By: John W. Boscariol, Robert A. Glasgow, Martha Harrison, Claire Seaborn
Over the past year, there have been major changes to Canada’s export controls and economic sanctions regimes that will have a significant impact on companies doing business abroad during 2018 and beyond. Firms will need to familiarize themselves with these changes and, if they have not already, ensure they are incorporated into their compliance polices and controls. More than ever before, companies should carefully track and monitor the parties they have direct and indirect dealings with and where their products and technology end up.
This article begins with a summary of parliamentary recommendations to improve Canada’s sanctions regime, and then launches into reforms that have already taken shape, such as the creation of a publicly-accessible sanctions database and the adoption of a new Magnitsky Law. Second, it discusses recent updates to Canada’s export controls and economic sanctions laws. Third, we explore Canada’s preparations to join the Arms Trade Treaty with Bill C-47, including expected developments in 2018.
(1) Parliamentary Committee Proposes Sanction Regime Reforms
On April 6, 2017, the Standing Committee on Foreign Affairs and International Development (the “Committee”) issued a Report entitled “A Coherent and Effective Approach to Canada’s Sanctions Regimes: Sergei Magnitsky and Beyond” (the “Report”). The Report is a result of a year-long comprehensive parliamentary review of Canada’s economic sanctions regime. Over the course of 13 meetings, the Committee heard 43 witnesses, including government officials, academics, practitioners, victims and their relatives, and scrutinized numerous written briefs and other documents.
In the Report, the Committee noted the extreme complexity of Canada’s sanctions regime and the very significant challenges facing Canadian banks, exporters and others seeking to do business abroad, acknowledging that multiple legislative acts, regulations and actors often cause confusion for compliance and enforcement. The Committee found that more government guidance was necessary to fight over-compliance – companies often take a conservative and cautious approach, leading to increased costs and a negative impact on export business. Ultimately, the Report makes 13 recommendations for reform that are detailed below, some of which have already been adopted.
(a) Committee makes 13 recommendations for reform
As a result of this extensive study, the Committee came up with 13 recommendations to improve the effectiveness of Canada’s sanctions regime. The recommendations are that the Government of Canada should:
- ensure that sanctions imposed using more than one of the United Nations Act (“UNA”), the Special Economic Measures Act (“SEMA”) or the Export and Import Permits Act (“EIPA”) are imposed in a complementary and coherent manner, and amended concurrently when necessary;
- 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 UNA;
- properly resource and reform the structures responsible for its sanctions regimes, in order to effectively impose sanctions on targeted states and persons;
- provide comprehensive, publically available, written guidance to the public and private sectors regarding the interpretation of sanctions regulations in order to maximize compliance;
- 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;
- transfer responsibility for the issuance of permits under the SEMA and the UNA to the section of Global Affairs Canada that already issues similar permits under the EIPA, i.e., the Export Controls Division;
- ensure that law enforcement agencies highly prioritize the enforcement of sanctions measures and are given the necessary resources to fulfil their duties;
- amend SEMA and the Freezing Assets of Corrupt Foreign Officials Act (“FACFOA”) to allow for an independent administrative process by which individuals and entities listed under these Acts can challenge such listings in a transparent and fair manner;
- provide a clear rationale for the listing and delisting of persons under SEMA and ensure that the information is easily accessible to the public through the Global Affairs Canada sanctions website;
- amend SEMA 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 SEMA and actions taken for their implementation;
- amend SEMA and FACFOA to require a mandatory legislative review of this legislation by a parliamentary committee within five years of the amendments becoming law;
- in honour of Sergei Magnitsky, amend SEMA to expand the scope under which sanctions measures can be enacted, including in cases of gross human rights violations; and
- amend the Immigration and Refugee Protection Act (“IRPA”) to designate all individuals listed by regulations under SEMA as inadmissible to Canada.
In the Report, the Committee emphasised that Canada’s sanctions laws should be consistent, easily-accessible, and sufficiently clear so as to avoid over-compliance. Additionally, the Committee wanted to ensure that a clear rationale was provided for listing and delisting of persons, and that targeted persons may defend themselves on procedural fairness grounds. While this client alert does not propose to review each of the 13 recommendations listed above in detail, below we elaborate on key recommendations that have already been adopted.
(b) Minister Freeland’s response to the Report
Canada’s Minister of Foreign Affairs, Chrystia Freeland, responded to the Report in a public letter dated July 17, 2017. In her response, Minister Freeland emphasizes to importance of economic sanctions as a strategic foreign policy tool and focused primarily on the recommendation to expand the use of sanctions measures in the context of gross human rights violations through the Magnitsky Law, described below. She also recognized potential improvements to the processes and structures for administering and operating economic sanctions, including through the use of a consolidated list, also described below.
(c) Canada publishes Consolidated SEMA Sanctions List
On October 13, 2017, Global Affairs Canada published an online tool, known as the “Consolidated SEMA Sanctions List”, that can be used by members of the public to search for individuals and entities named in the schedules of sanctions regulations made under SEMA. The Committee proposed the creation of a “consolidated list of persons targeted by sanctions” as “Recommendation 5” in the Report. Although the Committee’s objective was to create consolidated lists similar to those in Australia, the EU and the US, the Committee did not specify whether that consolidated list should include SEMA sanctions only or sanctions under other legislation, such as FACFOA or the Magnitsky Law.
The Consolidated SEMA Sanctions List was primarily driven by the Committee’s desire to make Canada’s sanctions regime more streamlined and accessible. The Committee found that vagueness as to the scope of the restrictions and their exemptions has led to over-compliance, which not only increases the cost of regulatory compliance, but also can have the effect of a quasi-blanket embargo for certain regions and entities. The Committee suggested that a consolidated list would lessen compliance costs and reduce over-compliance.
Although the adoption of a Consolidated SEMA Sanctions List is a step forward, users must be aware of three primary limitations. First, despite being “consolidated”, the Consolidated SEMA Sanctions List does not cover sanctions issued under the JVCFOA, FACFOA, the Criminal Code, or the UNA. The Office of the Superintendent of Financial Institutions (“OSFI”) maintains unofficial separate consolidated lists for sanctions issued under each of the Criminal Code, terrorism-related regulations, and FACFOA. The Secretariat of the United Nations Security Council maintains a consolidated list for individuals and entities subject to sanctions measures imposed by the Security Council. Additional trade and travel restrictions are set out in the EIPA and IRPA.
Second, although the Consolidated SEMA Sanctions List is a helpful administrative tool, it does not have the force of law and should not be relied upon as a legal authority. Users reviewing this list should always make sure it is the current version, cross-check against the sanctions’ legal authority, and consider relationships with related legislation. Further, because the consolidated list does not provide any guidance on what companies may be owned or controlled by listed persons, companies are still responsible for undertaking significant due diligence on their counterparties in this regard.
Third, there have already been errors in creating this list from the existing SEMA regulations. For example, the Russian entity designated under Schedule II of the Special Economic Measures (Russia) Regulations, “Sberbank” is incorrectly named as “Sperbank” in the Consolidated SEMA Sanctions List. There may be other such typographical errors – especially where a person is named in a language which is transcribed into English imprecisely (such as with Arabic or Russian), which allows for different derivations of a common name.
(d) Canada adopts Magnitsky Law and amends SEMA
On October 18, 2017, Canada adopted the Justice for Victims of Corrupt Foreign Officials Act (“JVCFOA”), which, along with amendments to SEMA expands the scope under which sanctions can be enacted against states, entities or individuals, including in cases of gross human rights violations and significant corruption. The JVCFOA is known as Canada’s “Magnitsky Law”, named after anti-corruption lawyer, Sergei Magnitsky, who discovered Russian officials’ embezzlement of state funds amounting to $230 million USD and soon after was arrested, tortured, and died in a Russian prison.
The Committee suggests at “Recommendation 12” of the Report that Canada amend SEMA to “allow for the expanded use of sanctions against human rights violators”. In response, not only did the Government of Canada amend SEMA, but it also adopted the JVCFOA as entirely new legislation to demonstrate their commitment human rights protection as part of Canada’s foreign policy strategy.
The JVCFOA now allows Canadian officials to deny visas for and freeze assets of foreign nationals that are involved in gross violations of internationally recognized human rights or are public officials or associates who are responsible for or complicit in acts of significant corruption. The federal government has already adopted regulations under the JVCFOA to place asset freezes on 52 officials from Russia, Venezuela, and South Sudan, including Venezuelan President Nicolás Maduro Moros.
(2) Updates to Canadian export controls and sanctions
During 2017, Canada’s existing export control and economic sanctions regimes saw several amendments, the most significant of which are summarized below.
(a) Additions to SEMA regulations
On April 14, 2017, Minister Freeland announced amendments to the Special Economic Measures (Syria) Regulations, enacted under SEMA,to list 27 additional individuals who are now subject to an asset freeze and dealings prohibition. The persons listed are high-ranking officials in the Assad regime.
On September 22, 2017, Minister Freeland, announced sanctions against 40 Venezuelan officials and individuals who have played a key role in undermining the security, stability and integrity of democratic institutions of Venezuela in the Special Economic Measures (Venezuela) Regulations, enacted under SEMA.  These regulations impose asset freezes and dealings prohibitions with or for the benefit of listed persons, although certain exemptions apply.
(b) New Version of the Export Controls Guide
On August 11, 2017, a new version of the Guide to Canada’s Export Control List (the “Guide”) came into effect. The new version of the Guide, now referred to as the “December 2015 version”, bring Canada’s export control regime into compliance with its international obligations as of December 31, 2015.
The Guide lists the goods and technology subject to export and technology transfer controls and reflects many new additions, deletions and clarifications. The transfer from Canada of any items listed in the Guide must be made under the authority of an export permit, including transfers via physical export, telephone discussions, email, server access, upload and download, technical assistance and services, and other forms of information transmission.
Companies doing business abroad, whether in connection with sales, sourcing or research and development, should be carefully reviewing the latest changes to the Guide to ensure full compliance with Canada’s export control regime.
(c) Addition to Automatic Firearms Country Control List
On December 13, 2017, Canada announced that Ukraine will be added to the Automatic Firearms Country Control List (“AFCCL”), enacted under the EIPA. In October 2017, Canada also considered and began consultations for adding Mexico and Japan to the AFCCL; however, to date Ukraine is only new addition.
The EIPA requires that a person, prior to a shipment, obtain an export permit from the Minister of Foreign Affairs to export from Canada an item that is found on the Export Control List. Since the EIPA contains strict controls on the export of firearms, weapons and devices defined as prohibited in the Criminal Code of Canada, the AFCCL is an additional export control measure that prohibits export of automatic firearms unless the country of end-use is listed on the AFCCL.
Currently the AFCCL lists 40 countries, including Ukraine. Global Affairs Canada continues to evaluate export permit application on a case-by-case basis, and does not automatically grant export permits where the destination country is listed on the AFCCL.
(3) Canada Prepares to Join Arms Trade Treaty
On April 13, 2017, the Canadian government announced its commitment to accede to the Arms Trade Treaty and introduced 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 (“Bill C-47”). The Arms Trade Treaty is a multilateral treaty that regulates the international trade in conventional weapons that entered into force on December 24, 2014.
Most significantly, Bill C-47 proposes the creation of a Brokering Control List comprised of certain Export Control List goods and technology the brokering of which is prohibited unless authorized by a permit. Brokering is a new concept in Canadian export control law and refers to the arranging or negotiating of a transaction that relates to the movement of Brokering Control List goods or technology from one foreign country to another foreign country, including by way of acquisition, disposition or disclosure. Bill C-47 passed second reading in the Canadian House of Commons on October 3, 2017 and has been referred to the Committee. A revised version of the Bill C-47 with commentary from the Committee is expected in early 2018.
2017 was busy year for changes to Canada’s export controls and economic sanctions regimes, complete with a major parliamentary committee report, adoption of the Magnitsky Law, launch of a new Consolidated SEMA Sanctions List, additions to the SEMA regulations, a new version of the Export Controls Guide, additions to the Automatic Firearms Country Control List, and progress on Bill C-47 regarding the Arms Trade Treaty. Still, the Government of Canada has more work to do if it is to accomplish the balance of the Committee’s recommendations for a more transparent and efficient economic sanctions regime.
In 2018, we expect to see further efforts to implement recommendations in the Report, including improvements to the Consolidated SEMA Sanctions List. Further progress on Bill C-47 is expected in early 2018, particularly with the creation of a Brokering Control List and associated permitting process. Over the next year, companies should stay apprised of these fast-paced changes to Canada’s export controls and economic sanctions regimes and how they will impact their business abroad.
At the present time, in addition to its export and technology transfer controls, Canada imposes trade controls of varying degrees on activities involving the following countries (and over 2,000 listed entities and individuals associated with them): Burma (Myanmar), the Central African Republic, the Crimea Region of Ukraine, Cuba, the Democratic Republic of the Congo, Eritrea, Guinea, Iran, Iraq, Lebanon, Libya, North Korea, Pakistan, Russia, Somalia, South Sudan, Sudan, Syria, Tunisia, Ukraine, Venezuela, Yemen and Zimbabwe. Any involvement of these countries or any listed person (or entities they own or control) in proposed transactions or other activities should raise a red flag for further investigation to ensure compliance with export and technology transfer controls and economic sanctions.
 “A Coherent and Effective Approach to Canada’s Sanctions Regimes: Sergei Magnitsky and Beyond” Government of Canada Publications (April 2017), online: http://publications.gc.ca/collections/collection_2017/parl/xc11-1/XC11-1-1-421-7-eng.pdf (the “Report”).
 United Nations Act, R.S.C., 1985, c. U-2 (“UNA”).
 Special Economic Measures Act, S.C. 1992, c. 17(“ESMA”).
 Export and Import Permits Act, R.S.C., 1985, c. E-19 (“EIPA”).
 Freezing Assets of Corrupt Foreign Officials Act, S.C. 2011, c. 10 (“FACFOA”).
 Immigration and Refugee Protection Act, S.C. 2001, c. 27 (“IRPA”)
 The Report, supra note 1, at pages 11-12.
 Letter to the Standing Committee on Foreign Affairs and International Development from the Minister of Foreign Affairs, Global Affairs Canada (July 17, 2017), online: https://www.ourcommons.ca/content/Committee/421/FAAE/GovResponse/RP9072713/421_FAAE_Rpt07_GR/421_FAAE_Rpt07_GR-e.pdf.
 Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law), S.C. 2017, c. 21.
 The Report, supra note 1, at p. 40.
 Special Economic Measures (Syria) Regulations, S.C. 1992, c. 17.
 Special Economic Measures (Venezuela) Regulations, S.C. 1992, c. 17.
 A Guide to Canada’s Export Controls: December 2015 version (updated 2017-08-11) Global Affairs Canada, online: http://www.international.gc.ca/controls-controles/about-a_propos/expor/guide-2015_toc-tdm.aspx?lang=eng.
 John W. Boscariol et al., “Major Changes to Canada’s Export and Technology Transfer Controls Coming into Force Shortly”, August 4, 2017, available online: http://mccarthy.ca/article_detail.aspx?id=7370
 Automatic Firearms Country Control List, SOR/91-575.
 “Consulting Canadians on proposed addition of Japan and Mexico to the Automatic Firearms Country Control List (AFCCL), Global Affairs Canada (October 12, 2017), online: http://www.international.gc.ca/trade-commerce/consultations/other-autre/japan_mexico_AFCCL-japon_mexique_LPDAA.aspx?lang=eng.
 “Order Amending the Automatic Firearms Country Control List”, Global Affairs Canada (November 23, 2017), online: http://gazette.gc.ca/rp-pr/p2/2017/2017-12-13/html/sor-dors248-eng.html.
 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 (First Reading, April 13, 2017), online: http://www.parl.ca/DocumentViewer/en/42-1/bill/C-47/first-reading.