On February 24, 2022, and February 28, 2022, the Government of
Canada announced wide-ranging new economic sanctions and other
measures targeting Russia in connection with the escalating
conflict in Ukraine. These announcements follow similar measures
imposed by the governments of other G7 countries.
The new sanctions measures are introduced through amendments to
the Special Economic Measures (Russia) Regulations (Russia
Regulations) and the Special Economic Measures (Ukraine)
Regulations (Ukraine Regulations). Many of these measures are in
effect as of February 24, 2022, and additional measures were added
and are in effect as of February 28, 2022.
Canada has also cancelled existing export permits to transfer
controlled goods to Russia, and will refuse to issue new permits,
subject to narrow humanitarian exceptions.
These measures have potentially significant impacts on Canadian
businesses which export to or do business with Russia or
Russian-based businesses.
Canada has indicated that more measures targeting Russia are to
come. We will update this bulletin as changes occur.
PROHIBITIONS BROADLY TARGETING RUSSIAN FINANCIAL SECTOR
In a significant development, the Government of Canada
designated most financial institutions in Russia under Schedule 1
of the Russia Regulations. Institutions and persons listed in
Schedule 1 are subject to a comprehensive ban under the Russia
Regulations that prohibits the provision of any financial or
related services to, and most dealings in the property of, these
designated entities. The Russian financial institutions that were
added to Schedule 1 include five of the six major banks in Russia
that were previously designated under Schedule 2 of the Russia
Regulation and were subject to sectoral sanctions prohibiting
dealings in specified debt and equity securities only. Under the
new sanctions program, almost all transactions with these financial
institutions will be prohibited, including correspondent banking
services, lending and investments. Canadian businesses will also
need to reassess their existing or anticipated transactions with
counterparties that rely on financing from these designated
financial institutions.
Similarly, many of the Russian energy companies listed in Schedule
3 of the Russia Regulations were moved to Schedule 1, bringing them
into the comprehensive prohibition framework.
On February 28, 2022, Canada also amended the Russia Regulations
to designate the Russian central bank, sovereign wealth fund and
ministry of finance under Schedule 1. In an earlier version of the
amended Russia Regulations, issued on February 24, these entities
were listed under a separate schedule and subject to a prohibition
that was limited to dealings in new debt issued by these entities.
However, with their new listing under Schedule 1, almost all
dealings with the Russian central bank, sovereign wealth fund and
ministry of finance are now prohibited. This measure is intended to
prevent Russia from deploying its international currency reserves.
In this respect, we also note that the Bank of Canada was added to
the list of financial institutions that are required to screen and
report on the property of designated persons under the Russia
Regulation.
Overall, more than 400 new individuals and entities have been
added to the list of designated persons in Schedule 1, including
other major Russian companies, members of the Russian parliament
and other government officials, their relatives and businesses.
Following initial amendments on February 24, Canada published new
regulations on February 28, 2022 to add Russian president Vladimir
Putin and other top government officials to Schedule 1.
The prohibitions in respect of Schedule 1 designated persons do
not expressly extend to their subsidiaries but Canadian businesses
engaging in transactions with entities that have a connection to a
designated person will need to assess carefully the impact of the
connection on compliance with the prohibitions.
Canada and the other G7 countries also announced that several Russian banks will be
expelled from the SWIFT payment messaging system.
Canada has also announced, but not yet published, amended
regulations targeting individuals in Belarus. This bulletin will be
updated with details on these additional sanctions once regulations
are published.
REGIONS OF UKRAINE
Amendments to the Ukraine Regulations prohibit activities in
connection with specified regions in eastern Ukraine, referred to
in the regulations as "the so-called Donetsk People's
Republic and the territory it controls in the Donetsk oblast of
eastern Ukraine" and "the so-called Luhansk People's
Republic and the territory it controls in the Luhansk oblast of
eastern Ukraine" (DNR and LNR).
These restrictions largely mirror the prohibitions currently in
place in respect of Crimea and prohibit Canadians and persons in
Canada from engaging in the following activities:
- Making an investment that involves dealing in property located in DNR or LNR that is owned, held or controlled by such a region or a person there
- Providing or acquiring financial services or related services with respect to an investment in DNR or LNR
- Importing, purchasing, exporting or selling goods to or from DNR, LNR or any person there
- Providing technical assistance to DNR, LNR or any person there
- Providing or acquiring financial or other services related to tourism to DNR, LNR or any person there.
SCOPE OF APPLICATION
Like all Canadian sanctions regulations, the new prohibitions
under the Russia Regulations and Ukraine Regulations apply to all
Canadian-incorporated entities and Canadian citizens, whether they
are domiciled in Canada or elsewhere, and to all entities and
individuals in Canada. The sanctions apply immediately.
Financial institutions, securities dealers, portfolio managers,
fund managers, custodians and other participants in the capital
markets and financial services industry, as well as all Canadian
businesses dealing with businesses based in Russia or owned or
controlled by Russians, should ensure that their sanctions
screening and compliance programs take into account the expanded
lists of designated persons, new prohibitions with respect to debt
and the newly targeted regions.
EXPORT PERMITS
Canada has also cancelled all existing export permits issued
prior to February 24, 2022, under the Export and Import Permits
Act for exporting or brokering items to Russia, and halted
issuance of all future export permits. This means that any item on
Canada's Export Control List requiring an export permit cannot
be exported to Russia as of February 24, 2022. There is no
exception that would permit the exportation of items under
pre-existing contractual agreements or previously issued export
permits. Only export permit applications related to narrow end-uses
such as medical supply and humanitarian needs will be considered on
a case-by-case basis going forward.
In addition, pre-existing prohibitions under the Russia
Regulations on the exportation, sale, supply or shipment of goods
for offshore, Arctic, or shale oil exportation or production
continue in effect.
CONCLUSION
Given that Canada is in many ways a trading nation, the newly
announced measures will require Canadian businesses to carefully
assess their business relationships and transactions to ensure
compliance with the broad new scope of the Russia
prohibitions.
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