Canada's customs authority, the Canada Border Services Agency (CBSA), continues to exercise its broad authority under the Customs Act and the Export and Import Permits Act to engage in numerous searches, detentions, seizures, ascertained forfeitures, investigations and other enforcement activities to ensure that exports from Canada are in full compliance with Canadian legislation. Exporters must comply with significant, and at times complex, regulatory requirements, including controls over the transfer of goods and technology identified on the Export Control List (ECL), economic sanctions measures imposed under the Special Economic Measures Act (SEMA) and the United Nations Act (UNA), and CBSA export reporting obligations.
Continued reports of U.S. authorities' dissatisfaction with Canadian enforcement of export controls appear to be at least part of the reason for increasingly aggressive CBSA enforcement in this area.1 Historically, Canada does not have an as extensive enforcement record as that of the United States regarding export controls and economic sanctions. However, Canadian officials point to a "continuum of successes" recently, in addition to prosecutions and convictions, in addressing export violations — these include detentions and seizures which delay and disrupt shipments and can result in lost contracts.2
Critical Areas for Exporters
Areas in which Canadian exporters are facing significant compliance and enforcement challenges include the following:
In addition to the ECL product and technology-specific controls and the sanctions against the countries already mentioned above, exporters should be aware that Canada also currently imposes trade restrictions of varying degrees on activities involving Côte d'Ivoire, the Democratic Republic of the Congo, Egypt, Eritrea, Guinea, Iraq, Lebanon, Liberia, Libya, North Korea, Pakistan, Sierra Leone, Somalia, Sudan, Tunisia and Zimbabwe.
Failure to comply with these requirements exposes exporters to significant financial and operational costs arising from penalty assessments as well as delayed, detained or cancelled export shipments. In many cases, there can also be disasterous reputational consequences for the company as a whole.
In order to mitigate risk, exporters should be in a position to demonstrate effective due diligence by designing and implementing a robust trade controls compliance strategy. An exporter's internal compliance program should include measures such as:
- a clearly articulated and readily accessible written manual that is regularly reviewed and updated;
- appointing senior officer(s) responsible for the implementation and enforcement of the policies and procedures;
- education and training of frontline sales and other employees and executives;
- procedures for reporting potential violations internally and externally (e.g., voluntary disclosure) and for providing protection against retaliation;
- internal disciplinary procedures for violations;
- destination and party screening, including the screening of customers, suppliers, freight forwarders and other involved service providers or agents;
- end-use screening, including written certification from customers; and
- regular reviewing, testing and enhancement of processes and procedures to ensure full compliance.
There is no "one-size-fits-all" compliance program as these measures will differ depending on the size of the company, the nature of the exporter's goods, services and technology, and its markets, customers and end-users, among other factors. However, as exporters face increasing CBSA scrutiny of their shipments, it is important to pay careful attention to trade control obligations in order to minimize non-compliance risk and avoid the financial and reputational costs associated with CBSA enforcement and delayed or cancelled orders.
John is Co-Chair of the American Bar Association SIL Export Controls and Economic Sanctions Committee and Co-Chair of the Export Committee of the Canadian Association of Importers and Exporters. He is also a partner at McCarthy Tétrault LLP where he leads the International Trade & Investment Law Group.
1 See, for example, "Fronts in Canada set up to ship banned goods abroad: secret cable", The Globe and Mail, November 23, 2011.
2 October 31, 2011 Testimony of Geoff Leckey, CBSA Director General, Intelligence and Targeting, before the Standing Senate Committee on National Security and Defence.
3 See the Freezing Assets of Corrupt Foreign Officials (Tunisia and Egypt) Regulations, SOR/2011-316.
4 In an effort to level the playing field for Canadian exporters, the Export Controls Division of Foreign Affairs and International Trade Canada (ECD) has made available several types of "multidestination" export permits (MEPs) for cryptographic items. Although they still require exporters to apply to EDC and meet reporting and other conditions depending on the applicable MEP, they may be obtained without having to specify consignees in the application. This avoids having to apply for individual export permits for different consignees. ECD has made seven such MEPs available with varying terms and conditions (see "Export Permits for Cryptographic Items")
5 ECL Item 5505. See ECD Notice: "Export Controls over Goods and Technology for Certain Uses" (March 2011, Serial No. 176). This does not apply if the goods or technology are intended for end use in, and the final consignee (and any intermediate consignee) is located in, one of 29 listed allied countries.
6 Special Economic Measures (Iran) Regulations, SOR/2010-165 and Regulations Implementing United Nations Resolutions on Iran, SOR/2007-44.
7 Effective November 21, 2011.
8 Export Control List item 5400 controls all U.S.-origin goods and technology for export or transfer from Canada. General Export Permit No.12, allows for the shipment of goods to any destination other than Belarus, Burma, North Korea, Cuba, Syria, and Iran.
9 Special Economic Measures (Syria) Regulations, SOR/2011-114.
10 Foreign Extraterritorial Measures (United States) Order, 1992, SOR/92-584.
11 Belarus and Burma, along with North Korea, are listed on Canada's Area Control List, SOR/81-543. Burma is also subject to SEMA sanctions under the Special Economic Measures (Burma) Regulations, SOR/2007-285.
* To be published in the upcoming Year-In-Review edition of The International Lawyer journal, a publication of the American Bar Association.
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