Canada: Sanctions Alert: The Brave New World of Doing Business with Iran

Companies are facing an increasingly complex web of domestic and international sanctions regimes concerning transactions involving Iranian parties and investments in Iran. Developments in recent days suggest that Canadian firms doing business internationally must exercise extra vigilance to ensure compliance with trade and investment controls on Iran and in order to reduce the risk of negative financial and reputational exposure. The most significant of these developments include:

  1. a fourth round of international sanctions against Iran, imposed under United Nations Security Council (UNSC) Resolution 1929 on June 9, 2010, and their implementation into the domestic laws of Canada and other UN members;
  2. increased Canadian enforcement and prosecution activity, including Canada's first prosecution under its Iranian sanctions on July 6, 2010; and
  3. measures imposed by the United States and the European Union that extend beyond the UNSC sanctions, and in particular, US extraterritorial measures signed into law on July 1, 2010 that impose sanctions on non-US companies doing business with Iran.

Any involvement of Iran or Iranian parties in a proposed transaction should trigger careful scrutiny. It can also be expected that merger and acquisition due diligence uncovering Iranian business activity potentially subject to these sanction regimes will present more challenges in closing the deal.

Canadian Sanctions and Controls on Doing Business with Iran

Unlike the United States, which has generally prohibited its companies from trading with or investing in Iran since 1995, Canada does not currently maintain a ban on doing business with Iran. Canada does have a "Controlled Engagement Policy" in place that restricts diplomatic contacts and exchanges; however, this policy states that "Canada will not block the initiatives of private Canadian companies to trade with their Iranian counterparts." Indeed, Foreign Affairs and International Trade Canada's website identifies five priority sectors in Iran for the Canadian business community: Agricultural Technology & Equipment; Agriculture, Food & Beverages; Arts & Cultural Industries; Information & Communications Technologies; and Oil & Gas Equipment & Services.

Canadian measures that restrict doing business with Iran currently comprise (i) trade and investment controls imposed as a result of UN Security Council Resolutions involving nuclear and military items; and (ii) export controls on transfers from Canada of US-origin goods and technology to Iran.

Nuclear-Related Activity and Screening of Designated Persons

Canada's Regulations Implementing United Nations Resolutions on Iran (Iran Sanctions Regulations) contain a number of sanctions measures applicable to persons in Canada and Canadians outside of Canada.

The Iran Sanctions Regulations prohibit the sale, supply and transfer to Iran, from anywhere, of specified products and technology that may contribute to enrichment-related activities, re-processing or heavy water-related activities, or the development of nuclear delivery systems. This also includes a number of items on Groups 1 (Dual-Use) and 2 (Munitions) of Canada's Export Control List (ECL).

There is a ban on providing technical assistance, financial services, brokerage or other services to Iran related to the goods and technology discussed above. Making available to any person in Iran any property, financial assistance, or investment related to these goods and technology is also prohibited.

In addition, these rules impose an "assets freeze" against listed persons and entities engaged in nuclear-related activities ("Designated Persons"). This prohibits persons in Canada and Canadians outside Canada from any dealings in any property in Canada owned or controlled by Designated Persons, their subsidiaries and agents. There are also prohibitions against entering into or facilitating financial transactions related to such dealings, providing financial or related services in respect of such property, and making property or any financial or related services available to Designated Persons.

Canadian companies should therefore be screening for these listed Designated Persons to ensure that they are not engaging in prohibited dealings with these individuals and entities. In the event that they find they are in possession or control of property of Designated Persons, their subsidiaries or agents, details must be reported without delay to the Royal Canadian Mounted Police and to the Canadian Security Intelligence Services.

Additional Obligations for Financial Institutions

Federally and provincially regulated financial institutions in Canada, including foreign branches, are also required to review their systems and records on a continuing basis to determine whether they are in possession or control of property of Designated Persons, persons acting on their behalf, or persons owned or controlled by Designated Persons. Monthly reports as to whether such entities are in possession or control of this property must be submitted to the applicable financial regulatory agency.

In this regard, the Office of the Superintendent of Financial Institutions (OSFI) recently published Instruction Guide: Designated Persons Listings and Sanctions Laws (June 2010). This publication addresses the application of Canadian sanctions laws pertaining to Iran and other countries, and provides guidance on these monthly reports, freezing and unfreezing assets, and related issues for federally regulated financial institutions.

In addition, in its Notice: Financial Transactions Related to Jurisdictions Listed Herein (June 30, 2010), OSFI reminds federally regulated financial institutions about the risks of doing business with individuals and entities based in or connected to Iran and that enhanced due diligence measures must be applied to transactions with Iranian banks and payments destined to or received from Iran via intermediary banks.

Recent Amendments to Canadian Sanctions

Although only published more recently, amendments to Canada's Iran Sanctions Regulations came into force back on June 18, 2010. These are intended to implement UNSC Resolution 1929 into Canadian law.

These new measures include the following:

  1. prohibition on persons in Canada and Canadians outside of Canada from making any property or any financial or other related service available to Iran, persons in Iran, Iranian entities or their agents for the purpose of investing in commercial activity in Canada involving uranium mining, production or use of specified nuclear materials and technology;
  2. addition of a number of individuals and entities to the list of Designated Persons subject to an assets freeze;
  3. addition of materials, equipment, goods and technology to the list of items that are prohibited for export to Iran;
  4. prohibition on providing any technology to Iran in respect of any activity related to ballistic missiles capable of delivering nuclear weapons; and
  5. prohibition on the export to Iran of any battle tanks, armoured combat vehicles, large calibre artillery systems, combat aircrafts, attack helicopters, warships, missiles or missile systems.

Although the Canadian government has stated that it is prepared to consider and impose additional sanctions against Iran that extend beyond those agreed to under UNSC Resolution 1929, which could include additional measures targeting the energy and banking sectors (as is the case with the United States and the EU), such measures have yet to be announced.

Canadian Controls on the Transfer of US-Origin Goods and Technology to Iran

Pursuant to Item 5400 of the ECL, Canada controls for export all goods and technology that originate in the United States. An individual export permit must be applied for and obtained from Foreign Affairs and International Trade Canada's Export Controls Division for shipment of these items or transfer of technology to a handful of high-risk US-sanctioned countries, including Iran. This requirement applies regardless of whether the goods or technology are considered sensitive.

Item 5400 specifically excludes from control "goods that have been further processed or manufactured outside 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" (assuming those items are not otherwise controlled elsewhere on the ECL). Accordingly, to the extent that goods or technology to be transferred to Iran include US parts or components, it will be necessary to consider whether the process of incorporating those components resulted in a change in value, form or use of the goods or in the production of new goods.

Stepped-Up Enforcement and Canada's First Prosecution

The Canada Border Services Agency (CBSA), the agency with the primary responsibility of enforcing Canadian export rules, has been increasing its scrutiny of shipments to the Middle East. In particular, it has been detaining Canadian shipments of US origin as well as nuclear or military items destined for Middle East countries because of its suspicion that they are ultimately destined for Iran. CBSA officials have, on a number of recent occasions, informally indicated that they are carefully scrutinizing shipments to the United Arab Emirates, Hong Kong, and Malaysia among other countries, because of the high risk of diversion to Iran.

On July 6, 2010, Canada had its first successful prosecution under the Iran Sanctions Regulations. In that case, Mahmoud Yadegari had attempted to ship to Iran through Dubai dual-use pressure transducers that could be used in heating and cooling applications as well as in centrifuges for enriching uranium. An Ontario provincial court judge found that Yadegari "knew or was wilfully blind that the transducers had the characteristics that made them embargoed" and was therefore found guilty of violating the Iran Sanctions Regulations and other federal legislation governing export transactions.

New Extraterritorial US Measures on Doing Business with Iran

Since 1996, the US Iran Sanctions Act (ISA) has provided for the imposition of sanctions against foreign firms that invest US$20 million or more in one year in Iran's energy sector or that sell weapons of mass destruction or destabilizing numbers and types of conventional weapons to Iran. At the time of its initial enactment, the ISA was criticized by US allies for its extraterritorial impact. The first project found to be in violation of the ISA was a US$2-billion contract for French, Russian and Malaysian companies to develop Iran's South Pars gas fields. However, the Clinton administration waived those sanctions, as part of a deal with the EU, which had challenged the ISA at the World Trade Organization. In return for the EU dropping its WTO complaint, the US also indicated it would not impose ISA sanctions on future EU investments in Iran.

Although there have not been any penalties imposed under the ISA to date, many have claimed that the legislation has had a chilling effect on investment in Iran, and more recently the Obama Administration has indicated that it is currently investigating a number of projects in Iran to assess compliance with the ISA.

The new US Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA), signed into law by US President Obama on July 1, 2010, significantly tightens US sanctions against Iran through a patchwork of measures designed to strengthen sanctions as they apply to US entities, improve enforcement of the ISA by the US administration, and broaden the extraterritorial impact on non-US businesses, particularly in the energy and financial sectors.

Petroleum Measures

The CISADA amends the ISA and provides for the mandatory imposition of specified sanctions against non-US companies that:

  1. make an investment of US$20 million or more, or a combination of US$5 million or more investments that total US$20 million or more in a 12-month period, that directly and significantly contributes to the enhancement of Iran's ability to develop petroleum resources;
  2. sell, lease or provide to Iran goods, services, technology, information or support in respect of Iran's production of refined petroleum products, any of which either has a fair market value of US$1 million or have an aggregate value of at least US$5 million over a 12-month period;
  3. sell or provide to Iran refined petroleum products having a fair market value of US$1 million or more, or having an aggregate value of at least US$5 million over a 12-month period;
  4. sell, lease or provide to Iran goods, services, technology, information, or support that could directly and significantly enhance its ability to import refined petroleum products any of which has a fair market value of US$1 million or that in aggregate over a 12-month period have a value of at least US$5 million.

The CISADA adds three new measures to the list of sanctions to be applied against non-US companies found to be engaging in sanctioned activities under the ISA. Now, the US President must impose at least three of the following nine sanctions against such entities:

  1. prohibition on any foreign exchange transactions subject to US jurisdiction and in which the sanctioned person has any interest (new);
  2. prohibition on any transfers of credit or payments between financial institutions or by, through, or to any financial institution, to the extent that such transfers or payments are subject to US jurisdiction and involve any interest of the sanctioned person (new);
  3. prohibition against a wide range of activities involving property subject to US jurisdiction and with respect to which the sanctioned person has any interest (new);
  4. denial of Export-Import Bank loans, credits, or credit guarantees for US exports to the sanctioned person;
  5. denial of licences for the US export of military or militarily useful technology;
  6. denial of US bank loans to the sanctioned person exceeding $10 million in one year;
  7. if the sanctioned person is a financial institution, prohibition on its service as a primary dealer in US government bonds and/or prohibition on its serving as a repository for US government funds;
  8. prohibition on US government procurement of goods or services from the sanctioned person; and
  9. prohibition on imports into the United States from the sanctioned person.

Although the legislation provides for presidential authority to waive, on a case-by-case basis, the application of these provisions where the company's home country is considered to be "closely cooperating" with the United States in multilateral efforts to prevent Iran from acquiring weapons of mass destruction, the conditions attached to such waivers could make them difficult to obtain.

Foreign Financial Institution Measures

The new US measures are also designed to deny access to the US financial system to foreign financial entities engaging in certain activities involving Iran. These include facilitating Iran's efforts to acquire or develop weapons of mass destruction or provide support to foreign terrorist organizations, and facilitating transactions or providing financial services for Iranian financial institutions blocked under US law, including Bank Melli and Bank Saderat.

The CISADA requires that regulations be issued to prohibit the opening or maintenance in the United States of a correspondent account or a payable-through account by a non-US financial institution found to be engaging in such activities. In addition, US financial institutions maintaining a correspondent account or payable-through account in the United States for a non-US financial institution will be required to perform audits, report, and/or issue certifications to the US Treasury Department in respect of the non-US financial institution's activities in this regard.

Other Measures Potentially Impacting Canadian Business

Although the balance of the CISADA largely focuses on measures impacting US entities, there are certain aspects of the legislation that may also have a significant effect on Canadian companies, including:

  1. prohibition on US government agencies entering into or renewing contracts for the procurement of goods and services with persons that export to Iran certain sensitive technology, including items that restrict the free flow of information in Iran or that monitor or restrict speech of the Iranian people;
  2. requirement that a prospective contractor with the US government certify that it and any person controlled by it does not engage in activities subject to sanction under the ISA;
  3. authority for US State and local governments to divest from companies doing business in Iran's energy sector; and
  4. although it is unclear at this point and depends upon future implementation of the CISADA, some have noted that the existing exceptions in US law that allow for the re-export of US-origin content to Iran from third countries, such as Canada, may be significantly restricted.

Export Control and Economic Sanction Compliance

Given recent developments and the increasingly complex landscape Canadian companies face regarding trade and investment sanctions with Iran and other countries, it is critically important that internal compliance programs are in place to minimize financial and reputational risk.

The basic elements of such systems include developing compliance manuals and standard operating procedures, using screening lists, appointing compliance officers, providing education and training programs, reviewing contracts, conducting compliance audits, identifying potential violations, making voluntary disclosures, and addressing conflicts between Canadian and foreign trade controls.

A compliance system should provide for the effective screening of transactions against "red flag" destinations or parties. If any of these countries, entities, organizations or individuals are — or may be involved, the activity should be carefully scrutinized for compliance with applicable trade controls and economic sanctions. At the present time, for Canadian companies those red-flagged destinations and parties should include:

Côte d'Ivoire
Democratic Republic of the Congo
North Korea
Sierra Leone

and the individuals and entities listed pursuant to regulations targeting Al-Qaida and the Taliban, the Suppression of Terrorism Regulations and the Criminal Code. Canada maintains economic sanctions or trade controls of various degrees and scope in respect of all of these destinations.

McCarthy Tétrault's International Trade and Investment Law Group continues to closely monitor developments in economic sanctions and export controls concerning Iran and other countries and entities subject to these measures. Our Group's practitioners have significant expertise in these matters and regularly assist clients in developing solutions to compliance and enforcement issues in this area. We are available to advise on these or any other international trade and investment matters.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions