On February 5, 2016, Foreign Affairs Minister Dion announced that “Canada amends sanctions against Iran” and regulatory changes were implemented/promulgated. On February 5, 2016, the Export Controls Division of Global Affairs Canada issued Notice to Exporters No. 196 “Exports of items listed on the Export Control list to Iran”. On February 15, 2016, the Canada Border Services Agency issued Customs Notice 16-05 “Amendments to Iran Sanctions as of February 5, 2016”. Since then, Canadian companies have had many questions relating to what opportunities exist for them to do business with Iran and, more importantly, can they legally pursue those opportunities.
The top 6 questions we hear asked are:
Did Canada lift all economic sanctions against Iran?
No, Canada did not lift all sanctions against Iran. Canada merely amended the Special Economic Measures (Iran) Regulations and Regulations Implementing the United Nations Resolutions on Iran to remove many of the more restrictive of the sanctions. What this means is that Canada has maintained some of the multilateral economic sanctions against Iran (those enforcing UN Security Council Resolutions) and some of Canada’s unilateral economic sanctions and trade restrictions against Iran. The unilateral economic sanctions and trade restrictions are where Canada may be more limiting than other countries.
Can I sell anything to Iran?
No, because some of the economic sanctions remain in place and Canada imposes restrictions on exports pursuant to the Export and Import Permits Act, Canadian companies cannot just export any goods to Iran.
First, transactions involving persons listed in Schedule 1 to the of the Special Economic Measures (Iran) Regulations may be restricted. Canadian companies planning to enter into contracts with Iranian firms (or the Iranian government) should review the prohibitions and the listed persons before proceeding.
Second, transactions involving goods restricted pursuant to the Regulations Implementing the United Nations Resolutions on Iran or listed on Schedule 2 of the Special Economic Measures (Iran) Regulations may be restricted. Canadian companies planning to enter into contracts with Iranian firms should review the prohibitions and the lists of restricted goods before proceeding.
Third, items on the Export Control List cannot be sold to Iran without an export permit. Notice to Exporters No. 196 informs Canadian exporters that Global Affairs Canada will generally deny export permits to export a number of categories on the Export Control List that are considered sensitive from a national and international security perspective. Canadian companies planning to enter into contracts with Iranian firms should review export permit requirements and assess the likelihood of obtaining the necessary permits before signing a contract with a delivery date.
It is still important to review all the sanctions before exporting goods to Iran.
I have goods with US-made parts/inputs – Can I sell these items to Iran?
It is possible that Canada will not issue an export permit to export goods manufactured in the United States or manufactured with U.S-made parts or components. Item 5400 on Canada’s Export Control List covers all goods and technology of U.S. origin that are not covered elsewhere on the ECL. Notice to Exporters No. 196 indicates that export permits may be denied for all goods covered by Item 5400 “(Strategic goods and technology), with the exception of 5504.2.a.1, 5504.2.b as they relate to the use of 5504.2.a.i only”. What this means is that a Canadian export permit will be required and Global Affairs Canada will not approve the export unless an export permit or export approvals are provided by the United States authorities.
As a result, it is still very important for Canadian companies to prepare a bill of materials for exports to go to Iran, determine whether there are any U.S.-made inputs/parts, analyze whether the good is subject to Item 5400 restrictions and analyze whether U.S. approvals are required prior to export.
Can I sell services to Iran?
Most of the remaining restrictions relate to goods rather than services. Generally speaking, the remaining sanctions do not restrict the provision of services per se. That being said, there are some restrictions relating to services that could impact a Canadian business. Canada prohibits the dealing in any property, wherever situated, that is held or controlled by a person listed in Schedule 1 of the Special Economic Measures (Iran) Regulations. This prohibition affects services. For example, the provision of services in respect of property (such as, repairing equipment) owned by a listed person could be considered to be a “dealing” with respect to property.
Canada prohibits the transfer, provision of disclosure to Iran or any person in Iran any technical data related to goods in Schedule 2 of the Special Economic Measures (Iran) Regulations. This is the most significant of the restrictions because the provision of services could involve the transfer of technical data (depending on the service).
Canada also prohibits the provision of any financial or related service in respect of a dealing in any property, wherever situated, that is held or controlled by a person listed in Schedule 1 of the Special Economic Measures (Iran) Regulations. Canada also prohibits the provision of any financial or related service to a person listed in Schedule 1 of the Special Economic Measures (Iran) Regulations or to a person acting for the benefit of such a person. Canada also prohibits any person in Canada or any Canadian outside Canada doing anything that causes, facilitates or assists in, or is intended to cause, facilitate or assist in any prohibited act.
In light of the above restrictions, there are more opportunities to provide services than obstacles for Canadian businesses. Canadian businesses should be mindful of where problems can arise in the provision of services and continue to ask questions. In addition, Canadian businesses should prepare proper proposals relating to the services and paperwork relating to the provision of services. A paper trail will be very important to prove that services rather than goods were provided and the nature of the services. Invoices merely stating “for services provided” should be avoided. The more information about what was done and to whom, the better.
If the services are being provided to a person listed in Schedule 1 to the of the Special Economic Measures (Iran) Regulations, it may be wise to seek advice from a professional to be certain that the provision of the specific services is legal. The information you should be prepared to discuss will include what types of services (in detail) will be provided, who the services are being provided to, will any goods be provided in connection with the provision of the services, who owns any property that will be connected with the services, are there any intermediaries involved in the provision of the services, etc.
Can I get paid?
This is one of the most important questions because Canadian businesses do not want to give the goods and services to Iranian businesses for free. Getting paid for legal exports of goods and services is easier (now that the sanctions have been relaxed, but not without risk. A number of Iranian financial institutions remain on the Schedule 1 list of designated persons in the Special Economic Measures (Iran) Regulations (e.g., Bank Sasderat, Asnar Bank, Mehr Bank, Bank Sepah, and Bank Hekmat Iranian). As a result, it will be necessary to know where the money is coming from and how it is getting to your bank account. Sometimes it is difficult to know prior to the transmission of the funds the path the funds will travel. When it is possible that a designated person (financial institution) may be involved in the outbound flow of money from Iran to Canada, it may be wise to obtain a ministerial authorization pursuant to the Special Economic Measures (Iran) Permit Authorization Order to receive payment without risk of a future disagreement with Global Affairs Canada.
Will Canada reinstate sanctions against Iran?
This is a good question that cannot be answered. It is important to include contractual provisions in contracts to anticipate a change in Canada’s unilateral economic sanctions and new multilateral sanctions implementing UN Security Council Resolutions.