¬ Canadian 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 John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca 1

2 Canada’s Trade Controls ¬ export and technology transfer controls ¬ Export Control List & A Guide to Canada’s Export Controls ¬ Area Control List (Belarus and North Korea) ¬ domestic industrial security ¬ Defence Production Act, Controlled Goods Program ¬ economic sanctions ¬ ¬ Special Economic Measures Act United Nations Act Criminal Code Freezing Assets of Corrupt Foreign Officials Act ¬ other trade control legislation ¬ blocking orders (Cuba) ¬ anti-boycott policy and discriminatory business practices laws ¬ anti-bribery law (Corruption of Foreign Public Officials Act and FCPA) ¬ compliance convergence John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca

Canada’s Economic Sanctions Regime ¬ challenges ¬ 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 John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca 3

Canada’s Economic Sanctions Regime ¬ United Nations Act ¬ implementation of UN Security Council Resolutions ¬ Special Economic Measures Act ¬ impose economic sanctions absent or in addition to a UN Security Council Resolution ¬ Freezing Assets of Corrupt Foreign Officials Act ¬ politically exposed persons ¬ Criminal Code – terrorist groups ¬ Area Control List under Export and Import Permits Act ¬ Belarus and North Korea John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca 4

Canada’s Economic Sanctions Regime ¬ Special Economic Measures Act and United Nations Act key measures (depending upon the country program) ¬ ban on providing or acquiring goods, services, technology/data ¬ assets freezes – cannot deal with listed individuals, companies, organizations (“designated persons”) – includes facilitation ¬ ban on investment ¬ aircraft, shipping, transport restrictions ¬ travel bans ¬ sectoral measures ¬ monitoring and reporting obligations John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca 5

Canada’s Economic Sanctions Regime ¬ generally apply to persons in Canada and Canadians outside of Canada ¬ permits generally available for anything that is prohibited under the sanctions measures ¬ apply to Economic Law Division of Department of Foreign Affairs, Trade and Development (DFATD) ¬ no general permits/licenses have been issued, although exemptions may be available ¬ grandfathering ¬ enforced by Canada Border Services Agency and Royal Canadian Mounted Police (RCMP) John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca 6

Canada’s Economic Sanctions Regime ¬ consequences of non-compliance ¬ criminal penalties ¬ fines in an amount that is appropriate in the opinion of the Court ¬ up to 10 years imprisonment ¬ CBSA detention and seizure ¬ operational costs ¬ reputational costs John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca 7

8 United Nations Act Regulations ¬ targeted countries and groups ¬ Al-Qaida and Taliban ¬ Côte d’Ivorie ¬ Democratic Republic of Congo ¬ Iran ¬ Sudan ¬ Yemen ¬ Central African Republic ¬ Lebanon John W. Boscariol, International Trade and Investment Law ¬ ¬ Iraq Somalia Eritrea terrorists and terrorist organizations ¬ Liberia ¬ North Korea ¬ Libya Mc. Carthy Tétrault LLP / mccarthy. ca

Special Economic Measures Act Regulations ¬ targeted countries ¬ ¬ ¬ ¬ Iran Syria Burma Zimbabwe North Korea Ukraine Russia South Sudan John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca 9

Freezing Assets of Corrupt Foreign Officials Regulations 10 ¬ politically exposed persons ¬ Egypt ¬ Tunisia ¬ Ukraine John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca

11 Russia / Ukraine Economic Sanctions Measures ¬ designated person restrictions – 273 entities and individuals ¬ broad prohibition on range of activities ¬ 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 John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca

12 Russia / Ukraine Economic Sanctions Measures ¬ export control policy (DFATD Export Controls Division) ¬ no permit if material benefit to Russian military ¬ March 25, 2015 unanimous Parliamentary motion: ¬ imposition of “sanctions against foreign nationals involved in the detention, torture and death of Sergei Magnitsky. ” ¬ 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” John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca

13 Iran Economic Sanctions Measures ¬ UN Act regulations (2007 & 2010) ¬ 121 designated entities and individuals ¬ military, nuclear ¬ SEMA regulations (2010 -2013) ¬ 613 designated entities and individuals ¬ oil & gas, mining, shipping ¬ financial services ban ¬ supply ban – “purposes of a business carried on in or operated from Iran” ¬ sourcing ban ¬ investment ban ¬ technical data restrictions ¬ Export and Import Permits Act (ECL) – US-origin goods and technology ¬ extraterritorial US measures John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca

14 Prosecutions Under Iran Economic Sanctions ¬ 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) John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca

15 Prosecutions Under Iran Economic Sanctions ¬ 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 ¬ guilty plea and $90, 000 penalty John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca

16 Burma Economic Sanctions Measures ¬ Canada had most aggressive sanctions of any country ¬ effective April 24, 2012 most Burma sanctions measures repealed ¬ currently ¬ 44 entities and 38 individuals are designated persons ¬ arms and related material embargo (including data transfers) John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca

Key Issues in Interaction With US and Other Regimes 17 ¬ screening 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 John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca

Key Issues in Interaction With US and Other Regimes 18 ¬ Canadian measures may be broader than those of the United States and other countries ¬ Russia / Ukraine – 273 designated persons ¬ Belarus, Burma, Libya, North Korea ¬ Iran ¬ importance of “home grown” compliance policies John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca

Key Issues in Interaction With US and Other Regimes 19 ¬ 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 ¬ prohibition against complying with certain U. S. trade embargo measures ¬ criminal penalty exposure: up to $1. 5 million and/or 5 years imprisonment ¬ provincial business discriminatory practices legislation John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca

Key Issues in Interaction With US and Other Regimes 20 ¬ 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 ¬ there has never been a successful or an attempted prosecution under the Canadian blocking order ¬ no case law or administrative or 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 pajamas ¬ nationalistic sensitivities John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca

Key Issues in Interaction With US and Other Regimes 21 ¬ 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 John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca

Key Issues in Interaction With US and Other Regimes 22 ¬ 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 DFATD ¬ mandatory for property of designated persons ¬ when DFATD becomes aware of potential violation, immediate notification to RCMP John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca

Implications for Economic Sanctions Compliance and Enforcement 23 ¬ internal compliance programs must be “home grown” ¬ training and internal communications ¬ screening process and providers ¬ coordination of internal investigations and disclosures involving multiple jurisdictions John W. Boscariol, International Trade and Investment Law Mc. Carthy Tétrault LLP / mccarthy. ca

John W. Boscariol Mc. Carthy Tétrault LLP International Trade and Investment Law Group www. mccarthy. ca Direct Line: 416 -601 -7835 E-mail: jboscariol@mccarthy. ca Linked. In: www. linkedin. com/in/johnboscarioltradelaw Twitter: www. twitter. com/tradelawyer Mc. Carthy Tétrault LLP / mccarthy. ca