Copyright 2011, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on International Trade & Investment , August 2011
Sanctions on North Korea were first imposed by Canada in 2006 in response to North Korea's nuclear test activities. Further restrictions on goods and designated individuals were enacted in 2009, and further export sanctions targeting North Korea were added in July 2010. The new restrictions of August 2011 come in response to continuing North Korean aggressiveness on the international stage. Sanctions were first imposed on Syria in May 2011 in response to the Syrian government's violent crackdown on protesters. The new restrictions of August 2011 are targeted against Syria's unchanged behavior towards democratic reform campaigners.
Canadian legislative framework for sanctions
Canadian law provides for a wide variety of measures designed to apply pressure on a country, group or individual which is not complying with international objectives relating to peace and security. Canada currently maintains economic sanctions against foreign state and non-state entities under three principal statutes, all of which are administered by Canada's Minister of Foreign Affairs. When a United Nations Security Council resolution imposes sanctions, Canada must introduce the sanctions into domestic law by enacting regulations under the United Nations Act. In situations where no United Nations resolution has been passed, Canada can impose its own sanctions under the Special Economic Measures Act (SEMA). Finally, the Export and Import Permits Act can be used to impose trade sanctions on goods. This is done primarily through three regulations: the Area Control List (ACL) (which lists countries for which export permits are required); the Export Control List (which lists goods for which export permits are required); and the Import Control List (which lists goods for which import permits are required).
The August 2011 Special Economic Measures (DPRK) Regulations ban outright all exports, all imports, and all new investment in North Korea. They also forbid the provision of financial services or technical data to anyone in North Korea and forbid docking and landing in, or transiting of, Canada by North Korean ships and aircraft. The sanctions cover handling property located outside North Korea but owned by a North Korean person or entity and carrying out financial services anywhere at the direction of a person in North Korea. They are intended to reinforce the message to the North Korean government that its belligerent behaviour is internationally unacceptable.
There are a limited number of exemptions to the Special Economic Measures (DPRK) Regulations. The sanctions do not apply to the conduct of Canadian embassy affairs or transactions carried out under an agreement with the Canadian government; humanitarian efforts by aid and non-governmental organizations; stabilization and disaster relief assistance; personal correspondence; and non-commercial remittances. These exclusions are intended to keep their impact focused on government agencies and officials rather than on ordinary people. The Minister also has the discretion, under the Special Economic Measures (DPRK) Permit Authorization Order, to issue an export permit for other reasons.
The August 2011 sanctions supplement measures previously in force against North Korea. Since July 2010, the exporting of goods of any kind from Canada to North Korea requires a permit due to the country's listing on the ACL. In addition, in conjunction with the United Nations Security Council under Resolution 1718, passed in 2006, the Office of the Superintendent of Financial Institutions Canada (OSFI) maintains an online list of specific North Korean persons and entities subject to export sanctions under the United Nations Act due to their involvement with North Korea's nuclear and ballistic missile programmes.
The Regulations Amending the Special Economic Measures (Syria) Regulations of August 2011 tighten sanctions already in force by designating further entities and persons with whom dealing is forbidden, including the state-owned Commercial Bank of Syria, the country's largest commercial bank, and Syriatel, the country's largest mobile telephone provider, which is owned by a relative of the Syrian president.
In May 2011, Canada enacted the Special Economic Measures (Syria) Regulations, which imposed an asset freeze on designated persons and entities involved in the security crackdown. Under these sanctions, it is forbidden to have dealings with listed departments of the Syrian military establishment or the Ministry of the Interior, or with certain individuals believed to be key current or former senior government officials or their family members, and this includes carrying out transactions or holding property and goods for the designated persons.
The prohibitions do not apply to dealings pursuant to an agreement with the Canadian government; to disaster relief, democratization, stabilization, and humanitarian efforts and provision of goods such as food and medical supplies by international and non-governmental organizations; or to payments made by or on behalf of designated persons pursuant to contracts entered into prior to the coming into force of the person's designation. These exclusions are designed to focus the measures on the targeted agencies and individuals while minimizing any effects on average citizens. In addition, the Minister retains the discretion, under the Special Economic Measures (Syria) Permit Authorization Order, to issue an export permit for other reasons.
Consequences for Canadian businesses
The sanctions discussed above against North Korea and Syria are binding on all Canadians in or outside Canada and on anyone else doing business from Canada. Canadians and Canadian-based businesses are responsible for ensuring that they do not engage in trade with any North Korean person or entity or with any of the Syrian persons and entities designated in the Special Economic Measures (Syria) Regulations or the Regulations Amending the Special Economic Measures (Syria) Regulations. Canadian financial institutions and insurance companies are additionally responsible for determining, on a continuing basis, whether they are in possession of any property belonging to a designated Syrian person, and for disclosing that information to the Royal Canadian Mounted Police.
Publicity related to any non-compliance issues poses a reputational risk. Furthermore, conviction for failure to comply with SEMA sanctions against North Korea and Syria is punishable by a fine of up to C$25,000 or up to five years in prison. Exporting goods to North Korea without the required permit under the ACL is punishable by a fine set at the discretion of the court and imprisonment for up to 10 years, while violation of United Nations Act sanctions on North Korean nuclear and missile activities is punishable by a fine of up to C$100,000 or up to 10 years in prison.
Businesses may wish to consider instituting screening mechanisms to flag potential customers who might be North Korean or listed Syrian persons and entities. OSFI has published an Instruction Guide: Designated Persons Listings and Sanctions Laws (the Guide) which sets out OSFI's expectations regarding compliance by OSFI-regulated financial institutions with sanctions legislation (with the notable exception of the Freezing Assets of Corrupt Foreign Officials Act, enacted after the date of publication of the Guide). Generally, the Guide outlines procedures for compliance with the "duty to determine" and reporting requirements that arise when Canadians (including Canadians outside Canada) have in their possession or otherwise deal with the property of designated persons. It is targeted towards users who are federally regulated financial institutions, but provides information that may be useful for many different types of Canadian businesses.
To view previous Blakes Bulletins discussing Canadian sanctions legislation and the Canadian export control regime, please click here.
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