Can Anyone Do Business With Iran Anymore?

Transcription

1 Can Anyone Do Business With Iran Anymore? Growing Compliance and Enforcement Concerns Under Canada's Trade Control Regime John W. Boscariol April 4, 2012 Toronto, Ontario

2 Growing Impact of Canadian Trade Controls 1 what s driving this? since 9/11, new emphasis of Canadian authorities on security (vs. government revenues) more recently, increased penalties, enforcement by U.S. authorities pressure from U.S. affiliates, suppliers and customers (and U.S. government) penalty exposure operational exposure reputational exposure Canadian companies are now more concerned than ever before about whom they deal with, where their products and technology end up, and who uses their services financings, banking relationships, mergers and acquisitions

3 2 Today s Focus Iran trade control measures Canada United States enforcement key issues to address when considering business involving Iran nationality structure of the deal parties involved exceptions permits

4 3 What Are Canada s Trade Controls? export and technology transfer controls Export Control List, Area Control List economic sanctions Special Economic Measures Act United Nations Act Freezing Assets of Corrupt Foreign Officials Act Criminal Code ( terrorist groups ) domestic industrial security Defence Production Act, Controlled Goods Program other legislation of potential concern blocking orders (Cuba) anti-boycott policy and discriminatory business practices laws anti-bribery law (Corruption of Foreign Public Officials Act and US FCPA) compliance convergence

5 What Are Your Red Flag Destinations? raise red flag where you have knowledge, suspicions, or reason to believe that technology, goods or services are ultimately destined for or may be accessed or used in or by any of the following countries or entities: 4 Myanmar (formerly Burma) Belarus Syria Libya Sudan Iraq terrorists and terrorist organizations Al-Qaida and Taliban Zimbabwe Afghanistan Pakistan Cuba Guinea Iran Democratic Republic of the Congo Eritrea Côte d Ivorie Liberia Sierra Leone North Korea Lebanon Somalia Tunisia Egypt

6 Canada s Economic Sanctions Legislation Special Economic Measures Act and United Nations Act can include: 5 ban on providing goods, services, technology assets freezes cannot deal with listed individuals, companies, organizations ban on facilitation monitoring and reporting obligations application to persons in Canada and Canadians outside Canada permit process

7 6 Canadian Sanctions Against Iran United Nations Act regulations March 2007 export and import ban on nuclear, uranium enrichment-related activities ban on related technical assistance, investment, services asset freeze on designated individuals and entities June 2010 activities related to investing in commercial activity in Canada involving uranium mining, production or use of specified nuclear materials and technology assets freeze on additional individuals and entities export and supply ban on additional nuclear and military related items

8 7 Canadian Sanctions Against Iran Special Economic Measures Act (July 2010): making any new investment in the Iranian oil and gas sector exporting or otherwise providing to Iran items used in refining oil and gas establishing correspondent banking relationships with Iranian financial institutions providing or acquiring financial services to allow an Iranian financial institution (or a branch, subsidiary or office) to be established in Canada, or vice versa purchasing any debt from the Government of Iran dealing with designated persons involved in nuclear, chemical, biological or missile proliferation exporting or otherwise providing to Iran arms and related material not already banned and items that could contribute to Iran s proliferation activities (listed goods in Schedule 2) providing a vessel owned or controlled by, or operating on behalf of the Islamic Republic of Iran Shipping Lines with services for the vessel s operation or maintenance.

9 Canadian Sanctions Against Iran 8 Special Economic Measures Act (November 21, 2011): a broad prohibition against providing or acquiring any financial services to or for the benefit of, or on the direction or order of, Iran or any person in Iran a broad prohibition against the supply of any goods used in the petrochemical, oil or natural gas industry (this is expanded from the earlier prohibition which applied only to goods used in the refining of oil or liquefaction of natural gas) the addition of various entities and individuals to the list of designated persons there is a general prohibition on dealings with these persons the addition of various items and equipment to the prohibited goods list some limited grandfathering

10 Canadian Sanctions Against Iran 9 Special Economic Measures Act (January 31, 2012): 5 entities and 3 individuals added to list of designated persons

11 Canadian Export Controls US-Origin Items Export and Import Permits Act U.S. origin goods and technology Export Control List item 5400 designed to ensure Canada is not used as a diversionary route to circumvent U.S. embargoes 10 e.g., U.S. embargoes of Cuba, Iran, Syria and North Korea

12 Canadian Export Controls US-Origin Items 11 ECL item 5400: a permit is required for the export of all U.S.-origin goods and technology from Canada excludes goods that have been further processed or manufactured outside of the United States so as to result in a substantial change in value, form or use of the goods or in the production of new goods 50% rule of thumb used to be applied

13 Canadian Export Controls US-Origin Items available General Export Permit No. 12 allows export of U.S.-origin goods and technology to all destinations except Belarus, Myanmar, Cuba, North Korea, Iran and Syria 12 no written ECD policy for granting permits for export of U.S.-origin goods or technology to these countries must apply for and obtain permit from the Export Controls Division for transfers of US-origin goods and technology to Iran

14 Criminal Penalty Exposure 13 enforcement by CBSA and RCMP contravention of sanctions UNA Act regulations - subject to criminal penalties of up to $100,000 and/or imprisonment of up to ten years SEMA regulations - subject to criminal penalties of up to $25,000 and/or imprisonment of up to five years contravention of export controls EIPA - subject to criminal penalties of a fine with no limit and/or imprisonment up to ten years

15 14 Enforcement by Canada Border Services Agency CBSA Presidential Directive non-report of goods subject to export control untrue statements in respect of goods subject to export control in addition to Administrative Monetary Penalties, can demand up to 60% of the value of the goods seizure and no return of goods detention while CBSA investigates compliance with export controls and economic sanctions referral to Export Controls Division for Export Control List status further investigation regarding economic sanctions can mean delays, lost contracts

16 15 Enforcement by Canada Border Services Agency CBSA export enforcement emphasis all transfers to Iran now being closely scrutinized also focusing on exports to locations that are commonly used for transhipment to Iran, including United Arab Emirates Malaysia Hong Kong

17 Criminal Prosecution R. v. Yadegari 16 July 6, 2010, first successful prosecution under the Iran sanctions regulations under United Nations Act attempted shipment to Iran through Dubai dual-use pressure transducers could be used in heating and cooling applications as well as in centrifuges for enriching uranium judge found that Yadegari knew or was wilfully blind that the transducers had the characteristics that made them embargoed also violations of Customs Act, Export and Import Permits Act, Nuclear Safety and Control Act, and Criminal Code sentenced to 51 months imprisonment (slight reduction on appeal)

18 17 US Sanctions Against Iran US sanctions have strong extraterritorial character Export Administration Regulations export license requirements apply to US-origin items to be transferred from Canada to Iran Iranian Transactions Regulations apply to US companies, branches and individuals in respect of any dealings with Iran proposed extension to Canadian companies owned or controlled by US persons US Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (amends to Iran Sanctions Act) recent restrictions on dealings with Central Bank of Iran

19 18 US Sanctions Against Iran US sanctions have strong extraterritorial character US Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (amends to Iran Sanctions Act) imposes sanctions on certain dealings by non-us persons with Iranian petroleum sector imposes sanctions on non-us financial institutions facilitating proliferation or dealing wit certain Iranian FIs National Defense Authorization Act (December 31, 2011) imposes sanctions non-us financial institutions dealing with Central Bank of Iran consequences? shut out of US financial system

20 19 US Sanctions Against Iran why should we care about US sanctions? extraterritorial impact Canadian authorities working closely with US on these issues CBSA enforcement Canadian financial institutions will not be exposed to risk of US sanctions, including denied access to US financial system

21 Key Issues to Address When Considering Business Involving Iran 20 what is the nationality of the companies and individuals involved in the supply of goods or services? Canadian, branch or foreign-incorporated? any US individuals or companies? EU?

22 Key Issues to Address When Considering Business Involving Iran 21 where will the goods, technology and services be supplied from? sanctions generally apply to persons in Canada and Canadians outside Canada export controls apply to transfers or disclosures from a place in Canada to a place outside of Canada

23 Key Issues to Address When Considering Business Involving Iran 22 what goods or technology will be transferred to Iran? are they controlled on the Export Control List? are they US-origin, do they contain US-origin components or were they sourced from the United States? are they listed on the SEMA Iran Regulations list? are they nuclear, dual-use or military related?

24 Key Issues to Address When Considering Business Involving Iran 23 what parties are involved in the transaction (including buyers, brokers, freight forwarders, agents, financiers, and other service providers)? have they been screened against list of designated persons? have persons who own or control them also been screened?

25 Key Issues to Address When Considering Business Involving Iran 24 how will payment be made? how will funds move from Iran? what Iranian financial institutions will be involved? will a Canadian financial institution be able to support the transaction?

26 Key Issues to Address When Considering Business Involving Iran 25 depending on the specific measure(s) at issue, do any exceptions apply? for example is this an activity that has as its purpose the safeguarding of human life, disaster relief, or the providing of medicine or medical supplies? (certain SEMA prohibitions) is the financial service required to be provided or acquired further to a contract entered into before November 22, 2011? (SEMA financial services ban) is the financial service in respect of non-commercial remittances of $40,000 or less sent to or from Iran or any person in Iran? (SEMA financial services ban)

27 Key Issues to Address When Considering Business Involving Iran 26 depending on the specific measure(s) at issue, do any exceptions apply? for example is this a loan repayment to any person in Canada, or any Canadian abroad, in respect of loans entered into before July 22, 2010, enforcement of security in respect of those loans, or payments by guarantors guaranteeing those loans? (SEMA prohibition on dealings with designated persons) is the transaction necessary for a Canadian to transfer any existing accounts, funds or investments of a Canadian held with a designated person to a non-designated person? (SEMA prohibition on dealings with designated persons)

28 Key Issues to Address When Considering Business Involving Iran 27 if the activity is prohibited under sanctions or export controls, can a permit be obtained? for SEMA/UNA sanctions, apply for permit from Foreign Affairs and International Trade Canada e.g., Immigrant Investor Program for Export Control List items (including US-origin items), apply for permit from Export Controls Division in some cases, permits may be required from both

29 John W. Boscariol McCarthy Tétrault LLP International Trade and Investment Law Direct Line: LinkedIn: Twitter: