On February 5, 2016, the Government of Canada announced a repeal of its most restrictive economic sanctions against Iran. The move followed the announcement by the International Atomic Energy Agency on January 16, 2016, that Iran complied with measures required under the Joint Comprehensive Plan of Action, and the subsequent relaxation of domestic sanctions by both the US and the EU. Canada's decision to follow suit has the potential to reopen significant opportunities for Canadian companies, who have effectively been barred from doing business with Iran since 2011.
Canadian sanctions related to Iran are set out in two federal regulations: the Regulations Implementing the United Nations Resolutions on Iran (the UN Regulations), and the Special Economic Measures (Iran) Regulations (the SEMA Regulations). While the UN Regulations constitute Canada's domestic implementation of multilateral sanctions enforcing UN Security Council Resolutions, the SEMA Regulations represent broader unilateral sanction measures which are specific to Canada. The amendments to each set of regulations are significant and represent a substantial roll-back of restrictions on commercial and trading activities involving Iran and Iranian entities.
A short list of the key amendments is provided below, followed by a more detailed summary of specific changes that will impact various business activities.
- Persons in Canada and Canadians abroad may now engage in trade with Iran, subject to relatively narrow restrictions on dealing with listed materials, persons and entities.
- The number of listed persons and entities (previously referred to as "designated" persons and entities), with whom Canadians are prohibited from doing business under the SEMA Regulations, has been substantially reduced from a total of 613 to only 202, with several new names added.
- Persons in Canada and Canadians abroad may now provide financial services to non-listed Iranian persons and entities, and may make investments in Iran.
- Persons in Canada and Canadians abroad may now provide Iranian vessels with insurance services and services related to the vessel's operation and maintenance.
Amendments to both the SEMA Regulations and the UN Regulations included revised definitions for certain key terms. The term "designated person" was removed from the SEMA Regulations, which now reference "listed persons," and clarify that a "listed person" must be a person who is in Iran or is a national of Iran who does not ordinarily reside in Canada. Significant alterations were made to this list of individuals and entities, reducing the number of listed persons by more than two-thirds. In contrast, the UN Regulations continue to reference "designated persons" listed by the United Nations Security Council.
In both regulations, the definition of "Iran" was expanded to include the government's political subdivisions and agencies. In the UN Regulations, the definition of "Canadian" was also expanded to include permanent residents.
Reduced restrictions on the export of goods to Iran
The most significant amendment to the SEMA Regulations is the repeal of the blanket prohibition on the export, sale, supply or shipment of virtually any goods to Iran, individuals in Iran or for the purposes of business carried on in Iran. The export restrictions are now limited to goods (and associated technical data) listed in Schedule 2 to the SEMA Regulations, which consist primarily of items that may be used in nuclear, biological and chemical weapons programs.
With respect to export controls imposed by the UN Regulations, many of the products restricted by the UN Regulations are unchanged, although limits on the sale, supply or transfer of products for light water reactors, including low-enriched uranium, were lifted.
Importantly, Canada has maintained trade embargoes and asset freezes against a significant number of persons and entities in Iran. As such, Canadian companies intending to trade with Iran must continue to screen their contacts and customers against the "listed persons" and "designated persons" identified in the sanctions regulations.
Investments, financial services and imports
Under the prior regulations, Canadians and persons in Canada were restricted from making any investments in Iran or providing financial services to Iranian actors. These prohibitions have now been repealed entirely, and Canadians can fully participate in the Iranian economy subject to the restrictions on listed persons that run throughout the regulations. Likewise, the blanket ban on importations or purchases from Iran has been lifted, although the import or purchase of arms or related materials from Iran is still prohibited.
Although prohibitions restricting the shipment of arms and related material are substantially replicated in the new UN Regulations, additional restrictions have been added to prevent owners and operators of Canadian vessels and aircraft from carrying any listed products to Iran or from carrying any missile technology from Iran. However, the majority of shipping restrictions in both sets of regulations were eliminated or substantially reduced. For example, Canadians may now provide port and flagging services, as well as insurance to Iranian vessels.
Notice to exporters
Global Affairs Canada has also released a Notice to Exporters No. 196 in conjunction with the regulatory amendments described above. The Notice indicates that Canada will continue to maintain tight controls on exports to Iran of goods and technologies on Canada's Export Control List (ECL), and all applications for export permits to Iran will be considered on a case-by-case basis. Of note, Global Affairs Canada advises that permits will normally be denied for the export to Iran of certain items listed in Groups 1, 5, 6, and 7, together with all items in Groups 2, 3 and 4 on the ECL.
Business implications moving forward
Although these amendments signify a substantial increase in the ability of Canadians to participate in trade with Iran, caution should be exercised as the changes are implemented. As a practical matter, Canada Border Services and other agencies are likely to continue scrutinizing transactions with or shipments to Iranian persons or entities. Dentons' Trade, WTO and Customs group will continue to monitor developments as they are announced by the Government of Canada. If you are considering engaging in commercial or business activities that involve Iranian actors, we would be pleased to provide specific advice regarding compliance with these new regulations.
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