Archive for the ‘Countries’ Category

Treasury/OFAC Amends and Reissues North Korea Sanctions Regulations

2018/04/04

(Source: Treasury/OFAC)

The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is announcing the amendment and reissuance in its entirety of the North Korea Sanctions Regulations, 31 C.F.R. part 510, in order to implement Executive Order (E.O.) 13687, E.O. 13722, and E.O. 13810, and to reference the North Korea Sanctions and Policy Enhancement Act of 2016 and the Countering America’s Adversaries Through Sanctions Act of 2017.  Pursuant to these authorities, all property and interests in property of the Government of North Korea and the Workers’ Party of Korea are blocked, and U.S. persons are generally prohibited from engaging in transactions with them without authorization from OFAC and must block property or interests in property that are in, or come within, the United States or the possession of a U.S. person.  In addition, these authorities provide the Secretary of the Treasury, in consultation with the Secretary of State, additional tools to disrupt North Korea’s ability to fund its weapons of mass destruction and ballistic missile programs.  OFAC is also publishing new and updated North Korea-related FAQs.

The Regulations and the FAQs emphasize that all U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all individuals and entities within the United States, and all U.S.-incorporated entities and their foreign branches.  Furthermore, all transactions within the United States, including all financial transactions that transit the U.S. financial system, must comply with OFAC regulations.  For additional information, see FAQ 11 and 31 C.F.R. part 510, subpart G.

Violations of the North Korea Sanctions Regulations, issued under the authority of the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-06 (IEEPA), and other statutes can result in substantial civil monetary penalties, referral for criminal prosecution, or both.  Each violation of the North Korea Sanctions Regulations is subject to a civil monetary penalty of up to the greater of the IEEPA statutory maximum ($289,238 as of March 1, 2018) or twice the value of the underlying transaction.  Criminal penalties of IEEPA can reach $1,000,000 and 20 years imprisonment per violation.  For additional information, see FAQ 12 and 31 C.F.R. part 510, subpart G.

For additional information regarding OFAC’s prohibitions and penalties, see Basic Information on OFAC and Sanctions.

The regulations will be published in the Federal Register, and the changes will take effect, on: March 5, 2018.

Further information about the North Korea sanctions may be found here


Trilogy International Associates, Inc. and William Michael Johnson Each Receives $100,000 Civil Penalty for Export Violations

2018/04/04

By: Ashleigh Foor

On or about January 23, 2010, April 6, 2010, and May 14, 2010, Trilogy International Associates, Inc., of Altaville, CA exported an explosives detector and a total of 115 analog-to-digital converters to Russia. These items are subject to the EAR and controlled on national security grounds. The items were classified under Export Control Classification Numbers 1A004 and 3A001, respectively, and valued in total at approximately $76,035. Each of the items required a license for export to Russia pursuant to Section 742.4 of the EAR.

Between, on, or about January 20, 2010 and May 14, 2010, William Michael Johnson of Angels Camp, CA, caused, aided, and/or abetted three violations of the EAR, specifically three exports from the United States to Russia of items subject to the EAR without the required BIS export licenses.

Charges include:

  • Three Charges of 15 C.F.R. § 764.2(a) – Engaging in Prohibited Conduct
  • Three charges of 15 C.F.R. § 764.2(b) – Causing, Aiding, or Abetting a Violation

Penalty:

  • Civil penalty of $100,000 against Trilogy International Associates, Inc.
  • Civil penalty of $100,000 against William Michael Johnson
  • Debarred: Both Trilogy International Associates, Inc. and William Michael Johnson are denied export privileges for a period of 10 years from the date of this Order, until 26 February 2028.

Date of Order: 26 February 2018


Company Pays $1,220,400 for 37 Violations of the Iranian Transactions and Sanctions Regulations

2018/02/08

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced in December 2017, a $1,220,400 settlement with DENTSPLY SIRONA INC. (DSI), a US company with the successor in interest to DENTSPLY International Inc. (“DII” and, together with DSI, “DENTSPLY”) to settle a potential civil liability for 37 apparent violations of § 560.204 of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (ITSR).

Around November 26, 2009 and July 5, 2012, DII subsidiaries UK International (“UKI”) and DS Healthcare Inc. (d.b.a. Sultan Healthcare), (“Sultan”), exported 37 shipments of dental equipment and supplies from the US, directly or indirectly to Iran, to distributors in third-countries, with knowledge or reason to know that the goods were ultimately destined for Iran.  OFAC determined that DII did not voluntarily disclose the apparent violations and that the apparent violations constitute a non-egregious case.

Full Details: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20171206.aspx


Amendments to Implement United States Policy Toward Cuba

2018/02/08

Source: Federal Register

Effective November 9, 2017, The Bureau of Industry and Security (BIS) has amends the licensing policy for Cuba and portions of three license exceptions available for exports and reexports to Cuba: License Exceptions Gift Parcels and Humanitarian Donations (“GFT”), Consumer Communications Devices (“CCD”), and Support for the Cuban People (“SCP”).

Changes are as follows:

PART 740

Section 740.12 is amended by revising paragraph (a)(2)(v)(A) to read as follows:

Gift parcels and humanitarian donations (GFT).

(a) * * *

(2) * * *

(v) * * * (A) No gift parcel may be sent to any of the following officials of the Cuban government: Ministers and Vice-Ministers; members of the Council of State; members of the Council of Ministers; members and employees of the National Assembly of People’s Power; members of any provincial assembly; local sector chiefs of the Committees for the Defense of the Revolution; Director Generals and sub-Director Generals and higher of all Cuban ministries and state agencies; employees of the Ministry of the Interior (MININT); employees of the Ministry of Defense (MINFAR); secretaries and first secretaries of the Confederation of Labor of Cuba (CTC) and its component unions; chief editors, editors and deputy editors of Cuban state-run media organizations and programs, including newspapers, television, and radio; or members and employees of the Supreme Court (Tribuno Supremo Nacional).

* * * * *

Section 740.19 is amended by revising paragraph (c)(2)(i) to read as follows:

Consumer  Communications  Devices (CCD).

* * * * *

(c) * * *

(2) * * *

(i) Ineligible Cuban Government Officials. Ministers and Vice-Ministers; members of the Council of State; members of the Council of Ministers; members and employees of the National Assembly of People’s Power; members of any provincial assembly; local sector chiefs of the Committees for the Defense of the Revolution; Director Generals and sub-Director Generals and higher of all Cuban ministries and state agencies; employees of the Ministry of the Interior (MININT); employees of the Ministry of Defense (MINFAR); secretaries and first secretaries of the Confederation of Labor of Cuba (CTC) and its component unions; chief editors, editors and deputy editors of Cuban state-run media organizations and programs, including newspapers, television, and radio; or members and employees of the Supreme Court (Tribuno Supremo Nacional).

* * * * *

Section 740.21 is amended by:

  1. Revising paragraph (b)(1);
  2. Removing paragraphs (b)(2) and (3);
  3. Redesignating paragraph (b)(4) as new paragraph (b)(2); and
  4. Revising paragraph (d)(4)(ii) to read as follows:

Support for the Cuban People (SCP).

* * * * *

Start Printed Page 51986

(b) * * *

(1) Items for use by the Cuban private sector for private sector economic activities, except for items that would be used to:

(i) Primarily generate revenue for the state; or

(ii) Contribute to the operation of the state, including through the construction or renovation of state-owned buildings.

(2) Items sold directly to individuals in Cuba for their personal use or their immediate family’s personal use, other than officials identified in paragraphs (d)(4)(ii) or (iii) of this section.

* * * * *

(d) * * *

(4) * * *

(ii) Ministers and Vice-Ministers; members of the Council of State; members of the Council of Ministers; members and employees of the National Assembly of People’s Power; members of any provincial assembly; local sector chiefs of the Committees for the Defense of the Revolution; Director Generals and sub-Director Generals and higher of all Cuban ministries and state agencies; employees of the Ministry of the Interior (MININT); employees of the Ministry of Defense (MINFAR); secretaries and first secretaries of the Confederation of Labor of Cuba (CTC) and its component unions; chief editors, editors and deputy editors of Cuban state-run media organizations and programs, including newspapers, television, and radio; or members and employees of the Supreme Court (Tribuno Supremo Nacional); and

* * * * *

PART 746

Section 746.2 is amended by revising Note 2 to Paragraph (b)(3)(i) to read as follows:

Cuba.

* * * * *

(b) * * *

(3) * * *

(i) * * *

Note 2 to paragraph (b)(3)(i):

The policy of case-by-case review in this paragraph is intended to facilitate exports and reexports to meet the needs of the Cuban people. Accordingly, BIS generally will deny applications to export or reexport items for use by state-owned enterprises, agencies, and other organizations that primarily generate revenue for the state, including those engaged in tourism and those engaged in the extraction or production of minerals or other raw materials. Applications for export or reexport of items destined to the Cuban military, police, intelligence or security services also generally will be denied. Additionally, pursuant to section 3(a) of the National Security Presidential Memorandum on Strengthening the Policy of the United States Toward Cuba (NSPM), dated June 16, 2017, BIS generally will deny applications to export or reexport items for use by entities or subentities identified by the Department of State in the Federal Register or at https://www.state.gov/​e/​eb/​tfs/​spi/​cuba/​cubarestrictedlist/​index.htm, unless such transactions are determined to be consistent with sections 2 and 3(a)(iii) of the NSPM.

Federal Register: https://www.federalregister.gov/documents/2017/11/09/2017-24448/amendments-to-implement-united-states-policy-toward-cuba


Treasury Publishes List of Countries Requiring Cooperation with an International Boycott

2018/02/08

Source: Federal Register

The Department of the Treasury has named the following countries as requiring or may requiring participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986).

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2018-01-08/pdf/2018-00123.pdf


Key Developments in Canada’s Economic Sanctions and Export Controls During 2017 & What to Expect in 2018

2018/02/08

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”).[1] 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:

  1. ensure that sanctions imposed using more than one of the United Nations Act (“UNA”)[2], the Special Economic Measures Act (“SEMA”)[3] or the Export and Import Permits Act (“EIPA”)[4] are imposed in a complementary and coherent manner, and amended concurrently when necessary;
  2. 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;
  3. properly resource and reform the structures responsible for its sanctions regimes, in order to effectively impose sanctions on targeted states and persons;
  4. provide comprehensive, publically available, written guidance to the public and private sectors regarding the interpretation of sanctions regulations in order to maximize compliance;
  5. produce and maintain a comprehensive, public and easily accessible list of all individuals and entities targeted by Canadian sanctions containing all information necessary to assist with the proper identification of those listed;
  6. 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;
  7. ensure that law enforcement agencies highly prioritize the enforcement of sanctions measures and are given the necessary resources to fulfil their duties;
  8. amend SEMA and the Freezing Assets of Corrupt Foreign Officials Act (“FACFOA”)[5] 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;
  9. 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;
  10. 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;
  11. 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;
  12. 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
  13. amend the Immigration and Refugee Protection Act (“IRPA”)[6] to designate all individuals listed by regulations under SEMA as inadmissible to Canada.[7]

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.[8] 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”)[9], 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”.[10] 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.[11] 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. [12] 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.[13] 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.[14]

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.[15] 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.[16]

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.[17]

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”).[18] 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.

Conclusion

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.

[1] “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”).

[2] United Nations Act, R.S.C., 1985, c. U-2 (“UNA”).

[3] Special Economic Measures Act, S.C. 1992, c. 17(“ESMA”).

[4] Export and Import Permits Act, R.S.C., 1985, c. E-19 (“EIPA”).

[5] Freezing Assets of Corrupt Foreign Officials Act, S.C. 2011, c. 10 (“FACFOA”).

[6] Immigration and Refugee Protection Act, S.C. 2001, c. 27 (“IRPA”)

[7] The Report, supra note 1, at pages 11-12.

[8] 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.

[9] Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law), S.C. 2017, c. 21.

[10] The Report, supra note 1, at p. 40.

[11] Special Economic Measures (Syria) Regulations, S.C. 1992, c. 17.

[12] Special Economic Measures (Venezuela) Regulations, S.C. 1992, c. 17.

[13] 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.

[14] 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

[15] Automatic Firearms Country Control List, SOR/91-575.

[16] “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.

[17] “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.

[18] 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.


US Firms Part Ways with China’s ZTE Monitor

2018/02/08

In early 2017 China’s largest telecommunications company agreed to pay a nearly $900 million penalty to the US after entering a guilty plea for illegally shipping goods to Iran and North Korea. ZTE was charged with 380 violations of the EAR, including (1) Conspiracy (2) Acting with Knowledge of a violation in Connection with Unlicensed Shipments of Telecommunications Items to North Korea via China and (3) Evasion. The company also entered into a settlement with OFAC for violating the Iranian Transactions and Sanctions Regulations (“ITSR”; 31 CFR Part 560). More Information on these charges can be found here.

Part of the settlement with OFAC required the company to hire an initial independent compliance monitor approved by the US government for a three-year term. The monitor is responsible for preparing the initial three annual audit reports to be provided to the US government. In addition, ZTE had to hire an independent compliance auditor, also approved by the US government, for an additional three years to prepare the remaining three annual audit reports.

Guidepost Solutions and Larkin Trade International were hired in June 2017 by the US monitor, James Stanton, a Texas civil and personal injury lawyer in charge of the oversite regime for ZTE. Stanton’s job is to help evaluate ZTE’s US export controls compliance and sanctions laws, and mitigate any future violations. US District Judge Ed Kinkeade, who presided over the ZTE sanctions case, actually rewrote the agreement to put Stanton in charge of monitoring the company before signing off on the plea deal. It has been said that Stanton has a lack of experience in US trade controls and the order naming him is sealed, leaving the reasoning behind the judge’s decision unclear. This situation is a bit of an anomaly because generally, the Department of Justice chooses an independent monitor in corporate criminal cases from candidates proposed by the company, which is how the agreement was originally written before Judge Kinkeade rewrote it. ZTE and the Justice Department agreed to Judge Kinkeade’s choice and the changes to the monitorship agreement, sources said, because the plea had already been negotiated and filed in the judge’s court and a temporary license allowing ZTE to continue to obtain US made goods was about to expire.

In December 2017, rumors broke out that Guidepost Solutions and Larkin Trade International had resigned in August 2017 from the job of actively auditing ZTE. Although the exact reason is unclear, some say it was a result of  Stanton restricting their access to ZTE documents and officials, which ultimately hindered their ability to effectively monitor the company. Stanton’s first report was due to the US government last month and this report, as well as the subsequent 2 reports will decide whether the company is liable for an additional fine of $300 million or being added to the US denial list.

Nearly all parties related to the case, including Guidepost Solutions, Larkin Trade International, Judge Ed Kinkeade, and James Stanton have all declined requests for comments based on this news. Additional details about this story and the ties between Judge Kinkeade and James Stanton can be found at https://www.reuters.com/article/us-usa-zte-exclusive/u-s-experts-resign-from-monitoring-chinas-zte-corp-sources-idUSKBN1EG03R


Seiler Instrument to Pay $1.5 Million in Forfeiture to the United States

2018/02/08

Source: Department of Justice

Seiler Instrument & Manufacturing Company, Inc., a Kirkwood-based defense contractor, admits fault to the company’s use of optical materials imported from China in the weapons sights which the company improperly certified as compliant with the Buy American Act and will pay the United States $1,500,000.00 in forfeiture. The company manufactured the parts under a series of contracts with the Department of Defense. Pursuant to a pretrial diversion agreement Seiler Instrument has made an initial payment of $500,000.00 and will make additional payments of $500,000.00 in each of the next two years. The company also agrees to enter a plea of guilty to a false statement charge in the event that the company does not meet the full terms of the agreement.

Seiler Instrument is a long-time defense contractor which specializes in the production of fire control systems, including sighting devices for weapons, which are used on all United States Military Howitzer and mortar systems.  The pretrial agreement concluded after an investigation into the company’s business practices and how its proceedings reflect import and export regulations governing the procurement of materials used to manufacture defense systems. Two of these provisions include the Buy American Act and the International Traffic in Arms Regulations which place limitations on the export of restricted technical data used in the procurement and manufacturing process to countries such as China. The agreement states that Seiler Instrument took actions to correct problems and has further agreed to have its compliance program monitored by the Department of Defense.

This case was investigated by the Defense Criminal Investigative Service (Department of Defense, Office of Inspector General), the U.S. Immigration and Custom Enforcement’s (ICE) Homeland Security Investigations (HSI), the Army CID Major Procurement Fraud Unit and the U.S. Department of Commerce, Bureau of Industry and Security – Office of Export Enforcement, Chicago Field Office. The Defense Contract Management Agency also provided substantial assistance in this investigation.

More Details: https://www.justice.gov/usao-edmo/pr/seiler-instrument-pay-15-million-forfeiture-united-states


Whirlpool Europe Srl (Italy)/Whirlpool Corporation to Pay Civil Settlements to Settle Alleged Antiboycott Violations

2017/11/15

By: Ashleigh Foor (Source: Commerce/BIS)

On September 25, 2017, Whirlpool Europe Srl (Italy) was charged with three violations of 15 CFR 760.2(a), refusal to do business, ten violations of 15 CFR 760.2(d), furnishing information about business relationships with boycotted countries or blacklisted persons, and eight violations of 15 CFR 760.5, failing to report the receipt of a request to engage in a restrictive trade practice or foreign boycott against a country friendly to the United States (Case No: 14-02(A)). A civil settlement of $72,450, if paid as agreed, will keep Whirlpool from being debarred or suspended from export transactions.

Related case number 14-02(B) involves Whirlpool Corporation. The company received a civil settlement of $9,000 for three violations of 15 CFR 760.2(d), furnishing information about business relationships with boycotted countries or blacklisted persons. No debarment or suspension will be placed if penalty is paid as agreed.


Impact of President Trump’s Iran Policy Announcement: No Changes for Now, but the Future of the JCPOA Remains Uncertain

2017/11/15

By: Glen Kelley, Doug Jacobson, Michael Burton & David Brummond Jacobson Burton Kelley PLLC

www.jbktradelaw.com

On October 13, 2017 President Trump announced the long-awaited results of his Administration’s Iran policy review. The key aspect of the announcement was that President Trump will not renew certification of Iranian compliance with the Joint Comprehensive Plan of Action (“JCPOA”) as required by the Iran Nuclear Agreement Review Act of 2015 (“INARA”), a law passed by the US Congress to provide oversight of the JCPOA. President Trump stated that his decision was made because Iran “has committed multiple violations of the JCPOA” and “has not lived up to the spirit of the agreement.”

President Trump also stated that he will “terminate” US participation in the JCPOA unless the parties to the JCPOA agree to make various changes to the JCPOA and that he will request the US Congress to modify INARA to reflect the Administration’s concerns. Following President Trump’s announcement, OFAC designated the Iranian Revolutionary Guard Corps (“IRGC”) as a Specially Designated Global Terrorist (SDGT) as required by Congress in a law passed in August 2017. While there has been much discussion on the designation of the IRGC as a SDGT, in practice the designation was purely symbolic as the IRGC has been listed on OFAC’s Specially Designated National List since 2007 under various Executive Orders.

Though significant, these announcements do not trigger any changes in the status of the JCPOA or to existing US sanctions.

Following the President’s announcement, Secretary of State Rex Tillerson indicated that staying in the JCPOA “was in the best interests of the US.” In addition, Treasury Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker said yesterday that it “is important not to confuse the internal US legal process of certification under INARA with our continued implementation of the JCPOA.”

President Trump’s decision not to certify Iran’s compliance with the JCPOA under Inara now shifts the burden to the US Congress, which could in the coming months reimpose some or all of the secondary sanctions on Iran that were waived on January 16, 2016 when the JCPOA was implemented. In addition, President Trump could in the future refuse to waive the secondary sanctions on Iran that remain suspended and could direct OFAC to terminate OFAC General License H.

While the US position on Iran should become clearer in the coming months, President Trump’s continued criticism of the JCPOA increases the uncertainty regarding (1) the future of US sanctions relief that was a key part of the nuclear agreement with Iran, and (2) whether non-US companies will continue to be able to conduct business with Iran without fear or being subject to US sanctions.

Increased Risk of US Withdrawal from JCPOA and “Snap-Back” of US Sanctions on Iran

It is important to recall that the US has suspended only a small portion of its Iran sanctions for US companies (relating to commercial aircraft), and “US persons” remain prohibited from nearly all transactions involving Iran or its government.

Nearly all of the suspended US sanctions were “secondary” sanctions primarily directed at non-US companies and individuals. The recent events increase the risk of reimposition or “snap-back” of US sanctions, which could be done in one of the following ways:

1. Reimposition of Sanctions Within Next 60 Days – Once the President fails to certify Iran’s compliance with the JCPOA, Congress can pass “qualifying legislation” under INARA in 60 days choosing to reimpose all or some of the Iranian sanctions that have been suspended. However, there does not appear to be significant interest by Congress to proceed in this direction at this time and it is not likely that the necessary votes can be obtained to proceed under this route.

2. Contingent Future Sanctions – Another scenario that is being contemplated by congressional leadership (the Corker-Cotton proposal) is to amend INARA to automatically reimpose US sanctions on Iran’s nuclear program in the future if Iran crosses key thresholds. Among the thresholds being considered is if weapons-grade nuclear material accumulates to the point where there is less than a one-year “breakout” period for obtaining a nuclear weapon.

3. Failure to Waive Suspended Sanctions – Under the JCPOA the President must waive the various sanctions that were suspended. Depending on the underlying law, these waivers must be renewed every 120 days to every six months. It is possible that the Trump Administration could simply choose not to renew one or more of the waivers, which would automatically reimpose the US sanctions. The next waiver deadline is in mid-January 2018. Such action would not require congressional approval and would effectively snap-back sanctions on Iran.

4. Unilateral Withdrawal from JCPOA – The JCPOA does not specifically authorize any party to the agreement to “withdraw.” However, the US could choose to cease implementing its commitments under the agreement, which would effectively lead to US abrogation of the JCPOA.

Next Steps and Practical Impact

Because the JCPOA is a multilateral arrangement, a decision by the US to withdraw from the agreement or to reimpose sanctions would have significant ramifications. Iran has threatened to stop complying with its commitments to curtail its nuclear program if the US reimposes sanctions. The costs of Iran’s reinitiating its nuclear program, however, could undercut the sanctions relief it has received from trading partners other than the US. The EU has made clear that if the suspended US sanctions are reimposed, the EU intends to continue to abide by the terms of the JCPOA so long as Iran does. If US sanctions are reimposed, the EU member states would likely support their companies in their Iranian activity and would strongly oppose any US government move to penalize them under reimposed sanctions. There is also the possibility that the EU would expand its sanctions blocking legislation (sometimes referred to in the EU as antiboycott laws) to cover US secondary sanctions on Iran. If Iran stopped complying with the JCPOA, the EU member states would likely withdraw their support for their companies’ activities in Iran, and might even move to the dispute resolution procedures of the JCPOA or a UN Security Council review, which could lead to the reimposition of EU sanctions.

While we are currently in uncharted waters and are dealing with an unpredictable US Administration, the following is a summary of the possible changes to impact on the JCPOA and US sanctions:

1. Incremental non-nuclear additional sanctions are likely, but the reimposition of the suspended US secondary sanctions or other major changes in the near future seem unlikely at this time. It is important to recall that there have been no immediate changes to US sanctions on Iran.

2. The Trump Administration could terminate US participation in the JCPOA and reimpose sanctions in the future, if insufficient progress is made with the parties to the JCPOA to address certain concerns relating to Iran. There are early indications that EU leaders might try to find a way to provide these additional assurances from Iran regarding their activities of concern.

3. The US could reimpose the suspended secondary (extraterritorial) sanctions. While appearing dramatic, this may not have much practical impact on many non-US companies. Moreover, if discreet secondary (extraterritorial) sanctions are “snapped-back”, it seems likely the EU and its member states would defend EU-based companies from the adverse economic consequences of a reimposition of sanctions.

4. If US sanctions are reimposed, there is reason to believe that Iran, after protesting, would continue to abide by its JCPOA commitments, particularly if it remains clear that the EU and other countries involved in the JCPOA intend to continue to abide by its terms and authorize business with Iran. Of course it is possible that Iran would follow through on its threat to pull out, and this likely would have a more dramatic practical impact.

Whatever the outcome, the OFAC policy that authorizes the export of US-origin humanitarian products to Iran, including medicine, medical devices, and agricultural products, will remain unchanged, just as it was during the height of US sanctions. However, payments for these transactions remains difficult due to the reluctance of many non-US banks to handle Iran-related payments.