Canada: Pocketbook On Canadian Export Controls

Frequently Asked Questions

1. What is an export permit?

2. My products and technologies are not sold for military purposes, could I still require an export permit?

3. How do I know whether my product requires an export permit?

4. Can I export to any country?

5. What is the "Export Control List"?

6. Does it matter if my product incorporates goods or technology of U.S. origin?

7. Do I need an export permit to ship my product or technology to the U.S.?

8. What qualifies as an "export"?

9. How long does it take to obtain an export permit?

10. What are the penalties for non-compliance with Canada's export control laws?

11. What steps can I take to ensure that my company complies with Canada's export control laws?

12. What steps should my company take if non-compliance with Canada's export control laws is identified?

13. Where can I get more information.

1) What is an export permit?

Residents of Canada are not permitted to export certain types of products or technologies, to export certain products of U.S. origin or to export to certain destination countries or identified terrorist individuals or groups without first obtaining an export permit.

Under the Export and Import Permits Act, the Minister of International Trade may issue an export permit to a resident of Canada allowing the export of items included on the "Export Control List", or items to a country included in an "Area Control List", subject to such terms and conditions described in the export permit.

Export permit applications are assessed, and export permits are issued, by the Department of Foreign Affairs and International Trade.

2) My products and technologies are not sold for military purposes, could I still require an export permit?

Even though your products and technologies are not sold for military purposes, they may nevertheless be subject to Canada's export control regime.

Canada controls the export of "dual-use" products and technologies. Dual-use items include products and technologies associated with a variety of advanced materials, electronics, computers, telecommunications, sensors, lasers, navigation, avionics, marine equipment and technology and propulsion. Examples of dual-use items include software and hardware that uses encryption, optical switches, optical fibre, digital video camera technology with more than 4 mega pixels and "heads up display" technology.

Canada also limits the ability for residents of Canada to export to certain countries, as well as to certain individuals or groups associated with terrorism. Regardless of the nature of your product or technology, the export destination may require an export permit.

3) How do I know whether my product requires an export permit?

In order to assess whether if an export permit is required, you must determine whether your export items are:

If the answer to any of these questions is "yes", then there exists a strong possibility that you require an export permit.

4) Can I export to any country?

The Area Controlled List identifies countries to which no resident of Canada may export items without first obtaining an export permit. All items going to a country on the Area Controlled List require an export permit before they can be exported. Currently, the only two countries listed on Canada's Area Controlled List are Belarus, Democratic People's Republic of Korea and Myanmar.

Canada also imposes a variety of economic sanctions. These economic sanctions, in part, restrict or prohibit trade or other economic activity between Canada and the target country. The countries that are subject to economic sanctions include Cote d'Ivoire, Democratic Republic of the Congo, Eritrea, Iran, Iraq, Lebanon, Libya, Liberia, North Korea, Sierra Leone, Somalia, Sudan, Syria, Tunisia, Egypt and Zimbabwe. If you intend to export products or technology to these countries, you should first review the trade limitations imposed by the sanctions.

5) What is the "Export Control List"?

The Export Control List sets out a variety of items and technologies that require permits for export, regardless of their export destination. The Export Control List is organized into seven groups as follows:

The "dual-use" list contains products and technologies that many companies would not expect to be subject to export controls. If your products or technologies relate to advanced materials, encryption, electronics, computers, telecommunications, sensors, lasers, navigation, avionics, marine or propulsion then you should review the Export Control List to determine whether your product requires an export permit.

6) Does it matter if my product incorporates goods or technology of U.S. origin?

In recognition of a bilateral arrangement with the U.S. that accords favourable export permit treatment to the shipment of products and technologies between Canada and the U.S., where a Canadian resident seeks to export U.S. origin goods or technology, it is generally required to obtain an export permit. In most cases Canadian exporters may rely upon General Export Permit No 12. which is administratively easy to use.

7) Do I need an export permit to ship my product or technology to the U.S.?

Under a bilateral arrangement with the U.S., export permits are generally not required for most items identified in the Export Control List when shipped to a final destination or for end use in the U.S. However, if the export items are not for consumption in the U.S. and are only transiting through the U.S. for export to other destinations, then an export permit will be required.

Export permits are required for certain military and strategic items, including nuclear, chemical and biological weapons and related technology, even if the U.S. is the final destination.

8) What qualifies as an "export"?

You may export a product or technology in many different ways. Any time a product or technology is transferred from a place in Canada to a place outside of Canada, an export occurs.

With respect to the transfer of technology, an export occurs when technical data, technical assistance and information necessary for the development, production or use of an article included on the Export Control List is disposed of or disclosed in any manner from a place in Canada to a place outside Canada.

An export can occur by in-person transfers (e.g. giving a presentation at a meeting in a foreign country), electronic transfers (e.g. email, faxes, telephone), database access and downloads, shipments (e.g. air transport, ships/carriers, land trucks); and certain subcontracting and sublicensing agreements.

9) How long does it take to obtain an export permit?

The length of time the Canadian government requires to process an export permit application depends upon a variety of factors, including the nature of the export items, the country of destination and the "track record" of the exporting company.

Generally, for a company seeking its first export permit the processing time takes 6-8 weeks. However, in some urgent situations export permits have been obtained within 10 business days from receipt of a complete export permit application.

Because of the uncertainty of the processing time required to obtain an export permit, it is very important that your company submit a complete export permit application as soon as possible.

10) What are the penalties for non-compliance with Canada's export control laws?

If you export items that are controlled under the Export Control List or Area Control List without an export permit, you can be subject to significant penal and financial penalties.

Contravention of the Import and Export Permits Act may result in (for every illegal export):

• on summary conviction a fine not exceeding $25,000 or imprisonment for a term not exceeding 12 months, or to both; or
• on indictable offence a fine in an amount in the discretion of the court or imprisonment for a term not exceeding 10 years, or to both.

Further, where a corporation commits the offence, then any officer or director of the corporation who directed, authorized, assented to, acquiesced in or participated in the commission of the offence can be held personally responsible.

You may also be subject to the Administrative Monetary Penalty System (AMPS), which authorizes the Canada Border Services Agency to impose monetary penalties for non-compliance with customs laws and program requirements. For instance, AMPS penalties for failing to report goods subject to export controls prior to export are as follows:

• 1st violation: the greater of $2,000 or 20% of value of goods
• 2nd violation: the greater of $4,000 or 40% of value of goods
• 3rd and subsequent violations: the greater of $6,000 or 60% of value of goods

The financial penalties imposed in the U.S. for non-compliance with its export control regime have been rapidly increasing. For instance, in 2006 Lockhead Martin Corporation agreed to pay $3 million to settle alleged violations of the International Traffic in Arms Regulations, and in 2007 ITT Corporation agreed to pay $100 million (US) in criminal fines, restitution and forfeiture, as well as subject itself to independent monitoring, for violations of the Arms Export Control Act.

The prosecution of export control violations has been much more aggressive in the U.S. than in Canada. That said, AMPS penalties in excess of $1M have been imposed for non-compliance.

11) What steps can I take to ensure that my company complies with Canada's export control laws?

All companies that export their products or technologies should undertake an internal export compliance review. The internal compliance review should assess whether any of the export items are subject to the Export Control List, are considered U.S. origin goods or whether any of the export destinations are subject to the Area Control List or United Nations' economic sanctions.

Your company should also implement an internal export compliance program. The internal export compliance program should, amongst other things, identify an export compliance manager, establish a records keeping policy and an internal audit procedure, set out internal training requirements and confirm the processes relating to export permit applications.

12) What steps should my company take if non-compliance with Canada's export control laws is identified?

If you are unsure that your goods are covered by Canada's export control regime, you are entitled to ask the Department of Foreign Affairs and International Trade for an "advisory opinion" to determine whether the export item requires an export permit.

If an export control violation is identified, your company should commence a voluntary disclosure process with the Department of Foreign Affairs and International Trade. In most circumstances, unless your company has a history of repeated export control violations, no monetary penalties will be imposed for the voluntarily disclosed export control offences.

It is essential that your voluntary disclosure be accurate, complete, contrite and in compliance with regulatory requirements. Ideally, you should fully disclose all relevant facts and potential violations, present all mitigating facts, set out the corrective actions taken and convey your company's commitment to export compliance.

The importance of the voluntary disclosure process cannot be overstated. A flawed voluntary disclosure process may undermine your company's credibility with respect to the facts surrounding the export control violation and its overall export compliance. It will also increase the risk of financial penalties, and in the future, increase the level of scrutiny your company faces when applying for subsequent export permits.

13) Where can I get more information?

Further information about Canada's export controls is available at:http://www.international.gc.ca/eicb/menu-en.asp

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.