Canada-U.S. Blog Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

How To Start A Trade Compliance Program? Who, What, When, Where, How Questions To Ask

Posted in Aerospace & Defence, AMPs, Border Security, Canada's Federal Government, Canada-EU CETA, Canada-Ukraine FTA, Corporate Counsel, Cross-border trade, Currency Reporting, Customs Law, Export Controls & Economic Sanctions, Exports, FCPA/Anti-Corruption, Government Procurement, NAFTA Renegotiations, Proceeds of Crime/Money Laundering

The trade landscape is changing for many Canadian companies. Canada is involved in the renegotiation of NAFTA.  The Canada-Ukraine Free Trade Agreement comes into effect on August 1, 2017.  The Canada-EU CETA enters into provisional effect on September 21, 2017.  The Government of Canada is updating export controls and economic sanctions laws and Global Affairs policies. The Canada Border Services Agency is detaining goods that are suspected of violating Canada’s export controls and economic sanctions laws.  The Royal Canadian Mounted Police are investigating alleged violations of Canada’s Corruption of Foreign Public Officials Act.  While many of these changes present unique opportunities for Canadian organizations, many also generate or enhance existing trade compliance requirements.

There is so much going on and businesses need to catch up on compliance before mistakes are made.  Organization must be proactive and reactive. We often see clients getting themselves into trouble (with significant financial, operational, and reputational consequences) because their success gets ahead of them.  The best time to start a compliance program is before attempting to enter a new market or selling to a new client/customer. The best time to develop or update your compliance program is when your organization decides to:

(1) enter or develop new business in a new market [this could include direct business development or development through a joint venture partner, representative or agent];

(2) purchase from new suppliers; or

(3) sell to new customers or clients.

In other words, the best time to act is NOW.

The comment we often get is that Canadian companies do not know where to start in developing a compliance program.  The first step is to identify the risks.  For example, start by asking a few basic questions, such as:

  1. Does your business sell goods or technology or services outside Canada? If yes, where does your company sell goods or technology or services?
  2. Does your business source materials, parts or finished goods from companies located outside Canada or from companies that source from outside Canada?
  3. Are any of those countries subject to Canada’s economic sanctions? Currently, Canada imposes multi-lateral sanctions pursuant to the United Nations Act against 12 countries (Central African Republic of Congo, Eritrea, Iran, Iraq, Lebanon, Libya, North Korea, Somalia, South Sudan, and Yemen) and Al Qaida/Taliban/Terrorist entities.  Canada imposes unilateral sanctions (somewhat coordinated with major trading partners) pursuant to the Special Economic Measures Act against 9 countries (Burma/Myanmar, North Korea, Iran, Libya, Russia, South Sudan, Syria, Ukraine and Zimbabwe).
  4. Are any of the countries you sell to, or buy from, known transshipment points to any of the sanctioned countries?  For example, the United Arab Emirates is a known transshipment point for Iran.  China is a known transshipment point for North Korea.  Switzerland is a known transshipment point for Iran and Syria.
  5. What does your company sell?  This seems like a basic question, but sometimes the technical people in the organization have to help provide a detailed answer.
  6. Are any of those goods made with U.S-origin components? See Don’t Be Surprised If The  Components of the Goods Being Shipped Triggers Export Controls of Economic Sanctions Concerns
  7. Do you require an export permit to sell those goods or technology or services (because you need goods/technology to provide the services)?
  8. Are those goods or technology or services subject to targeted international sanctions?
  9. What access do you provide to restricted goods or technology? Will any of your transactions or interactions with vendors, purchasers, representatives, agents, partners, etc. in country employees, etc. permit access to any restricted goods or technology?
  10. Who do you sell to?  Are you selling to foreign officials or dealing with foreign officials when selling the goods or technology or services?  Are you selling to designated persons subject to Canada’s economic sanctions (on a Canadian list in a regulation – unfortunately, Canada does not have a consolidated list and you must review various regulations).
  11. Who do you buy from? Are you purchasing from designated persons?
  12. How well do you know your customer/client/vendor/partner/agent?  Is your customer or client or vendor or partner or agent a front for a sanctioned country or a sanctioned person? Is your customer/client/vendor/partner/agent related to or working for or on behalf of a foreign official?  Is your customer/client/vendor/partner/agent controlled directly or indirectly by a designated person subject to Canada’s export controls or sanctions?
  13. How are you selling goods or technology or services? Are you selling via an agent or foreign representative or subsidiary?  Can these intermediaries get your business into trouble with the Canadian authorities? Could these intermediaries offer bribes to foreign public officials in order to increase their business (to make more money from you)? How are you protecting against this type of activity?
  14. How are you paid (or how will you pay) and in what currency?  Are the banks and financial institutions subject to Canadian economic sanctions?  Do the transactions go through another country that imposes economic sanctions?  Are the transactions in a foreign currency (such as United States dollars) that may be transferred through a foreign financial institution?
  15. How do you pay your agents and representatives?  Is it is cash (do you know where the money goes)? Is there a large upfront payment or budget? Is it a percentage commission of what is sold (so there is an incentive to bribe foreign public officials)?  Does the name on bank accounts match the name of the person you are paying?  Is there something unusual about the payments? Do you have a formal agreement that clearly sets out responsibilities and obligations?
  16. How is your compliance? What are you doing in terms of due diligence?  Do you conduct periodic reviews of your compliance to ensure everything is working?  Do you conduct training? Do you use end-use certificates and due diligence checklists?
  17. When was the last time you reviewed recent developments?  See Canada Has Made Important Changes To The Export Control List And Export Controls Guide: It is Time To Update Company Export Controls
  18. Do you know what paperwork you must file when goods are exported or imported? For example, do you have to notify the CBSA about the export of the goods?  What is the value of the goods to be shipped?  See Checklist for Exporting Commercial Goods From Canada
  19. Can you find all the relevant paperwork for a particular transaction quickly?  If you cannot find documents, you may not be able to respond to governmental authorities? If you cannot find documents, documents may be missing for a reason (that is to cover-up wrongdoing).
  20. Who do you trust?  Have you retained a trusted legal advisor who is ready to assist if you are faced with time-sensitive government requests for information?  This cost effective step could make the difference between a seamless and effective response and a costly, reputation damaging, operation stopping regulatory non-compliance issue.

An effective compliance program requires that you ask the hard questions and find that the answers are satisfactory.  If you cannot answer a question and have no process to answer questions, you will have problems when questions are raised. The enforcement officials will not accept that “I never considered this” to be the appropriate answer to a possible breach of Canada’s laws.

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