On May 29, 2013, in response to a stated concern over Iran's nuclear program, the Government of Canada significantly expanded its unilateral sanctions against Iran under the Special Economic Measures Act ("SEMA") by amending the existing Special Economic Measures (Iran) Regulations (the "Regulations"). Subject to certain narrow exemptions, Canada effectively implemented a general ban on all exports to and imports from Iran. This is a significant departure from Canada's existing sector specific sanctions regime, which primarily targeted Iran's energy industry, financial sector, and its military and nuclear activities.
This alert provides a brief overview of the new measures, which are set out in detail by the Department of Foreign Affairs and International Trade here. These new sanctions should be carefully reviewed and incorporated into the export and import compliance and screening procedures of Canadian companies doing business not just in and around Iran, but also in international trade more generally. Particular care must be taken by financial services businesses for whom the expectation of due diligence is high. Parties contemplating any form of business transaction or undertaking which even indirectly involves Iran would be well advised to seek legal advice prior to proceeding.
Overview of New Sanctions
The Regulations Amending the Special Economic Measures (Iran) Regulations (Amended Regulations), fortify Canada's existing sanctions against Iran in four principal ways by:
a. Near-total ban on exports: it is prohibited for any person in Canada and any Canadian outside Canada to export, sell, supply or ship goods, wherever situated, to Iran, to a person in Iran, or to a person for the purposes of a business carried on in or operated from Iran;
b. Total ban on imports: It is prohibited for any person in Canada and any Canadian outside Canada to import, purchase, acquire, ship or transship any goods that are exported, supplied or shipped from Iran after May 29, 2013, whether the goods originated in Iran or elsewhere;
c. Expanded investment restrictions: It is prohibited for any person in Canada and any Canadian outside Canada to make an investment in an entity in Iran; and
d. New designated persons: The addition of 30 individuals and 82 entities to Canada's list of designated persons under the Regulations brings the total number of such designated parties to 530 entities and 83 individuals. It is prohibited for any person in Canada and any Canadian outside Canada to enter into certain dealings with and/or provide various financial services to a designated person.
To soften the economic impact of the Amended Regulations on Canadians doing previously-legal business with Iran, goods required to be supplied to Iran or acquired from Iran under a contract entered into before May 29, 2013 are not captured by the new prohibitions, provided that such goods were not already listed as prohibited under the Regulations. Note, however, that different exemption timelines apply to certain goods used in the petrochemical, shipping, and mining industries that are supplied to Iran under pre-existing contracts.
In addition to the existing exemptions for food, medicine, medical equipment, and humanitarian goods, the Amended Regulations extend exemptions to goods used to purify water for civilian and public health purposes, informational materials, including books and other publications, and personal or settlers' effects.
Interestingly, the list of exemptions also includes the provision of equipment, services, and software that facilitate secure and widespread communications via information technologies, subject to the issuance of an export permit. The purpose of the exemption is to help the Iranian people avoid government control of communication services and to facilitate open access to internet services and social media, particularly during the upcoming presidential elections in June. Social media played a pivotal role in the Green Movement's opposition to Iranian President Mahmoud Ahmadinejad's disputed re-election in 2009. This policy coincides with the announcement by the U.S. on May 30, 2013, that it was relaxing sanctions on Iran to permit American companies to sell consumer communication equipment and software to Iran, including mobile phones, satellite phones, broadband hardware, modems, routers, WiFi access points, data storage devices, voice-over-IP telephony technology, and anti-virus and anti-tracking software.
Trade controls and economic sanctions have an impact not only on international business activities, but also on transactional due diligence, contractual representations and warranties and, increasingly, the reputation of a business. Ensuring compliance with these and other trade controls requires the implementation of awareness training, customer screening, regular organizational risk assessments, and other due diligence procedures complete with appropriate record-keeping.
It is important to note that trade controls imposed under the SEMA, including the Iran sanctions, contain anti‐circumvention provisions that forbid persons in Canada or Canadians outside Canada from indirectly engaging in prohibited activities by "causing, assisting or promoting" such activities. To this extent the sanctions may have extraterritorial reach.
Along with the further sanctions imposed by the U.S. and E.U. in recent months, Canada's hardened stance is likely to inspire renewed efforts by some persons inside and outside Iran to find ways to circumvent the prohibitions through creative shipping or payment schemes. Guidance from the Export Controls Division of the Department of Foreign Affairs recommends that Canadian companies consider the following questions in performing their due diligence with respect to international transactions. While this screening tool was developed to foster compliance in the export of controlled goods, it is also a good starting point for evaluating foreign clients against the prohibitions imposed by economic sanctions regimes.
- How well do you know the foreign customer? Is it difficult to obtain information about that company or entity?
- Is the customer reluctant to provide an end-user assurance document or is information not forthcoming in comparison to past experiences with other customers?
- Is the customer or the end‐user tied to the military or the defence industry, or to any military or governmental research body?
- If you have done business with the customer before, is this a usual request for him/her to make?
- Does the customer seem familiar with the product type and its performance characteristics or is there an obvious lack of technical knowledge? Does the proposed purchase fit the customer's business profile?
- Does the customer reject the customary installation, training, or maintenance services provided?
- Is unusual packaging and labelling required?
- Is the shipping route unusual?
- Is the customer offering unusually profitable payment terms, such as a much higher price than normal? Is the customer offering to pay in cash?
- Is the customer proposing unusual means of payment, such as routing payment through seemingly unrelated financial institutions?
Canadian exporters are also reminded that Canada imposes trade controls on Canadian activities involving a number of other countries: Belarus, Burma (Myanmar), Cote d'Ivoire, Democratic Republic of Congo, Egypt, Eritrea, Guinea, Iraq, Lebanon, Liberia, Libya, North Korea, Syria, Pakistan, Sierra Leone, Somalia, Sudan, Syria, Tunisia, and Zimbabwe. Furthermore, controls imposed by the U.S. and E.U. may apply to exports by Canadian firms. In this complicated compliance environment, where trade barriers change at a moment's notice, screening tools like the above cannot substitute for a thorough compliance program.
Dentons is a global firm driven to provide you with the competitive edge in an increasingly complex and interconnected marketplace. We were formed by the March 2013 combination of international law firm Salans LLP, Canadian law firm Fraser Milner Casgrain LLP (FMC) and international law firm SNR Denton.
Dentons is built on the solid foundations of three highly regarded law firms. Each built its outstanding reputation and valued clientele by responding to the local, regional and national needs of a broad spectrum of clients of all sizes – individuals; entrepreneurs; small businesses and start-ups; local, regional and national governments and government agencies; and mid-sized and larger private and public corporations, including international and global entities.
Now clients benefit from more than 2,500 lawyers and professionals in 79 locations in 52 countries across Africa, Asia Pacific, Canada, Central Asia, Europe, the Middle East, Russia and the CIS, the UK and the US who are committed to challenging the status quo to offer creative, actionable business and legal solutions.
Learn more at www.dentons.com
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. Specific Questions relating to this article should be addressed directly to the author.