Canada: What Does Trump's Withdrawal From The Iran JCPOA deal mean for Canadian companies and trusts?

Last Updated: May 10 2018
Article by Cyndee Todgham Cherniak

 On May 8, 2018, U.S. President Donald Trump announced that the United States ("U.S.") will withdraw from the Joint Comprehensive Plan of Action ("JCPOA") with Iran. Canada was not a party to the JCPOA.  So, the U.S. being in or out of the JCPOA does not affect Canada directly.

That being said, President Trump's has directed the U.S. Administration to immediately start the process to re-impose economic sanctions against Iran.  Whether this means the Trump Administration will re-impose the pre-JCPOA sanctions or develop a new and improved/revised list that comprises old and new sanctions against key sectors of the Iranian economy (e.g., energy/oil, airlines, financial sectors) is anyone's guess.  What we do know is that new U.S. economic sanctions and trade restrictions against Iran are imminent and will be meant to punish Iran.

What does this mean for Canadian Companies and Trusts?

The short answer is that some Canadian businesses will not be able to engage in certain business activities with Iran or Iranian persons.  What is currently legal may become illegal or restricted under U.S. law.  This change can happen quickly.

Canadian companies (including subsidiaries of U.S. companies, affiliates of U.S. companies, and trusts) should undertake a risk assessment as soon as possible to determine whether any aspect of their business will be affected by the new U.S. economic sanctions against Iran.  The time to ask the questions is now.

First Question: Is there exposure?

Canadian companies, Canadian subsidiaries of U.S. companies, Canadian branches of U.S. companies and Canadian companies that purchase business inputs from the United States need to ask questions to define their exposure, such as:

  • Does the company/branch have any dealings with Iran or Iranian persons?
  • Are any existing contracts with Iran or Iranian persons?

If the answer is "yes" to either of these questions, it will be necessary to ask more questions. If the answer is "no", then there is little to worry about with respect to the new U.S. economic sanctions and trade restrictions against Iran.

U.S. sanctions can and do reach subsidiaries and branches of U.S. companies that are located in Canada. U.S. subsidiaries and branches will need to consider whether certain future transactions (or completion of existing transactions) will be prohibited by the re-imposition of sanctions by the Trump Administration.  We will talk about the exposure of wholly owned Canadian companies below in the section "Canadian Export Permits".

Second Area of Inquiry: Employees/Officers/Directors

For Canadian companies and multi-nationals in Canada (we assume that U.S. subsidiaries and branches will have Americans in the organization), an important question is whether decision makers are Americans.  U.S. law applies to Americans in the U.S. and outside the U.S.  If there are American individuals in the company, it may be that the decision tree within the organization may need to be adjusted to remove Americans from decisions on business with Iran and/or you may need to take further steps to ensure they are not in violation of U.S. sanctions.

Third Area of Inquiry - the Goods Sold to Iran

If there is business with Iran, what is the status of that business? Will there be deliverables after the re-imposition of US sanctions.  Will the Canadian company need to apply for a U.S. export permit or OFAC approval before completing a contract or fulfilling an existing contract?

We do not yet know the details about what is to be covered by the new economic sanctions.  In the meantime, each Canadian company with business in Iran needs to identify the contracts with Iran and what goods will be delivered and to whom.  Canadian companies need to be ready to stop certain export transactions. Even though the transaction may not be prohibited under Canadian economic sanctions, the U.S. economic sanctions and trade restrictions may apply

Canadian Export Permits

Canada controls the export from Canada of goods and technology that originates in the United States.  As a general rule (and pursuant to item 5400 of the Export Control List), exporters from Canada must obtain an individual export permit from Global Affairs Canada for U.S. origin goods and technology.  ECL Item 5400 covers:

"All goods and technology of United States origin, unless they are included elsewhere in this List, whether in bond or cleared by the Canada Border Services Agency, other than goods or technology that have been further processed or manufactured outside the United States so as to result in a substantial change in value, form or use of the goods or technology or in the production of new goods or technology."

Canadian companies who export goods and/or technology to Iran must obtain a Canadian Individual Export Permit for each shipment.  Global Affairs Canada will require a copy of a U.S. export permit.  If the new U.S. sanctions cover the goods in question, it is unlikely the Trump Administration will grant the U.S. export permit required by Global Affairs Canada.

There is an important clarification to the above rule.  Goods and technology that "have been further processed or manufactured outside the United States so as to result in a substantial change in value, form or use of the goods or in the production of new goods" are excluded from the controls is item 5400.  There is no written guidance on what "significant change" means.  While, as a rule of thumb, a "significant change" normally is normally around 50% of the regional value content in Canada, there are no rules for the calculation of regional value content in the context of Item 5400.  Other factors and considerations come into play.

When conducting the analysis, it is important to prepare a bill of materials for the finished product to be exported from Canada and identify which inputs are of U.S. origin. You will need to include the B3 customs documentation relating to the imports of the U.S. origin goods or the invoice received from a distributor or seller in Canada.  This is a starting point and the result can be influenced by the role of particular inputs in the finished product. For example, if the essential character of a finished product is derived from U.S origin goods, it can be that the finished good is controlled.

Canadian companies and trusts that sell Canadian manufactured goods to Iran will need to undertake a compliance review with respect to goods made from U.S. inputs and revisit their analysis.

Getting Paid

If the U.S. re-imposes economic sanctions on Iranian financial institutions, Canadian companies may find it more difficult to get paid.  Most business is conducted in U.S. dollars.  Many USD payments go through U.S.-based financial institutions.  If U.S. financial institutions cannot deal with certain Iranian banks, Canadian companies may run into difficulties getting paid too.

Canadian companies doing business with Iran should review the financial arrangements in contracts and restructure payment arrangements as needed.

Review Existing Lines of Credit and Loan Documentation

Canadian companies and trusts that do business with Iran should review all existing credit facility and loan agreements.  Many contracts contain representation and warranty provisions and covenants to comply with all laws, including U.S. economic sanctions laws.  Some agreements specify compliance with U.S. economic sanctions laws.  It is possible that a Canadian business will have to report certain business to their financial institutions under the credit facility and loan contracts and that activities relating to Iran would put those agreements in jeopardy.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions