Canada-U.S. Blog

Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

Money, Money, Who Owes the Money?

Posted in Antidumping, Corporate Counsel, Cross-border trade, Customs Law, Legal Developments

Originally published by the Journal of Commerce in October 2017

You receive an invoice from Customs and Border Protection (CBP) for additional duty assessed on an entry. When do you have to pay it?  Presumably the answer is within thirty (30) days, but maybe not!

One of the members of the trade bar was recently advised by a CBP employee that CBP is now taking the position that once the duty bill is issued, it is due, and if the importer does not timely pay it, that importer will be put on the sanctions list and be penalized accordingly (more about this sanction later). At first blush, this makes perfect sense, except for the fact a protest had been filed and was still pending.

By way of background, an importer may, of course, file a protest against any of the actions taken by CBP in finalizing or liquidating an entry.  Any but routine issues are typically the subject of an Application for Further Review (AFR), meaning the importer wants the protest decided by the attorneys at Regulations & Rulings (R&R).  If an AFR is filed, the port is limited in its options.

1)         It may grant the protest;

2)         It may determine the requirements for an AFR have not been met, articulate its reasoning in the AFR denial issued to the importer, and thereafter decide the protest; or

3)         It may review and grant the AFR, and then the Protest/AFR is forwarded to R&R for final determination.

The particulars about protests can be found at 19 U.S.C. 1514 and 19 C.F.R. 174.12 – 174.13 and  regarding further review at 19 U.S.C. 1515 and 19 C.F.R. 174.23.

The challenge for CBP is the workload at R&R is so great that it can take literally years to get many claims decided.  During that period, interest accrues.  When a bill is issued for increased duties, pursuant to 19 U.S.C. 1505(c) and 19 C.F.R. 24.3a(b)(2), interest is charged from when the money should have been paid.  Given the length of time it generally takes for AFR/Protests to be decided, that is typically many months.  During that period, much can change.  As such, CBP remains concerned about getting paid.  Yes, an importer is required to have a bond, and the surety is liable to pay to the extent of the bond face amount, but the numbers can become staggering and so exceed the bond amount.  The duty could also be due as the result of a penalty (which is also subject to an interest assessment). Either way, you have CBP concerned about getting paid, and the surety concerned about whether the importer will go out of business thereby forcing it to pay.

In a recent conversation with a surety official, the story was shared that one of the surety’s staff spoke with a customs broker who explained to an importer he had no choice, he had to get a bond. That importer called CBP and was told by a CBP official, so long as you pay the duty on time, you don’t need a bond!  Obviously, that CBP official forgot about a whole section in the regulations dealing with bonds – 19 C.F.R. part 113.  While experienced hands will chuckle that such a boneheaded comment was made, the reality is, with lots of new people at CBP, the same sort of uninformed comment about sanctions may be at play here, but if so, that still leaves the sureties’ position to consider.

The CBP official said he was relying on CSMS 17-000489 issued August 14, 2017 which reads:

“This is a reminder that CBP bills for supplemental duties, taxes and  fees, or vessel repair duties are due thirty (30) days from the date of  the bill.  Any bill not paid during this timeframe is delinquent.  Please ensure that CBP has the correct address on file in order for you to receive your bill in a timely manner to prevent any delay in the   payment of your bill.

If a bill remains unpaid, any balance will be considered delinquent and accrues interest until payment is made in full.  All supplemental bills will reference the entry number used to import your goods.

Also, please note that CBP is changing its dunning letter timeframe from 181 days from the date of the bill to 61 days starting September 5, 2017.  In addition, if you are scheduled to receive a refund and have a delinquent bill older than 60 days, CBP will divert your refund and apply it to the delinquent bill.”

There is nothing in this message which is legally binding, nor for that matter does it address entries under protest. That law remains on the books, and so do the enabling regulations. Equally important, so does case law.  In particular, this very issue about when duty increases under protest had to be paid was decided in 1981, see Heraeus-Amersil, Inc. V U.S., 1 C.I.T. 249, 515 F. Supp. 7th, 1981 Ct. Intl. Trade LEXIS 1606 (April 24, 1981). In that case, the importer was presented with six (6) bills and told they had to be paid right away.  The company reviewed the entries and determined CBP was correct in regards to the change in value, but not classification. The importer then deposited $61,333.17 for the value change, leaving a balance of $12,250.58 owing. CBP applied the funds to cover the increases on all but one entry and when the importer failed to pay the remaining amount, sanctions action was taken. The importer then brought suit seeking an injunction.  The court held:

“[While the protest was on file], the increased duties resulting from the [classification change] were not required to be paid, since liquidation, which is the finalization of the entry process, could not be accomplished until the [classification] issue was determined.”

Ibid, at 252.

The court went on to grant the injunction request because:

“… [the increased] duties are not now due and owing and the importer is not in default. Hence, the application of this regulation is improper and should not be utilized insofar as any sums not paid when a protest has been filed.”

Ibid, at 254. The referenced regulations were 19 C.F.R. 142.13(b)(now 142.13(a) and 142.14.

This remains the law today. Until the protest is decided, the liquidation is not final, so there is no legal basis for CBP to demand payment!

As noted, this should be the end of any future demands by CBP, especially given the sanction which can be imposed. 19 C.F.R. 142.26 provides that when amounts due to CBP are delinquent, the importer’s immediate delivery privileges are revoked.  Without this sanction, the entry is filed, the goods are released and the entry summary and duty payment are made later. With this sanction, the entry paperwork and duty must be paid in advance and only then is the entry processed. In short, in this day and age of just in time inventory, a sanctioned importer is dead in the water, due to the length of time it takes CBP to process these types of entries and issue release authorization!  So, the consequence is quite serious.

Nonetheless, sureties have their own concerns. All too often, once a protest is filed, the surety gets nervous as time passes if the importer will be able to pay when the bill comes due. Obviously it is possible the importer’s protest will be granted,  in which case the bill is cancelled and nothing is due.  It is also possible the protest is granted but the amount due is reduced, due to a different interpretation by R&R. Regardless,  for risk management purposes,  the surety only thinks in terms of if the protest is denied. Then the principal plus interest becomes due, and CBP does not generally negotiate when it comes to paying duty.

It is also worth mentioning that sometimes sureties demand collateral at time of bond renewal under a collateral agreement that allows them to apply the collateral to any amounts the surety must pay CBP. Great fun when you are in the middle of a legal dispute with CBP and trying to renew your bond.

What sureties often do when they are nervous about a company’s financial wherewithal is demand payment from the importer under threat of cancelling the bond.  The importer is then left in an impossible position. On the one hand, he can pay the surety, but why do that? If you decide to pay, it makes more sense to pay CBP and cut off the interest being assessed.  However, do you have to pay at all?  The importer does have the option of pointing out to the surety that until the protest is decided, CBP has not exhausted the administration process so as to have finalized the amount due. Plus, thereafter the importer has the option to continue his challenge before the Court of International Trade, but that option does require payment of all sums due prior to filing. The sureties are typically not receptive to such reminders and so, the sad fact is, you could end up in litigation with your surety before a judge that knows nothing about import/export laws or procedures, unless some other resolution is found.  Anyone have a suggestion as to what that might be?

Canada’s Magnitsky Act Will Pass Third Reading Today

Posted in Canada's Federal Government, Export Controls & Economic Sanctions, Exports

Today, Canada’s House of Commons will pass at third reading Bill S-226 “An Act to provide for the taking of restrictive measures in respect of foreign nationals responsible for gross violations of internationally recognized human rights and to make related amendments to the Special Economic Measures Act and the Immigration and Refugee Protection Act”. Bill S-226 will be officially known as the “Justice for Victims of Corrupt Foreign Officials Act” and generally called “Canada’s Magnitsky Act”.  Third reading is scheduled for 3:00PM (with other bills).  You may watch on ParlVu.  Watch this historic event as it unfolds.

The object and purpose of Bill S-226 is to make sure that human rights violators and corrupt foreign public officials do not use Canada as a safe haven.  James Bezan MP said before the House of Commons that “his bill first and foremost is focused on human rights violators as well as corrupt foreign officials who are taking advantage of their citizens and abusing their positions of power. We have to make sure that those individuals do not use Canada as a safe haven.”  James Bezan went on to say that “this legislation is about anti-corruption. It is about protecting human rights and protecting Canadian values. It is really not just about sanctions and travel bans; it is about ensuring that Canada cannot be used as a safe haven by those criminals.”

Canada does not want to do business with human rights abusers and corrupt foreign officials. James Bezan MP said that Canada has “to ensure that we are not used to educate these criminals’ children, to hide their families and their extra-marital affairs here in Canada, to buy homes and properties over here, or to make use of our very strong banking system.”  James Bezan went on to say that “Canada and its partners will ensure that we shut down their ability to launder their money, hide their families, and enrich themselves by benefiting from Canada’s strong financial institutions and assets, whether it is real estate, businesses, or investments.”  Mr. Wayne Stetski said in the House of Commons that “Canada should not have any role in assisting government corruption abroad. This bill will ensure that Canada can no longer be an unwitting accessory to such acts, and it sends a strong message to corrupt officials everywhere: we are watching, we are paying attention, and we will not help you get away with it.”  Mr. John MacKay said in the House of Commons that “Now there will be no place in Canada for gross abusers of human rights: no condos, no companies, no stocks, no banks, no access to bonds or investments, nothing. They can take their filthy blood money and keep it.”

Bill S-226 does not target Russia. On the contrary, it targets any listed corrupt foreign officials and human rights abusers wherever they are in the world and from any country.  When Canadian parliamentarians spoke to Bill S-226 on October 2, 2017, many statements were made about the global nature of Bill S-226 and which countries and persons may be listed in regulations:

Mr. James Bezan (Conservative Party) said:

  • “It was not just about Russia, but other countries that are human rights abusers, with the people getting rich by being human rights abusers, which is atrocious.”
  • “Bill S-226 would put another tool in the tool box for the Government of Canada, so that we can project our Canadian values and ensure that Canada is not being used as a safe haven by corrupt foreign officials and human rights abusers. This would enable Canada to go after other countries and entities that are human rights abusers. It is not just about Russian aggression and the war in Ukraine. It is not just about Crimea’s illegal annexation. This is also about the torture of political prisoners in places like Iran, the human rights abuses that we have seen in Vietnam, and the current genocide that is taking place in Myanmar with the Rohingyas.”
  •  “We talked about some of the examples of where we are seeing human rights abuses outside of Russia. I already mentioned what is happening in Myanmar, with the genocide being committed against the Rohingyas. There are individuals who are responsible for that. We should be going after the current military leadership in Myanmar: Sen. General Min Aung Hlaing; Lt.-Gen. Sein Win, who is the minister of defence; Vice Senior General Soe Winn. These are individuals who are carrying out genocide, ethnic cleansing, and they need to be held to account. Canada can act unilaterally and do that.   In Venezuela, with President Maduro and everything that is happening, they are clamping down on human rights and there is no freedom of the press. We are talking about a recession and skyrocketing costs and inflation impacting everything from food to medicine to medical supplies. He is capturing his political dissidents, and imprisoning and torturing them. The Venezuela regime needs to be sanctioned. This is all about making sure that all the political leaders, military leaders, and police agencies are being held to account. The United Nations Human Rights Council says that just since April, 5,000 people have been detained, and 1,000 of them are still in custody. Bill S-226 would be able to put proper economic sanctions in place, as well as travel bans, to send a message to Maduro and his regime that this is not warranted.  In Iran, President Rouhani continues to not just imprison his political dissidents, but to executive them. Under Rouhani, who everyone thinks has this charm offensive, political executions have increased by 55% under him versus under Ahmadinejad. This individual cannot be trusted, and the Iranian regime must be held to account. He is imprisoning not just political prisoners, but ethnic and religious minorities. He continues to push out their theocracy and impugn thousands of people all the time. We cannot forget that under Ayatollah Khomeini back in 1988, 30,000 political prisoners were killed in one summer. Those who orchestrated and participated in that, who are responsible, still serve today in the current regime. They have never been sanctioned. We could do that now with Bill S-226. We cannot forget about what is still happening in Ukraine, in Russia, and in Chechnya. We see the human rights violations. There were 200 men who were rounded up and put into detention centres, based upon their sexual orientation. Those individuals who belong to the LGBTQ community had their rights violated, and at least three of them were killed. Those Chechen leaders who are responsible for it, especially Ramzan Kadyrov, have to be held to account. These individuals are no different than any of the other ones we want to sanction.”

Mr. Borys Wrzesnewsky (Liberal) said:

  • “We seem to be entering a world of disorder in which there are those who believe they can disregard the human rights of their citizens, flaunt international law treaties and agreements, or undermine the stability of their neighbours. It is not coincidental that the worst human rights violators, from Syria to North Korea, are also major threats to international peace and security. It is no surprise that a kleptocratic Russia, which killed Magnitsky, has militarily supported both of these states and militarily invaded and illegally annexed neighbouring Ukraine’s territory. This has important and dangerous consequences for all of us.”

Ms. Linda Duncan (New Democratic Party) said:

  •  I do not want to repeat what everyone else said. I too had the privilege of meeting Bill Browder and hearing the story of Sergei Magnitsky. It is important for us and those following the proceedings to keep in mind that this is about more than a couple of corrupt actors in Russia. There are reprehensible actions that occur around the globe, and the purpose of this legislation is to protect Canadians from receiving corrupt dollars and, frankly, to prevent Canadians from interacting with and having financial dealings with those who seriously violate human rights, are severely corrupt, and may resort to torture. It is important for us to recognize that we are addressing very clear and sordid examples with this legislation. I stand by that.  It was a very sad tale and sad to say that there are many such tales around the world. It is long past time that we have strong legislation in this country so that our government can move forward expeditiously when it wants to take action to prevent this kind of sordid investment coming here, and to send a message to officials around the world and to those who deal with officials around the world who may be involved in severe violations of human rights, torture, and corruption.  This legislation would also prevent laundered money coming here from around the world. This is something that we can do as one more step to stop this kind of action. It is our way of protecting people in other countries so that corrupt officials cannot get away with their sordid actions.  The purpose of this legislation is to enable us to act in a way that would prevent people from immigrating to this country or coming here to do business, as well as preventing them from investing the profits from their sordid activities. Both are extremely important. It is important that people recognize that we will be able to do twice as many things with this legislation.”

Bill S-226 / The Justice for Victims of Corrupt Foreign Officials Act is a public welfare statute.  James Bezan said it well when he said in the House of Commons that “Canada always talks the talk, but we do not always walk that talk. This bill gives us the ability to do it.  Canada has always been looked up to as a country that stands up for human rights and tries to stand in the way of corrupt foreign officials.”  Bill S-226 give Canada another tool to take meaningful action in a targeted manner.  The Governor-in-Council upon advice from House of Commons and Senate Committees can add names to Canada’s list by way of regulation.

Today is an important day.  Lists are being drawn behind closed doors (but some names are discussed in public).  After third reading today in the House of Commons, Bill S-226 returns to the Senate for the House of Commons amendments to be approved.  As set out above in the statements made by Members of Parliament (MPs) in the house of Commons, Bill S-226 has support of all Canadian federal political parties. Soon, there will be a list made pursuant to the Justice for Victims of Corrupt Foreign Officials Act.  Soon, Canada will join the chorus of voices in the United States, the European Union, the United Kingdom, Estonia and elsewhere.

Canada is becoming more hawkish in terms of economic sanctions enforcement.  The sanctions that will be imposed under The Justice for Victims of Corrupt Foreign Officials Act are important for reasons of human rights and rule of law.  Behind some names of the list will be stories of inhumane treatment of our fellow person.  More than the other sanctions, these sanctions will profound meaning (which I personally hope is not hidden from Canadians as Canadians support will grow with understanding).

For more information about Canada’s economic sanctions laws or to arrange for a diagnostic of your compliance program, please contact Cyndee Todgham Cherniak at 416-307-4168 or at Cyndee@LexSage.com. If you would like assistance in managing the process, Heather Innes, formerly in-house counsel at a company with export controls processes, would be happy to assist. Please call Heather at 416-350-1234.

Tips for Traveling with Electronic Devices

Posted in Aerospace & Defence, Border Security, Constitutional Law, Controlled Goods Program, Corporate Counsel, Criminal Law, Cross-border trade, Customs Law, Cybersecurity and Privacy, Export Controls & Economic Sanctions, Exports, FCPA/Anti-Corruption, Legal Developments, Transportation

In the September 18, 2017 Federal Register notice (see 82 FR 43556) , U.S. Citizenship and Immigration made clear it will now routinely require those applying to enter the U.S. to provide social media handles. As such, the obvious starting point for these tips must be a reminder that Customs and Border Protection (“CBP”) officers may require arriving travelers to provide the unlock code to their electronic devices and user names/passwords to gain access to programs, including social media accounts, so make sure all your programs are closed when you cross the border! The contents on your devices can be examined, and that is true whether or not you are a U.S. citizen, and regardless of your profession. If you are selected for such an inspection, you can expect this two page summary may be handed to you – https://www.cbp.gov/sites/default/files/documents/inspection-electronic-devices-tearsheet.pdf.

The national security concerns of protecting the homeland allow CBP officers to inspect passengers and their belongings without meeting the Fourth Amendment protections against unreasonable search and seizure.  A CBP officer is not required to articulate why he or she directs you to secondary or why you or a particular device is of interest.

The 2009 directives (for CBP – see https://www.dhs.gov/xlibrary/assets/cbp_directive_3340-049.pdf; for Immigration and Customs Enforcement (ICE”) see https://www.dhs.gov/xlibrary/assets/ice_border_search_electronic_devices.pdf) provide a specific process only if a traveler identifies him or herself as an attorney (with equal application to U.S. and foreign attorneys). In that case, the officer is to consult with either the agency’s own attorneys or the Dept. of Justice for approval to proceed with the inspection of the relevant materials. Regardless, the device is subject to inspection. In reality, the stories which make the news do not generally involve the inspection of electronic devices belonging to attorneys, but rather those belonging to other travelers.

In the recently filed Ghassan Alasaad et al v. Elaine Duke, et al, Mass DC, Case No. 1:17-cv-11730, September 13, 2017, we learn about 11 travelers and their unpleasant experiences, which range from being held in secondary for a few hours to far more upsetting stories. In one example, a family crossed from Canada back into the U.S. with a sick child and was detained about six (6)  hours before being permitted to leave, during the course of which their devices were seized for many days before being returned.  In another case, father and daughter returned from Canada to the U.S. by bus, were detained at a small U.S. crossing point for about seven (7) hours, the father’s devices were inspected and later, they were permitted to leave, but long after their original bus had departed. Equally perplexing is why some of the individuals were stopped more than once, and the very same electronic devices subjected to searches each time!

Lest anyone think only CBP officers at small ports with limited traffic are the culprits,  Dallas-Fort Worth and Miami also gave rise to incidents described in the pending case.  The focus of the lawsuit is to declare the current procedures unconstitutional given that electronic devices carry so much personal information that they no longer equate to the contents of one’s luggage, which everyone surely concurs is available to be inspected at time of entry.

The Supreme Court has repeatedly held that CBP has an unfettered right to inspect anything which accompanies a traveler leaving from or returning to the U.S..  The issue of laptop searches and surrounding privacy rights comes up every few years. The current iteration of the push-pull between protecting the borders and the right to privacy is no longer limited to just laptops.

To provide some context, CBP published the following figures:

1)         In 2015, of the 383.2 million travelers, 8,503 searches of electronic devices were conducted;

2)         In 2016, of the 390.6 million travelers, 19,033 searches of electronic devices were conducted;  and

3)         In the first six months of 2017, there were 14,993 searches of electronic devices conducted out of the 189.6 million travelers.

While the numbers of devices searched is still small in comparison to the number of travelers, the number of searches is steadily climbing and, if it is your device which is held, you will likely run out and replace it long before you get your original device back. So, be prepared to spend the money to do so or plan to stick around, even if you miss a connecting flight, assuming CBP or ICE will release your device. Cooperating with authorities does not guarantee the release of your device.

In 2009, when the CBP and ICE directives were originally issued, they were woefully inadequate. They did not address all the situations where the law recognizes confidentiality. Yes, the search of attorney devices was marginally carved out, but what about a device belonging to a doctor or priest, or one containing someone’s medical information, or how about the business person who has confidential communications from an attorney? There are also journalists whose sources are typically protected from disclosure.

From the CBP side, certainly great flexibility is needed to protect the homeland, no one doubts that. It is also true that sometimes the situation is nothing more than the officer has a well-founded hunch which proves to be right.  At the same time, threatening to pull your gun or choking someone to get your hands on a smartphone to inspect it, as alleged in the current lawsuit, would seem to be excessive by any standard!

The courts have long held that taking the device, imaging it, and returning it long thereafter does require a search warrant, especially if a criminal case is filed.  How is the average traveler to know his or her rights?

So, what is traveler to do?

  • If you don’t absolutely need the device, don’t take it with you.
  • Keep in mind which of your devices has security settings and which does not. The ones which do not could be inspected, no matter the circumstances.
  • You can put the data which you later want to access in the cloud with strong password protection (be sure to disable the connection) and carry the equivalent of a burner phone. Otherwise, make sure all your programs are closed.
  • Do not keep more data on your device than you are willing to have exposed to CBP or ICE.
  • If you have photos on a device, store them in your cloud account and remove them from your device.
  • Some have suggested that if the device is in airplane mode, it may discourage any inspection since the device is not connected to the Internet. While CBP did state in June 2017 that its searches are limited to “information that is physically resident on the device,” it is not clear that simply activating airplane mode actually makes a difference. *
  • If you do get selected for secondary, you really only have two choices – give them the information they want and make the search process go as quickly as possible** or be prepared to sit around for several hours and, in the end, possibly be forced to leave your device behind to be returned (perhaps) at some later undefined point in time.
  • In 2009, both CBP and Immigration and Customs Enforcement issued directives as to how each agency would deal with the inspection of digital devices. They protect no one, not even attorneys!

* See file://data/data/litip/41592/00001/0374/9316578.PDF for the full list of questions and answers from the Senate Finance Committee dated June 20, 2017 to the nominee for Commissioner of Customs and Border Protection.

**Of course, if you are an attorney or work for a lawyer or law firm, or are in house, you must immediately object to the search of the device so as to have the best argument possible the attorney-client and work product privileges apply, despite what the officers may find on your device.

This topic finally takes us to the question of what companies are doing to protect themselves? Just as developing a bring your own device to work policy is necessary, so are ground rules for employees traveling with company owned devices.  Many companies are in highly regulated industries or have employees with access to highly prized information and so already have robust policies in place. If you do not, at least adopt the above recommendations as a starting point to stylizing a policy that works best for your individual company’s needs.

Global Affairs Canada Consulting Canadians on TPP-1

Posted in Canada's Federal Government, NAFTA Renegotiations, TPP-1, Trade Agreeements

On September 30, 2017, Global Affairs Canada commenced a consultation process with Canadians about on entering into a TransPacific Partnership Agreement with the remaining 11 counties (“TPP-1”).  An announcement was published in the Canada Gazette, Part 1, Volume 151, No. 39 (September 30, 2017) concerning the consultations.  On page 3759, Global Affairs published a notice entitled “Consultations on Canada’s discussions with the remaining members of what was previously the Trans-Pacific Partnership”.

The TransPacific Partnership Agreement (“TPP”) was multi-lateral free trade agreement originally concluded on October 5, 2015 with 12 countries (including the United States). However, on January 30, 2017, the United States notified signatories that it did not intend to become a party to the TPP.

The countries at issue in the current TPP negotiations are Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam (“TPP-1).   Given the current NAFTA modernization discussions and President Trump’s threat to withdraw from NAFTA, the inclusion of Mexico in the TPP-1 negotiations presents an opportunity to maintain current supply chains and modernize trade between Canada and Mexico without the United States.

The Government of Canada is seeking the views of the Canadian public and interested Canadian stakeholders on a potential TPP-1 agreement with the remaining countries. The deadline for submissions is October 30, 2017. This consultation seeks the views of interested Canadians on interests or issues of importance to them regarding trade and investment with these important countries, particularly Japan.  Canada considered a free trade agreement with Japan for a number of years.  Should any free trade agreement with Japan be bilateral or multilateral through TPP-1?

The Global Affairs notice requires submissions to include:

1. the contributor’s name and address and, if applicable, the name of the contributor’s organization, institution or business;

2. the specific issues being addressed; and

3. where possible, precise information on the rationale for the positions taken, including any significant impact they may have on Canada’s domestic or international interests.

All submissions will be considered to be public and could be made available on a website.  As a result, companies should not file business plans that they do not wish competitors to see.

Global Affairs Canada also states that it “would appreciate receiving views from Canadians regarding trade and investment interests with these countries, as well as issues that relate to other Canadian interests and values (e.g. corporate social responsibility, trade and gender).”  Canadian companies and interested parties should review the TPP text and let the Government of Canada know what improvements are required to the former TPP text. What is missing? What concessions should be modified? What improvements can be made? What should Canada ask for?  What should Canada take off the table as it was a concession granted to the United States and is not necessary to secure an agreement with the remaining countries?  Is their a market access request that Canada should be seeking with the remaining countries?  Are there technical barriers to trade in the remaining countries that Canada should attempt to dismantle in TPP-1?

It is worth noting that Canada is considering a free trade agreement with the ASEAN countries. The ASEAN countries are Cambodia, Brunei, Indonesia, Laos, Malaysia, Myanmar (Burma), the Philippines, Singapore, Thailand, and Vietnam.  As a result, there is some overlap with TPP-1.  As a result, submissions should include a recommendation of how the Global Affairs negotiators should proceed. Should efforts be put on the TPP-1 (which includes Mexico and Japan) or the ASEAN countries.

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

Canada’s Magnitsky Act Moves Closer To Law On October 2, 2017

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

Bill S-226 “An Act to provide for the taking of restrictive measures in respect of foreign nationals responsible for gross violations of internationally recognized human rights and to make related amendments to the Special Economic Measures Act and the Immigration and Refugee Protection Act” to be known as “Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law)” (we have linked the April 11, 2017 version of the bill, which will be updated tomorrow) is scheduled concurrence at report stage in Canada’s House of Commons on Monday, October 2, 2017 at 5:30PM.  You may watch the proceedings.

There is bi-partisan support for Bill S-226 in Canada’s House of Commons.  It is expected that the House of Commons Standing Committee on Foreign Affairs and International Development (FAAE) Report will be adopted and Bill S-226 will proceed to Third Reading and be passed by Canada’s House of Commons.  Since Bill S-226 was amended at Committee, the Bill will have to return to Canada’s Senate for First Reading, Second Reading, Referral to Committee and Third Reading adopting the revised language of Bill S-226.  Royal Assent (by Canada’s Governor General) will take place after Third Reading. It is expected that Canada’s Magnitsky Act will enter into force before the end of this year.  Bill S-226 passed Third Reading in Canada’s Senate before the amendments and it is expected to pass with ease and bi-partisan support.  Canadians from all political parties can support justice for Sergei Magnitsky.

Also, if you have read Red Notice, the book by Mr. Browder about Sergei Magnitsky, you will see a familiar name – Chrystia Freeland.  She has yet to write the next chapter in Mr. Browder’s book and the Sergei Magnitsky story.  Ms. Freeland, formerly a reporter in Moscow, is now Canada’s Minister of Foreign Affairs.  Ms. Freeland is the person who will draft the first list of names of corrupt foreign officials who will be subject to Canada’s Magnitsky Act.  Canada’s Cabinet, of which Ms. Freeland is a senior member, will promulgate the first list by way of a regulation.  The naming of names will not require a Parliamentary vote.  The regulation may be changed by the government of the day and new names can be added at any time (names can also be deleted).

Bill Browder spoke to my University of Windsor, School of Law/University of Detroit Mercy, School of Law class recently and spoke about why Canada should pass Bill S-226.  Bill Browder remarked that “Canada is a champion of human rights in the World … Canada’s image in the World is that it upholds human rights” (or is working hard to uphold human rights). “It is one thing for the United States to sanction people” says Bill Browder.  “Canada is not seen [as a bully on the World stage} … Canada is seen as an ethical country” and brings its “moral reputation” says Browder.  It is the right thing to do morally.

Bill Browder is right. There is a moral imperative to speak out against human rights abuses.  Canada’s voice is just one voice and Canada should join this chorus. Not because Canada has moral superiority (which we do not); but because Canada strives to be better.

While it can be argued that businesses bear the brunt of sanctions enforcement, in this case Canadian companies will benefit from sanctions imposed under Canada’s Magnitsky Act. Any name listed in Canada’s regulation will be a person who has committed gross human rights abuses in their own country. Canadian companies should know those names in order to prevent harm to their own people (management, employees, representatives, agents, lawyers, accountants, etc.).  It is difficult to know who are the corrupt foreign public officials in the World who might order your imprisonment and, possibly, death in prison.  If the Canadian government makes a list after careful consideration (and access to confidential inter-governmental reports), you probably should think twice about doing business with the named persons.

Canada’s Magntisky Act will enable the creation of a global list of names – not just Russian officials. It will not only list officials who do harm to their own people.  Canada’s Magnitsky Act will allow the Canadian government to react if a Canadian citizen or a Canadian resident is imprisoned in a foreign jurisdiction and tortured and/or murdered in prison by foreign officials.  For example, Zahra “Ziba” Kazemi-Ahmadabad, a Canadian-Iranian freelance journalist, was imprisoned in Iran and tortured and murdered.  Canada could list the Iranian officials who ordered her imprisonment and participated in her torture and murder.  Canada could list names of current foreign officials who torture and murder Canadians.  This will be of great benefit for Canadians – foreign officials will think twice before committing gross human rights abuses against Canadians for fear that they will be listed by the Canadian government and any assets they own in Canada will be seized and held as forfeit by the Government of Canada.

Canada’s Magnitsky Act will be a tool that can be used along with the Corruption of Foreign Public Officials Act (Canada’s Foreign Corrupt Practices Act) and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.  Corrupt foreign officials will not be able to hide their ill-gotten gains in Canada.  If a foreign public official engages in gross human rights abuses against Canadians or their own people, they may find their assets in Canada seized.  This is an important disincentive to committing gross human rights abuses.

For more information about Canada’s economic sanctions laws or to arrange for a diagnostic of your compliance program, please contact Cyndee Todgham Cherniak at 416-307-4168 or at Cyndee@LexSage.com. If you would like assistance in managing the process, Heather Innes, formerly in-house counsel at a company with export controls processes, would be happy to assist. Please call Heather at 416-350-1234.

Walking the North Korean Tightrope

Posted in Aerospace & Defence, Agriculture, Antidumping, Border Security, Corporate Counsel, Criminal Law, Cross-border deals, Cross-border trade, Customs Law, Export Controls & Economic Sanctions, Exports, Imports Restrictions, Intellectual Property, Legal Developments, Trade Agreeements, Trade Remedies, Transportation

On September 21, 2017, President Trump issued an Executive Order (yet to be numbered) (“EO”) imposing additional sanctions on North Korea. It took affect the next day. The general press has quoted Treasury Secretary Mnuchin as stating: “Foreign financial institutions are now on notice that going forward they can choose to do business with the United States or North Korea, but not both”.   These latest changes raise the specter for even more caution on the part of companies conducting international business.  The question every CFO at every company should ask is – is our due diligence program as good as it needs to be? If not, your funds could get seized and dealing with the Dept. of Justice in these types of cases can be quite challenging.   The government often has information the private sector does not possess and, if your due diligence program is not deemed sufficient, you stand little chance of getting those funds released.  Given the current climate, you can bet getting funds released related to the North Korea sanctions is going to be even more difficult!

The new Executive Order is broadly worded to include any person who is determined:

(i) to operate in the construction, energy, financial services, fishing, information technology, manufacturing, medical, mining, textiles, or transportation industries in North Korea;

(ii) to own, control, or operate any port in North Korea, including any seaport, airport, or land port of entry;

(iii) to have engaged in at least one significant importation from or exportation to North Korea of any goods, services, or technology;

(iv) to be a North Korean person, including a North Korean person that has engaged in commercial activity that generates revenue for the Government of North Korea or the Workers’ Party of Korea;

(v) to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person whose property and interests in property are blocked pursuant to this order; or

(vi) to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to this order.

The text as written is obviously intended to allow the Trump Administration as much flexibility as possible, but it does raise potentially serious concerns for American companies. Note in particular the use of the undefined word “significant”, when it comes to an import from or export to North Korea. Similarly, there is the use of the undefined word “materially” when it comes to assisting, sponsoring or providing financial, material or technological support for goods or services involving North Korea.  Equally noteworthy is the inclusion of services, not just goods, within the scope of this EO.

As noted above, it is often the case that U.S. government authorities have information on which they rely for enforcement purposes which is not known to the private sector and could yield seized goods, seized funds and/or penalties, despite the private sector conducting what it would consider as proper due diligence, and this is where relations with China are impacted and, equally importantly, the due diligence programs implemented by companies.

We have already seen a spate of forfeiture cases brought by the Dept. of Justice involving funds seized on the grounds they were derived from dealings with North Korea, which are already barred by existing law.  To be clear, the existing cases are not limited to American companies, but rather focus on U.S. dollars and other currencies which are coming through U.S. banking channels.

Worth noting is the industries mentioned –  construction, energy, financial services, fishing, information technology, manufacturing, medical, mining, textiles, or transportation. This industry list covers those most critical to North Korea, some would say their only industries. For example, any aircraft or vessel which has called a port in North Korea in the past 180 days may not call a U.S. port, measured from the  date of departure from North Korea. Such a provision raises the specter that violators will attempt to evade these sanctions by turning off vessel and aircraft directional equipment in the hopes of fooling regulators.  Not surprisingly, attempted and actual evasion,  along with the intent to evade, are also barred by the new EO.

The extent of this latest action by the Trump Administration can perhaps best be illustrated by the provision which states:

All funds that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person and that originate from, are destined for, or pass through a foreign bank account that has been determined by the Secretary of the Treasury to be owned or controlled by a North Korean person, or to have been used to transfer funds in which any North Korean person has an interest, are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in.

For the sake of clarity, a North Korean person is defined as:

… any North Korean citizen, North Korean permanent resident alien, or entity organized under the laws of North Korea or any jurisdiction within North Korea (including foreign branches)…  the term “North Korean person” shall not include any United States citizen, any permanent resident alien of the United States, any alien lawfully admitted to the United States, or any alien holding a valid United States visa;

In last month’s Alert, we discussed the impact of H.R. 3364, the “Countering America’s Adversaries Through Sanctions Act”- see http://www.msk.com/newsroom-alerts-2608 for the full text.  In that publication, we made the point:

The latest round of sanctions now demands that American companies seek many more details from their Chinese buyers and sellers.  The key is clearly understanding both who owns the party with whom you are dealing, but also who are that party’s customers/suppliers  …

While having the most robust due diligence program possible remains a key factor, it is now doubly important that financial institutions make sure they know with whom they are dealing, and businesses, too.  Financial institutions already are subject to “know your customer” rules under the Patriot Act and other laws and regulations. This new EO is likely going to lead to many more questions from financial institutions before agreeing to fund letters of credit, otherwise accept funds from foreign parties or transmit funds payable to foreign parties.  The more robust your due diligence program, the more likely you are ready with satisfactory answers.

The reach of this EO is in line with similar actions by the U.S. in the sense its impacts both those within the borders of the U.S. and beyond.  Some refer to this as secondary sanctions, but whatever you call it, American companies with foreign operations and companies headquartered outside the U.S. with operations within U.S. borders are equally affected. The old rule “if you can’t make the deal when an American company is involved, you can’t make the deal if you cut out the American company” still applies. With other countries targeted by other sanctions provisions, there are typically very distinct ways in which compliance can be accomplished when foreign parents or affiliates are involved, but that is no longer the case with North Korea.  You can get into equal difficulty if the deal is made by the foreign entity as with the U.S. entity, and frankly, it should raise questions for companies as to the source of any U.S. dollars, even if they do not transit the American financial system.

Any U.S. person (individual or entity) who knowingly conducts or facilitates a significant transaction with North Korea is in violation. The definition of “knowingly” is the same as typically appears in other sanctions laws – “… a person has actual knowledge, or should have known, of the conduct, the circumstance or the result”.    While knowingly is defined, “facilitate” is not, so again, the U.S. government retains the utmost flexibility.  Any missing definitions will undoubtedly be filled in from existing criminal law decisions and laws.

Foreign companies want to be particularly cautious in how they proceed. It is worth bearing in mind the $12 million penalty which was imposed  in July 2017 on CSE Global Limited (“CSE Global”) and its subsidiary, CSE TransTel Pte. Ltd. (“TransTel”), which are both based in Singapore. The fine resulted from the use of American dollars maintained in a Singapore-based bank to conduct business with Iran. The U.S. chose to exercise jurisdiction because the funds transited the U.S. financial system causing multiple financial institutions to violate U.S. sanctions by engaging in the prohibited processing of U.S. dollar payments from the United States to Iran or for the benefit of Iran.  As reported by the relevant enforcement agency – OFAC – the Office of Foreign Assets Controls –  these violations involved 104 funds transfers amounting to more than $11 million, and all were paid to Iranian third parties which aided the companies to provide the goods and services needed to fulfill a telecommunications contract.

The elephant in the room is how are Chinese banks going to respond.  It is common knowledge that China is North Korea’s main trading partner. Rumors abound that China has already told its central bank to stop dealing with North Korea, but that does not help American institutions or traders. They still need greater visibility into the supply chain, i.e., the real parties in interest in a given transaction. The new EO is described as “forward looking” meaning it will be imposed on deals after it became effective. However, that still means traders should be asking more questions, and so, too, should financial institutions. Given the rules are different in other countries, how likely is it that Chinese partners are going to willingly admit they are using North Korean inputs or have North Koreans on staff? How likely is it Chinese buyers are going to freely admit they are taking American content (even intellectual property) and putting it into products sold/traded/bartered to/with North Korea?  Without accurate relationship details, goods could be seized, funds frozen and penalties imposed. And those accurate details are not likely to come without Chinese government cooperation, which trickles down to its domestic business community.

A real test of the international trading system for goods and services is upon us and how the Chinese respond to the EO will be a telling sign of whether we are facing the beginnings of a trade war with China, or whether China has the same goal as the U.S., at least when it comes to North Korea, and, therefore, encourages its business community to freely provide needed details so that due diligence conducted by U.S. businesses (and others who trade in American dollars) yields a meaningful outcome.

Solar Flare Up with China

Posted in Antidumping, Corporate Counsel, Criminal Law, Cross-border deals, Cross-border trade, Customs Law, Export Controls & Economic Sanctions, Imports Restrictions, Legal Developments, Trade Agreeements, Trade Remedies

Two actions took place at the end of last week which heighten concerns that a trade war with China could be ever more likely.  First, there was the preliminary decision in the solar panels 201 case.  Then, we had the additional sanctions imposed by the President on North Korea.

The 201 solar panel case began when Suniva Inc. and SolarWorld Americas Inc. filed their cases before the International Trade Commission (“ITC”) in April and May 2017.   These actions are, of course, in addition to the antidumping and countervailing duties currently being imposed on these products from China.

Section 201 refers to a section in the Tariff Act of 1930, as amended, which appears in the law at 19 U.S.C. § 2252.  What this provision does is allow an American company which contends it is being “significantly” harmed or threatened with “significant” harm by imports to seek provisional relief from the President. The ITC first conducts a hearing and receives written submissions/comments on the question of whether harm exists. Specifically, by a 4-0 vote, the ITC on September 22nd found that “increased imports of crystalline silicon photovoltaic cells (whether or not partially or fully assembled into other products) are being imported into the United States in such increased quantities as to be a substantial cause of serious injury to the domestic industry producing an article like or directly competitive with the imported article.”

In reaching its decision, the ITC found that solar cells from China were the main culprit, but also provided findings regarding various U.S. free trade agreement partners. Specifically, the ITC stated Mexico  and Korea also accounted for a “substantial” share of the total imports and contributed “importantly” to the serious injury caused by imported products. There was a split about Canadian origin products. Regarding other FTA partners, their products were found not to be a “substantial” cause of serious injury or threat thereof.

The fact the ITC found harm will not surprise those familiar with  U.S. trade remedies laws which are written with relatively low thresholds of proof and are designed to protect American industry, as is the case in most countries. What is less clear is the ultimate outcome of the case.  The next step in the process is the remedies phase. The ITC has announced it will hold a public hearing on October 3, 2017 to receive testimony about what remedy/remedies should be imposed.  Thereafter, the ITC will need to decide which option or combination of options it will recommend. The choices are to impose:

º           an additional duty on the products;

º           a tariff-rate quota;

º           some other quantitative restriction on importation of the products;

º           one or more appropriate adjustment measures; or

º           any combination.

The ITC is to specify the type, amount and duration of the action recommended.  The ITC has other options it may also recommend to the President, which consist of 1) initiating international negotiations to address the underlying cause of the increase in imports or otherwise alleviate the injury or threat; and 2) implementing any other action authorized under law that is likely to facilitate positive adjustment to import competition.

Once it has made its final determination, a report is issued to the President who makes the final decision.  The ITC has committed to submit that final report no later than November 13, 2017.  The President then may accept or reject the ITC’s recommendation.

The general press has been covering this story and consistently points out 201 remedies have not been imposed since 2001 and that occurrence was later overturned by the World Trade Organization as the WTO standard is different from that in U.S. law. The U.S. standard is “substantial cause” whereas the WTO standard is “unforeseen developments”.  The WTO standard is articulated in the General Agreement on Tariffs and Trade, which predates the WTO Agreement on Safeguards.

Given the oft-repeated disdain of the Trump Administration for the WTO, and especially considering current American attempts to realign the composition of the WTO Appellate Body, popular thinking is the Trump Administration will not be concerned about subsequent WTO action.  Rather, the solar panel decision is seen by many as a means for Mr. Trump to signal his support for American manufacturing by imposing some remedy on foreign made solar panels, especially those from China and possibly also Korea and Mexico.  The popular consensus is the remedy the ITC will select is a large penalty, meaning a high percentage on the value of each shipment. Given that the antidumping and/or countervailing duty rates imposed on China origin goods often runs at 200%+, such a large number is not considered out of the realm of possibility. However, until we see the ITC’s report, all of this is conjecture. So, this action alone still falls in the wait and see category.

An interesting side note is that Korea stands a chance of having a penalty imposed on its solar panels. When taken in combination with the Trump Administration comments about renegotiating the Korea-U.S. Free Trade Agreement (“KORUS”), one is left to wonder about the impact of these action on the U.S. relationship with South Korea as well, especially  given the bellicose nature of the North Korean nuclear efforts, and that leads to the other decision announced last week – new sanctions on North Korea.

Regarding the newly imposed sanctions on North Korea by the U.S., please see the separate post on this topic.

Trump’s New Travel Restrictions May Affect Canadian NEXUS Cardholders From Travel Ban Countries

Posted in Immigration law, NEXUS, U.S. Federal Government

On September 24, 2017, President Trump issued “Presidential Proclamation Enhancing Vetting Capabilities and Processes for Detecting Attempted Entry Into the United States by Terrorists or Other Public-Safety Threats” (the Presidential Proclamation”) which should make Canadian dual-nationals and Canadian permanent residents from Venezuela, Chad (and North Korea, if any) with NEXUS cards nervous. Venezuela, Chad and North Korea are new countries added to the new Presidential Proclamation. While North Korea is not particularly surprising given the recent war or words between President Trump and the North Korean Supreme Leader and that North Korean persons traveled to Singapore last year to assassinate the Supreme Leader’s brother with poison in a public airport, Venezuela and Chad are unexpected.  While the United States and Canada have imposed unilateral sanctions and a travel ban against a number of Venezuelan officials in the Maduro Regime, travel restrictions that impact all Venezuelan citizens seems very broad.  The travel restrictions affecting foreign nationals from Chad, Venezuela and North Korea go into effect at 12:01 a.m. eastern daylight time on October 18, 2017.  The travel restrictions in the Presidential Proclamation will be in place for 180 days and can be repeated.

The Presidential Proclamation also re-imposes travel restrictions against persons from Iran, Libya, Somalia, Syria, and Yemen, but ends the restrictions relating to Sudan. These restrictions and limitations are effective at 3:30 p.m. eastern daylight time on September 24, 2017, for foreign nationals who (i) were subject to entry restrictions under section 2 of Executive Order 13780, or would have been subject to the restrictions but for section 3 of that Executive Order, and (ii)  lack a credible claim of a bona fide relationship with a person or entity in the United States.

When President Trump issued previous Executive Orders imposing travel restrictions on Iran, Iraq (1st order), Libya, Somalia, Sudan, Syria and Yemen, many Canadian dual citizens and permanent residents were informed by the United States and Border Protection (“US CBP”) that their NEXUS memberships had been cancelled.  Based on calls to my office, many Canadian citizens born in is Pakistan and Saudi Arabia also were informed by the US CBP that their NEXUS memberships had been cancelled.

If the US CBP cancels NEXUS memberships of Canadian dual citizens/permanent residents from Chad, Venezuela and North Korea, these individuals will not be able to use NEXUS lanes into the United States and into Canada.  The travel restrictions may also restrict travel of Canadian dual citizens and permanent residents from Chad, Venezuela and North Korea.  This is because the President Proclamation affects immigrant and non-immigrant entry into the United States on the basis that such entry “would be detrimental to the interests of the United States” without restrictions.

The Presidential Proclamation states in part that its is made against the current list of Chad, Iran, Libya, North Korea, Somalia, Syria, Venezuela and Yemen because “the Secretary of Homeland Security, in consultation with the Secretary of State and the Attorney General, has determined that a small number of countries … remain deficient at this time with respect to their identity-management and information-sharing capabilities, protocols, and practices.  In some cases, these countries also have a significant terrorist presence within their territory.”

That being said, the Section 2 of the Presidential Proclamation describes the restrictions on a country by country basis.  With respect to Venezuela, the Presidential Proclamation appears to limit the restrictions to government officials.  The Presidential Proclamation says that “… the restrictions imposed by this proclamation focus on government officials of Venezuela who are responsible for the identified inadequacies [ in verification procedures].”  The Presidential Proclamation goes on to say that:

“the entry into the United States of officials of government agencies of Venezuela involved in screening and vetting procedures — including the Ministry of the Popular Power for Interior, Justice and Peace; the Administrative Service of Identification, Migration and Immigration; the Scientific, Penal and Criminal Investigation Service Corps; the Bolivarian National Intelligence Service; and the Ministry of the Popular Power for Foreign Relations — and their immediate family members, as nonimmigrants on business (B-1), tourist (B-2), and business/tourist (B-1/B-2) visas, is hereby suspended.  Further, nationals of Venezuela who are visa holders should be subject to appropriate additional measures to ensure traveler information remains current. “

With respect to Chad, paragraph 2(a) of the Presidential Proclamation indicates that while there is adequate information sharing by the Government of Chad with the Government of the United States, the concerns relate to “several terrorist groups are active within Chad or in the surrounding region, including elements of Boko Haram, ISIS-West Africa, and al-Qa’ida in the Islamic Maghreb.”  As a result, the “entry into the United States of nationals of Chad, as immigrants, and as nonimmigrants on business (B-1), tourist (B-2), and business/tourist (B-1/B-2) visas, is hereby suspended.”

With respect to North Korea, paragraph 2(c) of the Presidential Proclamation indicates that “North Korea does not cooperate with the United States Government in any respect and fails to satisfy all information-sharing requirements”.  As a result, the “entry into the United States of nationals of North Korea as immigrants and nonimmigrants is hereby suspended.”

Canadian dual nationals and permanent residents from one of the restricted countries should exercise caution if planning to travel to the United States.  There are many Canadian dual nationals and permanent residents (e.g., from Venezuela) with NEXUS membership approvals who have passed the NEXUS approval procedures and are trusted travelers.

The problem is that a NEXUS membership card may be cancelled or revoked at the discretion of the United States government or the Canadian Minister of Public Safety and Emergency preparedness.  The NEXUS Program is a discretionary program – meaning that the governments have discretion to grant and revoke/cancel memberships.  One of the basis for revoking or cancelling a NEXUS membership is an immigration law violation.  Another basis for cancelling a NEXUS membership is that the traveler is no longer eligible or considered to be “of good character”.  While a breach of a law is a question of law, the interpretation of the law involves discretion of front-line officers.  With NEXUS, it is common for US CBP Officers to exercise their discretion to cancel a NEXUS Membership and leave it to the traveler to appeal the decision.

The Presidential Proclamation does not contain any process that will permit the reinstatement of NEXUS memberships.  The current U.S. process for appealing the cancellation of a NEXUS membership by the United States allows an individual to appeal a NEXUS membership cancellation to the US CBP Ombudsman.  However, based on our experience, the process is not a robust and procedurally fair process.  A person files an letter an never receives the reasons for the cancellation of their NEXUS membership.  After 10-12 months, the individual receives a brief letter that upholds the original decision and does not set out the facts or reasons in support of the decision.

What to Do?

  1. Exercise caution by not traveling to the United States until the entry ban period(s) has expired.
  2. Contact the United States Embassy or a U.S. Consulate in Canada to ask about whether your travel is banned or whether there is a visa you can apply for.
  3. Contact a U.S. immigration lawyer to ask whether your travel would be banned or whether there is a visa you can apply for.
  4. Do not use your NEXUS Card for travel to the United States (however your status can be revoked or cancelled even if you do not use a NEXUS Card for entry).
  5. If your NEXUS Card is cancelled, file an appeal with the U.S. CBP Ombudsman (despite the fact that the process is not robust or fair).
  6. Contact the Minister of Public Safety & Emergency Preparedness (Mr. Ralph Goodale) if your NEXUS Card is confiscated by U.S. Customs and let the Government of Canada know about the way the U.S. is exercising its discretion.
  7. Contact your Local MP.
  8. Contact us so that we can write about your story and help others.

It is too early to be able to provide satisfactory answers to difficult questions.  We are better able to help individuals when we know specific facts. Please contact Cyndee Todgham Cherniak at 416-307-4168 or cyndee@lexsage.com.  There is more information about the NEXUS Program at www.lexsage.com.

What Should You Do When Canada Releases A New List of Persons Subject to Economic Sanctions and Asset Freezes?

Posted in Export Controls & Economic Sanctions, Exports

On September 22, 2017, Canada did something it has not done in a while – Canada imposed unilateral economic sanctions and asset freezes against 40 officials in the Venezuelan Maduro regime.  A new list of designated persons (Canada’s term for sanctioned persons) was publicly releases – the persons against whom the unilateral economic sanctions, trade restrictions and asset freezes would be imposed.  Canada does not have a consolidated list of designated persons – so, this is a brand new list to be reviewed, implemented and monitored.  Canada also has not released guidance to Canadian businesses setting out what is expected of them when a new list of designated persons is released – Canadian companies are just expected to know and get it right immediately.

Many Canadian companies (especially small and medium sized businesses) do not know what they should do or how they should start implementing the economic sanctions, trade restrictions and asset freezes.  We have put together a short list of recommendations (which does not cover every step required).

  1. Arrange an internal meeting and bring together of team of people within your organization to implement the required changes to your business activities necessary to implement the economic sanctions, trade restrictions and asset freezes. For example, bring is the person in charge of compliance, head of the sales department, the head of the purchasing department, legal department, someone for risk assessment and someone from human resources.  You may also wish to include someone from your IT department if computerized systems will need to be updated.
  2. Review the computer systems to determine if your sell any goods or services or provide technical data to the sanctioned country.  Yes, the economic sanctions, trade restrictions and asset freezes are against individuals – but all the individuals are from a particular country or are associated with a particular country.  Printout any list of names that you find as connected with the country (e.g., Venezuela).
  3. Check the list of names against the new list of designated persons and names in your system that closely resemble the names of designated persons – it is common for Canadian companies to misspell foreign names. Remove any names that are dissimilar from the list of designated persons and keep a list of matching and similar names (“Matched/Similar List of Names”).
  4. Review your customer lists for the Matched/Similar List of Names.  Take steps to stop doing business if you match a name to the designated persons list or a similar name. Inform the head of sales and the sales persons connected with the account that they can participate in no further business with the Matched/Similar Name.  However, be prepared to review any challenges by persons with the same or similar names.
  5. With respect to corporations who are customers/clients, check your records for a list of shareholders, directors, senior management, etc. Check the names of shareholders, directors and senior management against the new list of designated persons and identify names in your system that are the same as or closely resemble the names of designated persons. Take steps to stop doing business if you match a name to the designated persons list.  However, be prepared to review any challenges by persons with the same or similar names.
  6. With respect to partnerships who are customers/clients, check your records for a list of partners. Check the names of partners against the new list of designated persons and identify names in your system that are the same as or closely resemble the names of designated persons. Take steps to stop doing business if you match a name to the designated persons list.  However, be prepared to review any challenges by persons with the same or similar names.
  7. With respect to trusts who are customers/clients, check your records for a list of settlors and beneficiaries. Check the names of settlors and beneficiaries against the new list of designated persons and identify names in your system that are the same as or closely resemble the names of designated persons. Take steps to stop doing business if you match a name to the designated persons list.  However, be prepared to review any challenges by persons with the same or similar names.
  8. Check open purchase orders relating to the List of Names and any corporations, partnerships or trusts connected with the designated individuals (the “Expanded List of Names”). Check the new list of designated persons against the Expanded List of Names. Take steps to terminate the purchase order (that is not ship the goods or technical data or provide the services) if you match a name to the designated persons list.  However, be prepared to review any challenges by persons with the same or similar names.
  9. Check existing contracts relating to the Expanded List of Names. Check the new list of designated persons against the Expanded List of Names. Take steps to stop further activities under that contract if you match a name to the designated persons list.  However, be prepared to review any challenges by persons with the same or similar names.
  10. Check letters of credit and any financial arrangement relating to the Expanded List of Names. Check the new list of designated persons against the Expanded List of Names. Take steps to stop further issuance or credit or other financial dealing if you match a name to the designated persons list.  However, be prepared to review any challenges by persons with the same or similar names.
  11. If you hold property for clients (e.g., you are an investment portfolio manager), check for assets belonging to persons in the the Expanded List of Names. Take steps to stop any transfer of property to that individual, corporation, partnership or trust if you match a name to the designated persons list.  However, be prepared to review any challenges by persons with the same or similar names.
  12. Condominium corporations and real property management companies should for assets belonging to persons in the the Expanded List of Names. Take steps to stop any transfer of property to that individual, corporation, partnership or trust if you match a name to the designated persons list.  However, be prepared to review any challenges by persons with the same or similar names.
  13. If the designed persons are found in your computer systems (including corporations, partnerships and trusts associated with the designated persons), update for systems to flag those persons (and persons with similar names) so that you do not conduct any future business with those designated persons and that you freeze any existing assets.
  14. If the designed persons are not found in your computer systems (including corporations, partnerships and trusts associated with the designated persons), update for systems to flag designated persons (and persons with similar names) so that you do not conduct any business with any designated persons.
  15. Inform employees, agents, representatives, etc. that if they continue to do business with a designated person, they could cause the company to be subject to severe penalties and they may be subject to severe penalties under Canadian law.  Inform them that circumventing the sanctions could lead to their termination with the company. Opening a new account in the  name of a person not of the designated persons list in order to circumvent the computerized checks and balances should led to termination with cause.
  16. Update your End Use Certificates precedent. If you do not currently use End Use Certificates, consider implementing a process to require end-use certificates for transactions with persons in sanctioned countries.
  17. Update your Compliance Policies. If you do not currently do not have a Compliance Policy, consider preparing a Compliance Policy covering economic sanctions, export controls, trade restrictions and asset freezes.
  18. Update any online training or in-person training you provide to employees, agents, representatives or schedule a training session with employees, agents and representatives. If you do not currently do not have a training program, consider preparing a training program covering Canadian laws.
  19. If you have subsidiaries located in foreign jurisdictions (and in particular the region of the new sanctioned country), determine to what extent they are required to implement the new list of designated persons and repeat the above listed steps for each subsidiary.
  20. If this is all too much for you or you do not know how to get started, call a lawyer who knowledgeable about economic sanctions and internal compliance.

For more information or to arrange an export controls diagnostic, please contact Cyndee Todgham Cherniak at 416-307-4168 or at Cyndee@LexSage.com. If you would like assistance in managing the process, Heather Innes, formerly in-house counsel at a company with export controls processes, would be happy to assist. Please call Heather at 416-350-1234.

Canada Has Imposed Economic Sanctions and Asset Freezes On The Venezuelan Maduro Regime

Posted in Canada's Federal Government, Export Controls & Economic Sanctions, Exports

On September 22, 2017, Canada has finally imposed unilateral economic sanctions on the Maduro Regime in Venezuela.  Global Affairs has issued a Press Release entitled “Canada imposes sanctions on Maduro regime in Venezuela”.  Canada has imposed unilateral targeted economic sanctions against 4o Venezuelan officials and individuals under the Special Economic Measures Act The Special Economic Measures (Venezuela) Regulations (to be released soon) impose asset freezes and dealings prohibitions on the targeted individuals by prohibiting persons in Canada and Canadians outside Canada from dealing in any property of these individuals or providing financial or related services to them.  The specific prohibitions have not been announced today.

The names of the individuals targeted by these Regulations are:

  • Nicolás MADURO MOROS
  • Tibisay LUCENA RAMÍREZ
  • Elías José JAUA MILANO
  • Tareck Zaidan EL AISSAMI MADDAH
  • Tarek Willians SAAB HALABI
  • Néstor Luis REVEROL TORRES
  • Roy Antonio María CHADERTON MATOS
  • María Iris VARELA RANGEL
  • Pedro Miguel CARREÑO ESCOBAR
  • Diosdado CABELLO RONDÓN
  • Susana Virgina BARREIROS RODRÍGUEZ
  • Freddy Alirio BERNAL ROSALES
  • Delcy Eloína RODRÍGUEZ GÓMEZ
  • Tania D’AMELIO CARDIET
  • Aristóbulo ISTURÍZ ALMEIDA
  • Jorge Jésus RODRÍGUEZ GÓMEZ
  • Francisco José AMELIACH ORTA
  • Carlos Alfredo PÉREZ AMPUEDA
  • Sergio José RIVERO MARCANO
  • Jesús Rafael SUÁREZ CHOURIO
  • Carmen Teresa MELÉNDEZ RIVAS
  • Bladimir Humberto LUGO ARMAS
  • Gustavo Enrique GONZÁLEZ LÓPEZ
  • Elvis Eduardo HIDROBO AMOROSO
  • Remigio CEBALLOS ICHASO
  • Antonio José BENAVIDES TORRES
  • Hermann Eduardo ESCARRÁ MALAVÉ
  • Sandra OBLITAS RUZZA
  • Socorro Elizabeth HERNÁNDEZ HERNÁNDEZ
  • Maikel José MORENO PÉREZ
  • Gladys Maria GUTIÉRREZ ALVARADO
  • Juan José MENDOZA JOVER
  • Luis Fernando DAMIANI BUSTILLOS
  • Lourdes Benicia SUÁREZ ANDERSON
  • Carmen Auxiliadora ZULETA DE MERCHÁN
  • Arcadio de Jesús DELGADO ROSALES
  • Calixto Antonio ORTEGA RÍOS
  • Andrés Eloy MÉNDEZ GONZÁLEZ
  • Manuel Enrique GALINDO BALLESTEROS
  • Vladimir PADRINO LÓPEZ

To the extent that Canadian companies do business with these individuals or Venezuelan entities that may be connected with these individuals, they may have to cease doing business with those persons.

We called for sanctions earleir this summer.  See Michelle Zillio’s articles in the Globe and Mail “Opposition, activist call on Liberals to sanction Venezuelan government” and “Ottawa says it lacks law to sanction Venezuelan government officials“.   Michelle Zillio wrote:

“According to SEMA, cabinet – through the governor in council – can take economic measures against a state if it believes that “a grave breach of international peace and security has occurred that has resulted or is likely to result in a serious international crisis.” Trade lawyer Cyndee Todgham Cherniak, who advises businesses on how to navigate Canada’s sanctions regime, wonders why Canada has used SEMA to sanction countries such as Burma, but not Venezuela.”

“We impose sanctions against Burma for their human-rights violations and the instability in that country,” she said. “It’s consistent with Canadian values to impose sanctions against Venezuela. We can’t accept this sort of behaviour.”

I am happy to see that the Government of Canada agrees with me.

For more information or to arrange an export controls diagnostic, please contact Cyndee Todgham Cherniak at 416-307-4168 or at Cyndee@LexSage.com. If you would like assistance in managing the process, Heather Innes, formerly in-house counsel at a company with export controls processes, would be happy to assist. Please call Heather at 416-350-1234.