On February 5, 2016, Canada's Minister of Foreign Affairs, Stéphane Dion, announced amendments to the regulations underpinning Canada's economic sanctions against Iran. This fulfills previous statements by the Minister that Canada would be lifting its economic sanctions against Iran in response to the January 16, 2016 determination by the International Atomic Energy Agency that Iran had met the requirements for sanctions relief under the Joint Comprehensive Plan of Action (JCPOA).
A number of Canada's allies, including the European Union, the United States, Australia and Japan, have already announced the lifting of economic sanctions against Iran to varying degrees. Canada's previous Conservative Government made clear its suspicions of Iran's participation in the JCPOA negotiations, and did not provide any assurance that Canada would participate in any of the planned sanctions relief of the JCPOA members.
This action by the Liberal Government represents a significant divergence from that position, and a movement to bring Canada into alignment with most of its allied countries. Canadian firms, especially those in the oil and gas, aerospace, mining, automotive, financial services, and high tech sectors, should be carefully assessing the emerging trade and investment opportunities in Iran to ensure full compliance with the remaining patchwork of sanctions and export control measures.
Canada's Prior Economic Sanctions
Canada maintained two types of sanctions against Iran: multilateral sanctions enforcing UN Security Council resolutions under the United Nations Act, and unilateral sanctions contained in the Special Economic Measures (Iran) Regulations. These measures had been enacted in response to UN Security Council resolutions and the perceived threat of Iran's nuclear program and sponsorship for certain terrorist groups.
These prohibitions included a list of more than 600 individuals and entities that were classified as "designated persons". All transactions with, to the benefit of, or involving the property of these designated persons had been strictly prohibited. Most of these individuals and entities were those with close ties to the Iranian Revolutionary Guard Corps (IRGC), Iran's nuclear program, or terrorist and paramilitary groups. In addition, Canada maintained a broad trade embargo against Iran, including supply and sourcing bans and prohibitions against providing or acquiring financial services to, from or for the benefit of persons in Iran.
Canada has amended these sanctions and issued a new Notice to Exporters significantly alters its sanctions landscape.
The Iran regulations have been significantly revised. The sanctions under the regulations to the United Nations Act have been amended to reflect Resolution 2231 implementing the JCPOA. The primary focus of these sanctions continues to be nuclear and military related goods and technologies; however, there still remains a lengthy list of designated persons subject to an asset freeze.
The revisions of the Special Economic Measures (Iran) Regulations include revisions to some of the key terms and definitions under the regulations, replacing the general Iranian trade embargo with targeted trade restrictions, delisting of over 400 persons and entities.
Revision of Terms
Many of the revisions in regards to definitions are those terms whose presence is no longer necessary. This includes removal of the definition of "arms and related material", "Iranian financial institution" and "significant interest".
There are two more interesting terminology changes. First, the term "designated person" has been stripped from the legislation. As discussed below, there will still be persons subject to specific sanctions, but those individuals and entities will be described as "listed persons". This is a relatively minor change; however, it brings the nomenclature within the Iran regulations into conformity with that used in the Criminal Code prohibitions against terrorist organizations.
Second, the definition of Iran has been given greater detail and now specifically includes the government of Iran, its departments, and agencies. While not determinative, this provides some evidence that where the term "Iran" is used in the sanctions there are reasonable arguments that it is intended to capture the government of Iran as a political entity and not the geographic area of Iran.
Additions and Removals of Listed Persons
Canada has made significant revisions to the list of persons formerly known as "designated persons" who are subject to a general asset freeze and transaction ban. The total list of entities subject to sanctions has been reduced from 530 to only 161. Similarly, the list of individuals subject to specific sanctions has been reduced in half, from 83 to 41.
These individuals and entities are likely those with ties to the IRGC or its Quds force. In the accompanying press release, the Minister also highlighted that these two organizations are specifically still listed as terrorist organizations in the Criminal Code – a situation the Liberal Government announced it has no intentions of changing.
However, there have also been additions to the listed of sanctioned persons and entities. Canada has followed the course of action taken by the United States in placing restrictions on Iran's ballistic missile program. To that end, Canada has added six individuals and one entity to its list of sanctioned persons.
Trade Embargo Liberalization
The trade embargo has been substantially liberalized. The prohibitions against making investments in Iran, restricting providing port services to Iranian vessels, or providing flagging or classification services to Iranian oil tankers or cargo vessels have all been completely repealed. Also repealed are the prohibitions against importing or purchasing any goods from Iran, and the blanket financial services ban.
The supply ban is more nuanced. Canada has lifted the general supply ban in section 4 by repealing that section in its entirety and replacing it with the following:
4 (1) It is prohibited for any person in Canada or any Canadian outside Canada to export, sell, supply or ship any of the goods listed in Schedule 2, 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.
(2) It is prohibited for any person in Canada or any Canadian outside Canada to transfer, provide or disclose to Iran or any person in Iran any technical data related to the goods listed in Schedule 2.
This greatly limits the goods and technology to which the export ban applies. Schedule 2 contains 41 items including certain centrifuges, autoclaves, fibrous or filamentary materials, gamma-ray spectrometers, and specialty metals. These are generally items that are used in nuclear, biological, and chemical weapons programs. This fits within the broader narrative espoused by the Minister that while Canada will align with most of its allies in easing economic sanctions, it will maintain measures necessary to continue to restrict a possible nuclear program given the suspicion with which it regards the Iranian regime.
Canadian corporations must remain vigilant of the need to file appropriate export permits under the Export and Import Permits Act. Even though trade with Iran is now possible, it is likely that CBSA personnel will be alerted to be mindful of any shipments or transfers of technology and technical assistance destined for Iran and will be ready to seize any such shipments or transfers of Export Control List that lack adequate documentation.
To that end, all firms must remember that all items (including goods, technology, and technical assistance) on the Export Control List require a permit issued by the Export Controls Division of Global Affairs Canada. Firms should also be aware that this includes both the export and shipment of goods and the transfer of technology, technical information, and technical assistance to a destination outside of Canada.
In addition, the Government has issued Notice to Exporters No. 196. This Notice clarifies the policy of the Export Controls Divisions that while all permits will be considered; those for sensitive items will likely be denied (the "Denial List". The Denial list includes items from each Group of the Export Control List. This includes the following items from Group 1 ("dual-use" goods and technology):
- Test, inspection, and production equipment for special materials and related equipment as outlined in item 1.1.B, and its associated software and technology
- Materials as outlined in item 1-1.C, and its associated software and technology
- Test, inspection, and production equipment for materials processing as outlined in item 1-2.B and its associated software and technology
- Intrusion equipment, systems and components as outlined in 1-4.A.5, and its associated software and technology
- Telecommunications intercept, surveillance and jamming equipment, systems and components as outlined in 1-5.A.1.f, 1-5.A.1.j, and its associated software and technology
- Optical sensors, high-speed instrumentation cameras, image intensifier cameras, focal plane array imaging cameras, lasers as outlined in 1-6.A.2, 1-6.A.3.a, 1-6.A.3.b.3, 1-6.A.3.b.4, 1-6.A.5, and its associated software and technology
- All items on Category 9 of Group 1, with the exception of those parts and components intended for civil aircraft as outlined in 1-9.A.1, 1-9.A.3, 1-9.A.12, as well as software and technology related to 1-9.A.1, 1-9.A.3, 1-9.A.12
All items in Group 2 (Munitions List), Group 3 (Nuclear Non-Proliferation List), and Group 4 (Nuclear-Related Dual-Use List) will also be placed on the Denial List. All items in Group 6 (Missile Technology Control Regime List) are also contained in the Denial List other than specifically enumerated components, technology, and software intended for use in civilian aircraft.
Certain items from Group 5 (Miscellaneous Goods and Technology) will also be placed on the Denial list including all items in 5504 (Strategic goods and technology) with certain limited exceptions. While items containing US content as provided in Item 5400 are not on the Denial List, firms should remember that the US continues to enforce its trade embargo in relation to the export and re-export of US origin goods without prior authorization of the US Government. These items also require a Canadian export permit.
Next Steps for Canadian Business
With international economic sanctions falling away, Iran's re-entry into the world economy presents significant opportunities for Canadian businesses across a wide range of sectors, including oil and gas, aerospace, mining, automotive, financial services, and high tech.
Those firms that understand and mitigate the risks that arise from the economic sanctions measures that remain in place will have a competitive advantage in pursuing these trade and investment opportunities.
The International Trade and Investment Law Group at McCarthy Tétrault is closely following the situation, and will provide continued updates, information, and analysis as the situation develops, including analysis of key changes in the Iran sanctions regime for Canadian businesses.
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