On February 9, 2017, Stewart Bell wrote an article for the Financial Post entitled “Canadian company investigating branch in Iraq after logo spotted in photos of missile test“. It is never good to see your company name in the news – let alone being associated with a missile test in a country subject to United Nations sanctions. This story should cause Canadian companies, even companies which are not in the aerospace and defense industries, to revisit their internal controls or consider ways to improve their business practices.
Advanced Development Group Ltd. (“ADG”), a Canadian company, was surprised to see their corporate logo and name on a piece of equipment associated with a missile test in Iraq. ADG is a construction company and not in the defense industries. So, ADG was not the manufacturer of the missile technology. How could their name be so prominently displayed in a photograph on a missile? More importantly, was their foreign agent/representative responsible?
To control the reputational damage and prevent future non-compliance, the company immediately took important steps:
- ADG severed its relationship with its agent/representative in Iraq;
- ADG commenced an investigation (on the ground in Iraq); and
- ADG commenced an investigation of their internal controls in Canada.
The issues for the company to determine are:
- Whether their logo was used without permission by the company’s Iraq agent/foreign representative and was he selling goods manufactured by some other company (passing the goods off as manufactured by the Canadian company)?
- Whether the Canadian company’s goods (parts of goods) were in the photo?
- If the goods were Canadian goods, were they exported without an export permit required under the Export and Import Permits Act or were they properly exported and re-transferred or diverted?
- Were the goods exported from Canada subject to Canada’s economic sanctions under the United Nations Act and United Nations Iraq Regulations (Canada imposes a prohibition on the export of arms and related material to any person in Iraq)?
The company also has many internal compliance issues to resolve. When there is one rogue representative, there may be more. If their is a gap in the compliance program, it must be filled.
Canadian companies doing business in Iraq should be aware and learn from the experience of ADG. Canadian, U.S. and Western European firms have an advantage when bidding on contracts in Iraq because of their reputation for quality.
This situation provides an excellent lesson in export controls corrective action. When an issue is uncovered, it is important to sever the company’s relationship with any rogue agent/representative. To maintain a relationship might be perceived as approval of the behaviour. A message needs to be sent to all foreign representatives. Further, all foreign agents and representatives should be provided with a compliance policy and asked to sign the policy acknowledging that the policy has been read. Further, the company should offer training to foreign agents/ representatives so that they know what is expected of them and, more importantly, they know what is required under Canadian laws. Agents/representatives in countries that are higher risk (e.g., they are subject to Canadian economic sanctions or regularly do business with countries subject to Canadian sanctions) should undergo a review to ensure there are no problems.
What is also important is looking at the internal controls in Canada. In the ADG case, they should determine whether goods were shipped without an export permit.
For more information about Canada’s export controls and economic sanctions, please contact Cyndee Todgham Cherniak at 416-307-4168 or firstname.lastname@example.org.
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