Canada-U.S. Blog

Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

Minister Goodale Says US Has Reinstated NEXUS Cards of Canadians

Posted in NEXUS

Happy Face Cut OutI am not sure that the Minister has received accurate information.  But, I will share Minister Goodale’s statement about NEXUS Cards being reinstated because it provides a useful telephone number.  Canadians who have had their NEXUS Cards revoked since January 27, 2017 on the basis on President Trump’s Executive Order or have been told that they are no longer eligible for the NEXUS Program should call this telephone number to ask for their NEXUS Cards to be reinstated.  Also, Canadians who had NEXUS interviews and were denied a NEXUS Card should also call this number.  The telephone number is — drum roll please — (202) 325-8000. [Update February 10, 2017 – I tried this telephone number and it no longer works – so much for help from the USCBP].

The Minister’s Statement is:

“Some 200 Canadian permanent residents had their Nexus cards revoked a few days ago because the recent Presidential Executive Order rendered them ineligible. But now that the Order stands suspended, those 200 Nexus cards have been reinstated, pending further Court decisions yet to come.

This confirmation comes from U.S. officials, who have been engaged in regular contact with their Canadian counterparts. The Government of Canada continues to work to ensure all Canadians are treated in a fair and expeditious manner.

The situation today is complex because of the Executive Order on entry to the U.S., the judicial suspension of the Order and the appeal of that suspension – which is pending a further Court decision this week.

There are currently about 1.5 million holders of Nexus privileges – 80 percent of them are Canadians. Nexus memberships fluctuate on both sides of the border every day for many different eligibility reasons. Last year, for example, there was an average of seven Nexus revocations every day.

Nexus is a discretionary program that helps expedite crossing the border. Nexus card holders who feel aggrieved by eligibility decisions taken by the U.S. government can seek recourse by calling (202) 325-8000.”

We will continue to monitor this issue and invite anyone affected to contact us at cyndee@lexsage.com.  If USCBP does not help you, please let us know.  Please tell us about good stories and bad stories.

Trump and Trade

Posted in Aerospace & Defence, Border Security, Buy America, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Elections, Government Procurement, Harmonization, Imports Restrictions, Legal Developments, Trade Agreeements

Originally published by the Journal of Commerce in February 2017

In the first two weeks of the new Trump Administration, all international traders want to talk about, and with good reason, is where does the new President really stand on trade? On the one hand, he has taken advantage of trading opportunities to generate profits for his own businesses, such as the now infamous ties made in China. On the other hand, he was elected by a constituency that has clearly concluded trade is the cause for much of what ails America. What should we think?  Truthfully, no one really knows – at least not yet.  Beltway insiders suggest we should all take a deep breath and wait to see what really happens.  Those same beltway insiders also predict that if things don’t calm down, we will have a Constitutional crisis on our hands! Boy, that thought gives everyone a warm and fuzzy feeling!  Already, the adage we were all raised with – it’s not what you say but how you say it, is notably absent in pronouncements originating from 1600 Pennsylvania Avenue! Adding to the confusion, the Administration’s position seems to change as often as the wind shifts direction.   We hope to sort out some of the details at the TPM Conference the Journal of Commerce is hosting in Long Beach February 26 through March 1. Whether or not you are able to attend, here are some thoughts.

What are the tangible actions we have seen so far?  First, of course, Trump picked a fight with the President of Mexico, something no one should have been surprised about given the we are building a wall along the southern border and Mexico will pay for it rallying cry put forth throughout the election.  Anyone who knows anything about the history between Mexico and the U.S. should also have expected the response – hell, no!  That exchange was followed by  – we are going to build that wall and get the cost back from a 20% border tax on all goods imported from Mexico, quickly amended to a border tax on all imported goods.  It did not take long for the American public to understand public funds would build that wall – and that finally gave pause to the Republicans who themselves aren’t sure how to proceed.

Right after that, the English Prime Minister came to town and you would have thought there was a romance starting!  There is no question the U.S. and U.K. have a long and common history, but much of the talk was about a bilateral trading agreement.   So, here is the obvious question – if the trade deal the U.S. made with Mexico and Canada ended up so poorly for America, how is any trade deal with the U.K. going to be better?  Absent specifics telling us the reason the existing trade deals are so bad, who knows?

Equally predictable, the Trump administration lessened the sanctions on Russia to now permit the export of cell phones and tablets, the ban on which was called by some an unintended consequence of the sanctions imposed on Russia in the waning days of the Obama Administration. The question on everyone’s mind is – what is next?  Will Mr. Trump continue to ignore the hacking which seemingly occurred during the election? Apparently Congress will not, so just what will happen to our relationship with Russia, and how long are the new President and the Congress going make nice together?

Then Mr. Trump tells the Iranians they are “on notice” in response to one of their ballistic missile tests. How do the Iranians respond? They first ban the American wrestling team from competing at an international wrestling match taking place in Iran, and then rescind that ban in the face of the appellate court decision suspending the executive order barring immigrants from Iraq, Iran, Sudan, Libya, Somalia, Syria, and Yemen from entering the U.S. for 90 days.

Where do we go from here? Honestly, no one knows. On the one hand, you have to give Mr. Trump credit for attempting to quickly do what he promised during the election campaign. On the other hand, the new President knows all too well business cannot prosper in the face of such turmoil. So, what to do? If there was ever a time for the ownership/management of every business that engages in international trade (and their up and downstream supply chain partners) to reach out to elected their representatives, this is it! While by no means an exhaustive list, here are some specific suggestions for how you can make your voice heard:

1)         Join a trade association – there are plenty of choices. They can be local, regional or national in scope, they can be industry focused or deal with trade more broadly. You may not be able to get to D.C.,  but through the association(s) you join, you are able to advocate for or against issues important to your business as part of a larger group – and you can definitely visit your elected representatives in their home districts when Congress is not in session.

2)         Get active in that trade association and make your voice heard. If you cannot volunteer your time, donate dollars. The issues are too important to sit on the sidelines, even if you run a one person operation and your contribution is modest.

3)         Regularly contact your Member of Congress and Senator – tell them what you think about the issues they are considering. They want to get re-elected, so make sure they understand the threat you are under and what that threat means to those you employ – and donate to their campaigns, even in small amounts. Constituents get attention, donors also even more get attention!

4)         Invite your Member and Senator to a tour of your plant.  Make sure your elected representatives get the information they need to really understand what you do and how your business relies on international trade to create good paying jobs.  Make sure they also understand the impact of their policies on your employees.

5)         Get your employees engaged – they, too, need to understand their jobs are now at risk because the so-called silent majority has spoken.

Finally, let’s get real. The elephant in the room (and yes, that metaphor was intentional) is jobs.  Whether it is the Ball State, Pew Research or a plethora of other reports and studies which have been published, manufacturing jobs are disappearing in the U.S., primarily due to automation and globalization.  At the same time, jobs in the service sector are expanding – let’s discuss that as a plus, while we are on the topic of jobs.  If we are going to be objective in dealing with the anger of the “silent majority”, we need to have realistic policies dealing with job creation and retention, not pontifications.

It is easy to say to those who are looking to turn inward when was the last time you went to your favorite store and purchased only products or goods which were labeled Made in USA; or perhaps you prefer the Super Bowl analogy – did you give up your guacamole last Sunday?  After all, those avocados were imported from Mexico?! Being flip in the face of this serious concern is easy, but not terribly productive.  To deal with this situation in the long term, the question we should be asking is what policies should we be considering as nation to address the very real concerns of thousands of Americans who can’t find work, whether that inability is the result of age, poverty, skills, education or some other cause?   When will that dialog take place in earnest?

What Is A Notice of Penalty Assessment?

Posted in AMPs, Canada's Federal Government, Customs Law

Fountain pen on appeal

A Notice of Penalty Assessment is the document in which the Canada Border Services Agency (“CBSA”) issues an assessment of an Administrative Monetary Penalty (“AMP”) against an importer. An  AMP is a monetary penalty of a civil nature (rather than criminal) imposed by the CBSA for a contravention of an Act, regulation or by-law. The Master Penalty Document contains all AMPS contraventions that may be applied to commercial clients including importers, exporters, brokers, warehouse and duty free shop operators, carriers, freight forwarders or their representatives. The Notice of Penalty Assessment will have a unique sequential identifier number.

If you believe that the AMPs penalty issued by the CBSA in the Notice of Penalty Assessment was incorrect, you may file a request to correct within 90 days of the Notice of Penalty Assessment pursuant to subsection 127.1(1) of the Customs Act.  The CBSA may cancel or reduce an AMPS penalty if:

a) It is satisfied that there was no contravention; or

b) There was a contravention but it finds that there was an error with respect to the amount assessed and the penalty should be reduced.

A request to correct must be submitted to the CBSA Recourse Directorate at 1686 Woodward Drive, Ottawa, Ontario K1A 0L8. Requests for a review of a penalty assessment were formerly sent to the CBSA office that issued the Notice of Penalty Assessment.

If the CBSA does not agree that a correction is appropriate, a review under section 129 of the Customs Act may be filed within 90 days of the date of your notice. Reasons for a request to review may include, but are not limited to, errors in calculation, name, address, contravention type, the level of penalty, or amount assessed.

In resolving a penalty reassessment, an importer may enter into a Penalty Reinvestment Agreement (“PRA”) (formerly called a Penalty Reduction Agreement) in which some or all of the penalty may be waived provided that the importer untertakes compliance measures to ensure the infractions do not occur in the future.  A PRA is granted through the ministerial review process, and can be initiated by making a request for a decision of the Minister under section 129 of the Customs Act.

If the CBSA does not reverse the penalty, an appeal may be filed to the Federal Court of Appeal.  An appeal is appropriate where the assessment of a penalty was incorrect in some manner.  Further, a judicial review may be filed with the Federal Court if the outstanding issues involve the CBSA’s discretion (e.g., the CBSA would not agree to a reasonable PRA).  Whether one or both forms of court review is appropriate depends upon the basis and reasons why the CBSA rejected the section 129 review.

For more information about AMPs penalties, please contact Cyndee Todgham Cherniak at 416-307-4168 or cyndee@lexsage.com.

What Is A Ministerial Authorization To Transact With A Sanctioned Country/Person?

Posted in Export Controls & Economic Sanctions, Exports

Business team on top of the globe. European and African side. Conceptual business illustration. Isolated

Canada imposes various economic sanctions and trade restrictions pursuant to the United Nations Act (“UNA”) and the Special Economic Measures Act (“SEMA”). The specific sanctions are implemented in country specific or targeted regulations.  That being said, most regulations promulgated under SEMA have a sister regulation that grants authority to the Minister of Foreign Affairs and/or Minister of International Trade to grant authorizations (called a “Ministerial Authorization”) to allow certain transactions.  Most regulations promulgated under the UNA contain exemptions that may be granted by way of a Ministerial certificate (we call these Ministerial Authorizations also).

Ministerial Authorizations are only granted pursuant to a specific request that is carefully considered on a case-by-case basis.  One person can be granted a Ministerial Authorization for a transaction and it is not guaranteed that a second Ministerial Authorization will be granted to that same person.

The Ministerial Authorization can be a general authorization or may be granted in specific situations.

General authorizations are set out in SEMA regulations.  For example, the Special Economic Measures (Iran) Authorization Order provides that it:

“hereby authorizes the Minister of Foreign Affairs to issue to any person in Canada or any Canadian outside Canada a permit to carry out a specified activity or transaction, or any class of activity or transaction, that is restricted or prohibited pursuant to the Special Economic Measures (Iran) Regulations.”

Similar provisions are found in respect of Canada’s sanctions against Burma/Myanmar, Iran, Libya, South Sudan, Syria, Russia, Ukraine and Zimbabwe.

The more specific authorizations are contained in UNA regulations.  For example, section 13 of the Regulations Implementing the United Nations Resolutions on the Democratic People’s Republic of Korea (DPRK) provides that:

“(1) A person that wishes to do an act or thing that is prohibited under these Regulations may, before doing the act or thing, apply to the Minister in writing for a certificate to exempt the act or thing from the application of the Regulations.
(2) The Minister may issue the certificate if the Security Council did not intend that such an act or thing be prohibited or if it is established that the requirements of Security Council Resolution 1718 and Security Council Resolution 2270 have been met and, if required by those resolutions, that the Committee of the Security Council has approved the act or thing in advance.”
Section 14 contains an exemption for property:
“(1) A person whose property has been affected by the application of section 3 may apply to the Minister in writing for a certificate to exempt the property from the application of that section if the property
(a) is necessary for basic or extraordinary expenses; or
(b) is subject to a lien, mortgage or security interest, to a hypothec or prior claim, to a charge or to a judicial, administrative or arbitral decision.

(2) If it is established in accordance with Security Council Resolution 1718 that the property is necessary for basic or extraordinary expenses or is subject to a lien, mortgage or security interest, to a hypothec or prior claim, to a charge or to a judicial, administrative or arbitral decision, the Minister must issue a certificate within the following deadlines:

(a) within 15 working days after receiving the application, in the case of property that is necessary for basic expenses, if the Committee of the Security Council does not oppose the application;
(b) within 30 working days after receiving the application, in the case of property that is necessary for extraordinary expenses, if the Committee of the Security Council approves the application; and

(c) within 90 days after receiving the application, in the case of property that is subject to a lien, mortgage or security interest, to a hypothec or prior claim, to a charge or to a judicial, administrative or arbitral decision that

(i) was created or issued before the coming into force of these Regulations,
(ii) is not for the benefit of a designated person, and
(iii) has been brought to the attention of the Committee of the Security Council by the Minister.”
There are no other restrictions on the Minister’s authority to issue Ministerial Authorizations.  That being said, the Minister does not like to ignore the policy considerations behind the sanctions that his office pursues.  The most common reason for granting Ministerial Authorizations are (1) on humanitarian grounds or (2) the proposed transaction does not offend the policy behind the sanctions.
For example, the Minister has issued Ministerial Authorizations for payments to a Canadian company for goods and services provided and/or supplied pursuant to a contract entered into prior to the commencement of the sanctions (where payment is after the sanctions are imposed) because Canadian companies being paid for legal supplies of goods and services is not inconsistent with the policy behind the sanctions.
Ministerial Authorizations are granted where it can be shown that the people who will benefit are not intended targets of the sanctions and are suffering due to the sanctions.  Canada realizes that sanctions can hurt the most vulnerable.
For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or Cyndee@lexsage.com.  Please also look at our other Guidances about export controls and economic sanctions on the LexSage website.

What Should Canadian Companies Take Away From The New Trump (U.S.) Sanctions Against Iran?

Posted in Export Controls & Economic Sanctions, Exports

A graphic image depicting the measurement of risk in business.

On February 3, 2017, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed new Iran sanctions by listing 13 individuals and 12 entities on its list of Specially Designated Nationals and Blocked Persons.  What does this mean for Canadian companies? Canadian companies need to determine if they are doing business with the newly listed persons.

Canadians must not only review contracts that they know are with Iran or Iranian entities.  Some of the listed individuals and entities are not Iranian.  For example, 3 individuals are Chinese (Xianhua, Qin (Jack), Yue, Richard, and Zhou, Carol), 1 individual is from the U.A.E. (Rostamian, Kambiz) and 3 of the entities are Chinese (Cosailing Business Trading Company Limited, East Star Company (a.k.a Satereh Shargh Mobin; a.k.a. Satereh Shargh Samin Co., Ltd.) and Ningbo New Century Import and Export Company Ltd. (a.k.a. New Century Import and Export Co., Ltd.) and 4 Lebanese entities (Maher Trading and Construction Company (a.k.a Maher Trading and Engineering; a.k.a. Maher Company), Mirage for Engineering and Trading (a.k.a. Mirage for Engineering), Mirage for Waste Management an Environmental Services SARL) and 1 U.A.E entity (Royal Pearl General T.R.D. (a.k.a. Royal Pearls; a.k.a. Royal Pearls General Trading).  This means that Canadians need to be thinking about the new U.S. sanctions when they do business with (or are doing business with) Chinese persons, Lebanese persons and with the U.A.E.

Based on the fact that some of the listed persons are not Iranians and Iranian entities, this means that future sanctions may also be against persons who are not Iranian. Sanctions that are targeted against Iran may be more global in nature.

Further, speaking about the future, future sanctions may be imposed or re-imposed against Iranian financial institutions. What this means is that Canadian companies doing business with Iranians must be concerned about getting paid.  If, in the future, there is a snap-back of U.S. sanctions against Iranian financial institutions or new sanctions are imposed against Iranian financial institutions, getting paid may become harder.  Canadian companies should consider getting paid up front or quickly.

Speaking about getting paid, one way to avoid a nexus to U.S. law is to not get paid in United States dollars.  Often U.S. dollar transactions are processed through U.S. banks and clearing houses.

Canadian companies need to watch announcements of new sanctions that may come into effect soon or that are announced without prior notice.  The Trump Administration and Congress may take steps to expand U.S. sanctions against Iran further in new ways that have extra-territorial effect.  What that means is that new U.S. sanctions may catch Canadian companies too.

For more information about economic sanctions, please contact Cyndee Todgham Cherniak at 416-307-4168 and cyndee@lexsage.com.  We also post articles at the LexSage website.

What Is The Canadian Process For Voluntarily Disclosing An Export Controls/Economic Sanctions Mistake?

Posted in Aerospace & Defence, AMPs, Border Security, Canada's Federal Government, Cross-border trade, Export Controls & Economic Sanctions, Exports

Question In Maze Showing Confusion And Puzzled

Mistakes happen.  While the majority of Canadian companies want to comply with Canada’s export controls and economic sanctions laws, violations can occur.  Often when there is an economic sanctions violation, there is also an export controls violation at the same time.  Sometimes, there are export controls violations without an economic sanction violation.

There are three procedures to voluntarily disclose export controls and economic sanctions violations:

  1. Voluntary disclosure (export controls) to the Canada Border Services Agency (“CBSA”) of any error in an export declaration;
  2. Voluntary disclosure (export controls) to the Export Controls Division/Export Controls Bureau of any violation under the Export and Import Permits Act and any regulations thereto; and
  3. Voluntary disclosure (economic sanctions) to Global Affairs & the Royal Canadian Mounted Police (“RCMP”) of any violation of the United Nations Act and/or Special Economic Measures Act and any regulations thereto.

There are three voluntary disclosure procedures in Canada that are not connected or interconnected.  There isn’t a single voluntary disclosure form or format.  There isn’t a single window for making voluntary disclosures in Canada.  Due to the disconnect, there can be multiple penalties and inconsistent approaches.

Further, none of the voluntary disclosure procedures are set out in a statute or a regulation.  As a result, the procedures are imprecise and administrative in nature.

An exporter who fails to make a declaration of an export of controlled goods may make a voluntary disclosure of the failure.  D-Memo D20-1-1 “Exporter Reporting” addresses customs export declaration requirements and voluntary disclosures.  D-Memo D11-6-4 “Relief of Interest and/or Penalties Including Voluntary Disclosure” addresses the voluntary disclosure procedures.  A voluntary disclosure to the CBSA can take 6 months or more.  Further, because there are multiple voluntary disclosures required, the processes can be lengthy and expensive.

An exporter who fails to apply for and obtain an export permit prior to exporting controlled goods may make a voluntary disclosure of the failure.  The Export Controls Handbook addresses the voluntary disclosure procedures.  Section G.7  “Disclosures of Non-Compliance” and Subsection G.7.1 “Disclosure Procedures” provide brief information about the process for making a voluntary disclosure to the Export Controls Division of Global Affairs. A voluntary disclosure to the Export Controls Division can take 6 months or more.

There is no written guidance in Canada concerning the making of a voluntary disclosure of an economic sanctions violation.  Global Affairs does not have resources to receive and process voluntary disclosures.  When an exporter informs Global Affairs of an economic sanctions violation, they are referred to the RCMP rather than the Export Controls Division.  The RCMP are Canada’s federal police force and there is risk of reporting a violation to the RCMP.  Also the RCMP must circle back and coordinate with Global Affairs, who are more knowledgeable on economic sanctions matters.  Due to the lack of a defined process, a voluntary disclosure of an economic sanctions violation is complicated and takes more time.

If an exporter has made an error that involves both export controls and economic sanctions violations, it may be strategically advantageous to contact the CBSA and the Export Controls Division first and resolve the issues (and resulting punishment) before making the voluntary disclosure of the economic sanctions violation.  The reason is that the CBSA and the Export Controls Division reviews can be of assistance in the economic sanctions voluntary disclosure process. The RCMP can use the help and guidance.

All disclosures (unless they result in criminal charges) are secret. There are no Consent Agreements, there is no formal Monitor/Oversight procedures, and there are no lists of barred Canadian entities.

For more information about export controls and economic sanctions, please contact Cyndee Todgham Cherniak at 416-307-4168 or cyndee@lexsage.com.  For more written articles, there are many posted on Canada-US Blog and on the LexSage website.

NEXUS Application Form: Does It Allow For Extreme Vetting?

Posted in Border Security, NEXUS

nexussmWhen a Canadian citizen, Canadian permanent resident, U.S. citizen or U.S. permanent resident completes a NEXUS Program application form, the application is vetted by both the United States government and the Canadian government. The United States Department of Homeland Security (U.S Customs and Border Protection) (“USCBP”) vets the NEXUS application and the Canada Border Services Agency (“CBSA”) also vets the NEXUS application. Other governmental departments are also consulted. Either the United States or Canada may reject an application for whatever reason.  The United States government and the Canadian government have discretion to approve or reject anyone into the NEXUS trusted traveler program.  In both countries, courts have been deferential to the government decision makers.

The NEXUS application form seeks background information from the application, such as addresses for the last 5 years, employment history for the last 5 year, travel history, details about criminal charges & convictions, details about customs infractions, details about immigration infractions, etc.  This information is vetted by the United States and Canadian governments.

After an application is vetted, the applicant may attend at a USCBP/CBSA office and attend an in-person interview.  Questions are asked by both USCBP and CBSA officers. The applicant is always asked about criminal charges, arrests and convictions during the interview.  Provisionally approved applications can be rejected by the USCBP/CBSA officers at the interview because of answers provided or the discretion of the officer.  If an application is approved during the interview, USCBP and the CBSA photograph the applicant, collect finger prints and a biometric scan of the person’s iris (eye).

Every 5 years, a NEXUS Card holder must renew his/her NEXUS Membership and provide detailed information.  Further, every time a NEXUS Card Member’s relevant documentation changes (e.g., a new passport, new permanent residency card, a citizenship card, a new driver’s license), the new document number must be reported to the NEXUS Program and the computerized records updated.  Similarly, if the NEXUS Member changes his/her residential address or employer, the information must be updated in the NEXUS computerized records. The vetting process is ongoing.

Vetting is an important element of the NEXUS Program.  This is because NEXUS Members are allowed to use alternative methods to present themselves to USCBP and the CBSA when entering the United States and Canada.  Both countries have automated NEXUS or GOES kiosks. However, at any time, a NEXUS Member can be selected for secondary screening by the NEXUS/GOES kiosk, a USCBP or CBSA officer at the NEXUS/GOES lane at the primary inspection area, in the baggage claim area of airports, or at point (which is at the exit of the customs controlled area).

The CBSA has posted Frequently Asked Questions about the NEXUS Program and rules. USCBP has posted eligibility requirements and the CBSA has also posted eligibility requirements for the NEXUS Program.

For more information about the NEXUS Program and appealing confiscations, cancellations, suspensions and revocations of NEXUS Cards, please contact Cyndee Todgham Cherniak at 416-307-4168 or Cyndee@lexsage.com.  LexSage has posted articles about NEXUS on the LexSage website.

What Canadian Lawyers Should Know About Solicitor-Client Privilege At The Canada-US Border

Posted in Border Security, Corporate Counsel, Customs Law, U.S. Federal Government

Security Bag Check sign on a white background. Part of a series.

There are reports that President Trump is considering an Executive Order to require the Department of Homeland Security, and in particular U.S. Customs and Border Protection (USCBP), to ask foreign visitors to provide information about their social media profiles and access to their computer contact lists.  This would include Canadian lawyers. The access to contact lists is something that should concern Canadian lawyers because our clients’ names, contact names, telephone numbers, fax numbers, addresses, and email addresses are in our contacts on our computers and smartphones.  Lawyers in Ontario are required by the Law Society of Upper Canada’s Rules of Professional Conduct to keep the names of clients confidential.

While the United States Department of Homeland Security has a written policy on Border Searches of Electronic Devices, foreign lawyers do not receive the same treatment as U.S. lawyers.  As a result, Canadian lawyers currently can have their laptops searched, including client files and Outlook (including emailed correspondence, emails and contact lists). In fact, a lawyer’s entire hard drive can be downloaded and copied by USCBP and there is no way of knowing what is done with the copy of the hard drive.  USCBP can seize laptops and smart phones (and other electronic devices) from Canadian lawyers.

Now for Canada, the Canada Border Services Agency (“CBSA”) does not have a written policy.  On June 19, 2014, the Canadian Bar Association wrote to the Minister of Justice and the Minister of Public Safety and Emergency Preparedness to seek support in establishing a working group to develop a policy for border searches of lawyer’s laptops and other electronic devices.  This letter was written after the Canadian Bar Association passed Resolution 13-06-A “Solicitor-Client Privilege Claims at the Canadian Border“.   To date, no such discussion has commenced and no working group has been assembled.

What this means is that currently, the CBSA has legal authority to search any electronic device of a Canadian lawyer (and foreign lawyers).  There is no policy that a lawyer can site to the CBSA. A lawyer can ask for a CBSA officer to call his supervisor, but if the supervisor supports the search, there is little that a lawyer can do at that moment in time (at the border in the secondary inspection area).

Recommendations

  1. Law firms should adopt a travel policy for all lawyers who travel with electronic devices (that would be everyone) that considers the limitations at the border relating to the protection of client information.
  2. Lawyers should travel with a clean travel laptop dedicated for travel that (a) does not have Outlook (or another email program) and (b) does not have all the lawyer’s client files stored on the hard drive.
  3. Lawyers should have a travel smart phone that does not have contact lists and ensure all email accounts are removed prior to the border crossing (emails can be downloaded).  It is easy to swap a SIM card or forward calls to your travel phone.
  4. Lawyers should have a personal secure wifi device so that emails can be downloaded while traveling. Hotel and cafe wifi systems are generally not secure and the emails can be intercepted.
  5. Lawyers should remove all extra USB keys from briefcases and backpacks prior to travel.
  6. Lawyers should only travel with necessary documents – do not go on vacation with client documents.
  7. Lawyers should use encryption software for very sensitive client documents that they must travel with.  While USCBP and the CBSA have sophisticated programs and may be able to access the documents, encryption software is a due diligence tool to protect client information in any event.
  8. Lawyers should claim solicitor-client privilege at the border and ask for the border officer to make arrangements for the issue to be put before a judge.  The border agency’s lawyers would have to present arguments to the judge as to what information is to be examined and maybe the judge will restrict the review.  However, this is not guaranteed in Canadian or US border procedures for Canadian lawyers at this time.  There is little harm in asking – there could be significant long term problems for the lawyer if the request is rejected and the dispute escalates.
  9. Always be aware that the CBSA Officers and USCBP Officers have wide discretion.  Keep calm and logical and rational.  As soon as behaviour crosses a line, it is difficult to de-escalate and cause a border officer to change his/her mind.  Also, you do not want to be charged with obstruction of an officer in performing his/her duties.

More information about searches at the border is contained in a PowerPoint “Hot Topics in Privilege: New Things To Think About!” (April 2015).  See also “On What Authority Does the CBSA Search Smart Phones?” (October 26, 2016).  See also “What Should A Lawyer Do To Claim Solicitor-Client Privilege at the Canadian Border?” (August 19, 2015)

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or by email at cyndee@lexsage.com.

 

 

 

U.S. Cancelling NEXUS Cards Of Canadian Dual-Nationals

Posted in Border Security, NEXUS, U.S. Federal Government

Many-QuestionsWe have heard a number of reports that the United States Department of Homeland Security is notifying Canadian NEXUS Card holders with dual nationality from certain countries (Iran, Iraq, Libya, Syria, Somalia, Sudan and Yemen) that their NEXUS Membership has been cancelled because they “no longer meet eligibility criteria”.  There may be other nationalities as well – we do not know.  We are informed by some of the individuals that they have not traveled to the United States recently – so this is not happening at the border.  The decision is being made behind the scenes so to speak.  Assuming that the individuals have not recently breached a customs law, have not breached an immigration law or committed a crime (been arrested or charged or convicted), the reason for the cancellation of the NEXUS Membership must be that the individual has been deemed by the United States to not be of “good character”.

The phrase “good character” is not defined in legislation or regulations.  Generally speaking, the “good character” criteria is invoked if a person has been arrested, charged or convicted of a criminal offence. It is also used by U.S. customs and Border Protection to confiscate NEXUS Cards when they feel that a person has not been truthful when answering their questions.  Canada has confiscated NEXUS Cards “on not of good character grounds” when a person has failed to declare $CDN10,000 in currency or when a person breaches a non-customs or immigration law.

There are many Canadian business persons who travel regularly for business and the NEXUS Card is a valuable asset to them.  At any time, a U.S. Customs and Border Protection officer can refer a NEXUS traveler for further inspection.  The NEXUS/Global Entry kiosks randomly select NEXUS Card holders for secondary inspection and questioning.  As a result, having a NEXUS Card does not mean that you always are permitted entry the United States without any screening.

It must be remembered that when a person applies for NEXUS Membership, they complete an application form and provide detailed information about work history, travel history, places of residence, etc. Individuals are vetted by the Government of Canada and the U.S. Department of Homeland Security before a NEXUS Membership is granted.  Individuals must attend an interview conducted by both the Canada Border Services Agency and U.S Customs and Border Protection before a NEXUS Card will be issued.  If the United States is now revoking NEXUS Memberships, this can only mean that they are revisiting their earlier analysis about individuals and the new administration is questioning the work done previously by Canadian and U.S. officials.

If the United States is revoking NEXUS Memberships of individuals of various nationalities and taking the position that they are “not of good character” if they were born in a particular country, that is wrong and Canada should intervene.

For more information about NEXUS Memberships, please contact Cyndee Todgham Cherniak at 416-307-4168 or cyndee@lexsage.com.  For more information, please go to the LexSage website where many Guidances are posted about the NEXUS Program and how to appeal a NEXUS Card confiscation.

Who Are “Related Persons” For Customs Purposes?

Posted in Customs Law, valuation

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Every importer wants to know “How much is it going to cost me to import the goods into Canada?” To answer this question, the importer needs to ask questions about (1) the H.S. tariff classification of the good being imported into Canada, (2) the origin of the good being imported into Canada, (3) the applicable tariff rate of the good being imported into Canada and (4) the value of the good being imported into Canada.  SMEs and SMBs want to know the cost of engaging in an import business.  Multi-national companies want to know the answer to this question as they establish an international strategy involving cross-border supply chains.

When looking at the valuation of the good to be imported into Canada, one of the most important questions that needs to be asked is whether the importer is a related person to the exporter.  What valuation rule applies to the valuation of imported goods turns on a primary question of whether the importer is a “related person” to the exporter. Whether an exporter and an importer are related persons is important because the relationship may affect the price of the goods.  The CBSA assumes that related parties provide “inter-company” or “family” discounts to result in the payment of less duties (which are an unrecoverable cost).  In other words, the price is not a “market price”, but rather an under-stated or an “Influenced” price.

The answer to the question “whether an importer and exporter are related” is found in subsection 45(1) of the Customs Act, in which “related person” is defined as follows:

“For the purposes of sections 46 to 55 [of the Customs Act], persons are related to each other if

(a)    they are individuals connected by blood relationship, marriage, common-law partnership or adoption within the meaning of subsection 251(6) of the Income Tax Act;

(b)    one is an officer or director of the other;

(c)    each such person is an officer or director of the same two corporations, associations, partnerships or other organizations;

(d)    they are partners;

(e)    one is the employer of the other;

(f)     they directly or indirectly control or are controlled by the same person;

(g)    one directly or indirectly controls or is controlled by the other;

(h)    any other person directly or indirectly owns, holds or controls five per cent or more of the outstanding voting stock or shares of each such person; or

(i)     one directly or indirectly owns, holds or controls five per cent or more of the outstanding voting stock or shares of the other.”

This means it is fundamentally important to review the relationship between the person identified as the importer and the person who is identified as the exporter in order to consider and determine whether the parties are related to each other.  If you make a mistake (or assume the transaction value method is applicable), this is where some significant reassessments can occur (and significant legal costs too).

Where companies have different names, the customs broker may not think to ask about the relationship between the importer and the exporter.  Often shareholder and ownership information of private companies is not known publicly.  Even with public companies, all the officers may not be identified.

Problems often arise when a foreign company incorporates a Canadian subsidiary.  The foreign company wants to maintain control over the subsidiary and the directors of the foreign company are the directors of the Canadian subsidiary.  The foreign shareholders do not want to hand over control to a Canadian person they do not know very well.  When this happens the foreign company and the Canadian subsidiary would be related persons for customs purposes and this affects the valuation method that may be used.

For more information about the definition of “related parties” please see D-Memorandum D13-3-2 “Related Persons” and D-Memorandum D13-4-5 “Transaction Value Method for Related Parties”.

Is there anything wrong with related party transactions?

The short answer is “No”.  However, the CBSA may scrutinize transactions between related persons in order to  make sure that the Government of Canada is getting the duty revenues it deserves.

Are related parties prohibited from using transaction value?

The short answer is “No”.  However, the longer answer is “maybe”.  If the relationship influenced the price paid or payable for the imported goods, then the transaction value cannot be used. One of the other 5 valuation methods should be used:

  • The Transaction Value of Identical Goods Method;
  • The Transaction Value of Similar Goods Method;
  • The Deductive Value Method;
  • The Computed Value Method; and
  • The Residual Value Method.

Valuation methods are applied in hierarchical order.  What this means is that an importer must first ask whether the Transaction Value method is applicable.  If the goods can be valued using the Transaction Value Method, another valuation method cannot be used.  However, if the Transaction Value Method cannot be used, then the importer must determine if the Transaction Value of Identical Goods Method can be used.  If the Transaction Value of Identical Goods method can be used (because the exporter sells the same goods to another person in Canada that is not related to the exporter), then the Transaction Value of Identical Goods Method must be used.  If the Transaction Value of Identical Goods Method cannot be used, then the importer must determine if the Transaction Value of Similar Goods Method can be used.  If the Transaction Value of Similar Goods Method can be used (because the exporter sells similar goods (not identical in all respects) to an unrelated party in Canada), then the Transaction Value of Similar Goods Method must be used by the importer.  If the Transaction Value of Similar Goods Method cannot be used, then the importer must determine if the Deductive Value method can be used.  If the Deductive Value Method cannot be used, then the importer must determine if the Computed Value Method can be used.  If the Computed Value Method cannot be used, the importer may use the Residual Value method.  The Residual Value Method allows the importer to use some value derived from an imperfect application of the previous methods.  The approach taken must be reasonable.

For more information about Canada’s valuation rules, please contact Cyndee Todgham Cherniak at 416-307-4168 or cyndee@lexsage.com.  For more inforamtion about Canada’s customs laws, please go to the LexSage website.