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

Canada’s Standing Committee on Foreign Affairs And International Development Makes 13 Economic Sanctions Recommendations

Posted in Border Security, Canada's Federal Government, Corporate Counsel, Cross-border deals, Cross-border trade, Export Controls & Economic Sanctions, Exports, Uncategorized

In 2016 and early 2017, Canada’s Standing Committee on Foreign Affairs and International Development (FAAE) reviewed Canada’s Special Economic Measures Act (“SEMA”) and the Freezing Assets of Corrupt Foreign Officials Act.  The SEMA was encted to authorize the Governor in Council (Cabinet) to promulgate unilateral economic sanctions against states, as well as individuals and entities within them.  Simply put, under SEMA, legal trade can become illegal.  The Freezing Assets of Corrupt Foreign Officials Act was enacted in 2011 to respond to the events of the Arab Spring.  Simply put, it is a mechanism to prevent the flight or liquidation of any assets of deposed foreign officials found in Canada before the new governments could seek their recovery.

On April 6, 2017, FAAE released the Seventh Report of the FAAE, based on its review, which is entitled “A COHERENT AND EFFECTIVE APPROACH TO CANADA’S SANCTIONS REGIMES: SERGEI MAGNITSKY AND BEYOND” and in which it provides an excellent summary about Canada’s economic sanctions laws, the purpose of economic sanctions and makes 13 recommendations.  On July 17, 2017, Canada’s Minster of Foreign Affairs, Ms. Crystia Freeland provided a response to the FAAE Report.

The 13 recommendations in the FAAE Report, which were unanimously supported (on a bipartisan basis) by the members of the FAAE, are:

  1. The Government of Canada should ensure that sanctions imposed using more than one of the United Nations Act, the Special Economic Measures Act or the Export and Import Permits Act are imposed in a complementary and coherent manner, and amended concurrently when necessary;
  2. The Government of Canada should implement the decisions of the United Nations Security Council regarding its mandated sanctions regimes through the timely enactment, amendment, and repeal of regulations under the United Nations Act;
  3. The Government of Canada should properly resource and reform the structures responsible for its sanctions regimes, in order to effectively impose sanctions on targeted states and persons;
  4. The Government of Canada should provide comprehensive, publically available, written guidance to the public and private sectors regarding the interpretation of sanctions regulations in order to maximize compliance;
  5. The Government of Canada should produce and maintain a comprehensive, public and easily accessible list of all individuals and entities targeted by Canadian sanctions containing all information necessary to assist with the proper identification of those listed;
  6. The Government of Canada should transfer responsibility for the issuance of permits under the Special Economic Measures Act and the United Nations Act to the section of Global Affairs Canada that already issues similar permits under the Export and Import Permits Act;
  7. The Government of Canada should ensure that law enforcement agencies highly prioritize the enforcement of sanctions measures and are given the necessary resources to fulfil their duties;
  8. The Government of Canada should amend the Special Economic Measures Act and the Freezing Assets of Corrupt Foreign Officials Act to allow for an independent administrative process by which individuals and entities designated by these Acts can challenge that designation in a transparent and fair manner;
  9. The Government of Canada should provide a clear rationale for the listing and delisting of persons under the Special Economic Measures Act and ensure that the information is easily accessible to the public through the Global Affairs Canada sanctions website;
  10. The Government of Canada should amend the Special Economic Measures Act to require the production of an annual report by the Minister of Foreign Affairs, to be tabled in each House of Parliament within six months of the fiscal year end, which would detail the objectives of all orders and regulations made pursuant to that Act and actions taken for their implementation;
  11. The Government of Canada should amend the Special Economic Measures Act and the Freezing Assets of Corrupt Foreign Officials Act to require a mandatory legislative review of the Acts by a parliamentary committee within 5 years of the amendments becoming law;
  12. In honour of Sergei Magnitsky, the Government of Canada should amend the Special Economic Measures Act to expand the scope under which sanctions measures can be enacted, including in cases of gross human rights violation; and
  13. The Government of Canada should amend the Immigration and Refugee Protection Act to designate all individuals listed by regulations under the Special Economic Measures Act as inadmissible to Canada.

Minister Freeland’s response is one of gratitude, but not one of a promise to act.

Shortly after the release of the Report, all of Canada’s political parties supported Recommendation 12 and backed the implementation of a Canadian Magnitsky Act. On June 22, 2017, Canada’s Standing Committee on Foreign Affairs and International Development unanimously agreed to report Bill S-226 “Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law)” back to the House of Commons with amendments that strengthen the sanctions (that is make the sanctions even more robust). Bill S-226, when passed, will have a significant impact on Canada’s economic sanctions laws.   Bill S-226 is not an anti-Russia law, it’s coverage includes Iran, Syria, Sudan and other countries.  Arguably, Canada could list members of China’s government for the purposes of imposing economic sanctions or freezing assets. For more information about the amendments to Bill S-226, please see “Canada’s Standing Committee On Foreign Affairs And International Development Amends Canada’s Proposed Magnitsky Act“.

Canadian companies who export to Iran, Syria, Russia and other countries targeted by Canada’s economic sanctions should review the report because it provides a useful overview of Canadian law and thinking about sanctions. The recommendations are important because they may be implemented. It must be expected that Canada will change its export controls laws.  Canada has already started the process of changing its export controls laws in Bill C-47 “An Act to amend the Export and Import Permits Act and the Criminal Code (amendments permitting the accession to the Arms Trade Treaty and other amendments)”  See an article entitled “Canada’s Arms Trade Treaty Legislation Will Create Arms Brokering Rules And Change The Export And Import Permits Act“).

Some of the recommendations are intended to assist SMEs.  For example, Recommendation 5 recommends that the Government of Canada (that is, Global Affairs Canada) produce and maintain a comprehensive, public and easily accessible list of all individuals and entities targeted by Canadian sanctions containing all information necessary to assist with the proper identification of those listed. Currently, a Canadian exporter must review all regulations under the SEMA and UN Act and other statutes to see whether a particular purchase is a designated person or whether the export or transfer of the goods is prohibited. We wrote about is problem with Canada’s economic sanctions laws in an article entitled “Ten Compliance Problems Canadian Companies Face In Complying With Canada’s Economic Sanctions Laws“.  Minister Freeland has instructed Global Affairs to implement this recommendation “in the near term” (whatever that means).

Similarly, Recommendation 4, which recommends that the Government of Canada should provide comprehensive, publically available, written guidance to the public and private sectors regarding the interpretation of sanctions regulations in order to maximize compliance, will assist Canadian businesses and provide needed clarity.  Global Affairs has been instructed to consider how this recommendation can be implemented.

Many of the recommendations address a problem experienced by Canadian exporters – that Canada’s laws overlap and may not be consistent.  Significant differences that exist between sanctions regimes and the variety of measures imposed. The use of multiple Acts in the implementation of sanctions regimes complicates compliance and enforcement. An example taken from the report is:

“First, Canada listed North Korea under the Area Control List, using the lower threshold required by the Export and Import Permits Act, and then the government enacted stricter sanctions once it was deemed necessary through the grave breach provision of the Special Economic Measures Act. … While this example demonstrates the complementarity and flexibility of Canada’s legislative framework, the provisions of the three regulations under the three Acts also demonstrate the complexity that can result. Regulations under the United Nations Act and the Special Economic Measures Act for North Korea appear to create overlapping prohibitions or restrictions in some areas. … For example, both sets of regulations prohibit the provision and acquisition of financial services. The North Korea regulations under the Special Economic Measures Act, however, contain exclusions to this prohibition, including in relation to the work of international organizations and for non-commercial remittances under $1,000, which are not found in the United Nations Act regulations. This would suggest that one would need a permit under the United Nations Act regulations in order to carry out transactions specifically allowed under the Special Economic Measures Act. Or, conversely, the Special Economic Measures Act regulations specifically allow for acts which are prohibited by the UN sanctions…”

Canadian exporters often make mistakes when not realizing the differences in Canadian laws or complying with a lower threshold or exemption in one piece of legislation.

For more information about Canada’s economic sanctions laws, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.  More articles about Canada’s export controls and economic sanctions laws are on the LexSage website.