Canadian corporations with U.S. ownership or affiliates must
navigate inconsistent requirements related to doing business in
Cuba. Canada's Foreign Extraterritorial Measures Act
(FEMA) and orders issued under FEMA are quite different from
legislation enacted by the U.S. This bulletin summarizes the
various provisions so that potential problems can be identified and
addressed prior to a breach arising.
FEMA AND THE 1992 BLOCKING ORDER
FEMA is referred to as a "blocking statute": it is
aimed at limiting the effect of foreign exterritorial measures. It
is primarily an enabling statute, as it authorizes the Attorney
General of Canada to make orders blocking extraterritorial measures
from being taken. An individual or corporation that breaches either
FEMA or an order made under FEMA can be subject to sanctions.
To date, FEMA has only been used to block U.S. extraterritorial
measures related to Cuba. In 1992, in response to expanded U.S.
trade sanctions with extraterritorial effect, Canada enacted an
order under FEMA referred to as the "1992 Blocking
Order". The 1992 Blocking Order explicitly applies to the U.S.
Cuban Assets Control Regulations or any other similar legislation
that purports to affect trade between Canada and Cuba. With respect
to doing business in Cuba, there are two significant requirements
under the 1992 Blocking Order: a reporting requirement and a
Under section 3 of the 1992 Blocking Order, Canadian
corporations and their directors and officers must give notice to
the Attorney General of any "directive, instruction,
intimation of policy or other communication relating to an
'extraterritorial measure' of the United States in respect
of any trade or commerce between Canada and Cuba that the Canadian
corporation, director or officer has received from a 'person
who is in a position to direct or influence' the policies of
the Canadian corporation in Canada". It is unclear how broadly
this provision is intended to apply. Read literally, it could mean
that any innocent reference to an extraterritorial measure would
trigger the notification requirement. It is also notable that the
person providing the communication need not necessarily be a
non-national. For example, a Canadian communication from a Canadian
director could potentially trigger the notification
The compliance requirement prohibits Canadian corporations and
their directors, officers, managers and employees in positions of
authority from complying with an extraterritorial measure of the
U.S. or with any "directive, instruction, intimation of policy
or other communication" relating to such measure received from
a "person who is in a position to direct or influence the
policies of the Canadian corporation in Canada". Canadian
entities with U.S. parent corporations must ensure that the U.S.
parent corporation is not in a position to influence the Canadian
subsidiary in respect of extraterritorial measures. Carefully
drafted agreements, such as shareholders' agreements, may be
used for this purpose.
THE HELMS-BURTON ACT AND AMENDMENTS TO FEMA
In 1996, the Cuban Liberty and Democratic Solidarity
(LIBERTAD) Act, otherwise known as the Helms-Burton
Act, was enacted by the U.S. after the Cuban government shot
down two U.S. civilian planes. Title III of the Act provides a
private right of action to U.S. nationals who have a claim to
property expropriated during the Castro revolution in Cuba. This
right of action allows U.S. nationals to recover damages in U.S.
courts against foreign companies and foreign citizens for
"trafficking" such confiscated property. Trafficking is
broadly defined such that it may include conducting business with
those trafficking confiscated property.
FEMA was amended in 1997 to specifically deal with Title III of
the Helms-Burton Act. Pursuant to the amendments, FEMA
blocks the enforcement of judgments under Title III in Canada,
restricts the production of records in Title III actions and gives
Canadians a right of action to sue in a Canadian court to recover
the amount of damages awarded against them. Title III of the
Helms-Burton Act is currently suspended. Suspension is
reviewed every six months by the president of the United
Corporate families that include both Canadian and U.S. entities
may have difficulty reconciling the divergent Canadian and U.S.
legislation. U.S. corporations must be careful not to offend U.S.
legislation, but must also be careful not to give direction to
Canadian affiliates that results in a breach of FEMA. Because FEMA
has never been enforced in court, there is a lack of interpretive
case law which might provide some guidance in addressing the
difficulties inherent in complying with contradictory regimes. A
cautious approach is recommended given the potential liability for
corporations and their directors. In some circumstances,
transactions and corporate governance can be structured to comply
with both sets of regulation.
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.
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