It has been 18 months since Canada along with the United States and the European Union (EU) began imposing escalating rounds of economic sanctions measures against Russia in response to the political crisis in the Crimea region of Ukraine. This update provides a summary of the most recent measures taken by Canada, a general overview of the cumulative effect of those measures, and our recommendations concerning compliance.
In response to the continuing political crisis in Ukraine, Canada announced and made effective further economic sanctions on June 29, 2015. These measures follow a series of measures implemented as of March 2014. These latest sanctions added three individuals as well as 14 Russian entities – including energy giants Gazprom, Gazprom Neft, Surgutneftegas and Transneft – to the list of designated persons under the Special Economic Measures (Russia) Regulations (the Russia Regulations), and also amended the Special Economic Measures (Ukraine) Regulations in order to further restrict a number of activities or dealings by any person in Canada or any Canadian outside of Canada.
These measures follow previous broad-ranging measures implemented on February 17, 2015, which added 11 Russian and 26 Ukrainian individuals to the designated persons list, as well as 17 additional entities. Most notably, Canada targeted global petroleum giant Rosneft in that round of sanctions.
The first round of economic sanctions imposed in March 2014 by the Canadian government in response to Russia’s military intervention in Crimea targeted certain former Ukrainian government officials and their family members by imposing asset freezes.
Since those initial measures, the Canadian government has continued to impose over the ensuing 18 months increasingly broader and tougher sanctions targeting additional Russian and Ukrainian individuals and entities, and key sectors of Russia’s economy.
The Russia Regulations prohibit persons in Canada and Canadians abroad from:
- dealing in any property, wherever situated, held by or on behalf of designated persons or providing financial or related services, whether directly or indirectly, in respect of such property;
- making any goods available to designated persons; and
- providing financial or related services to or for the benefit of the designated persons.
The Russia Regulations also prohibit any person within Canada and Canadians outside Canada from in any way causing, assisting or promoting any of the prohibited activities. There are a very limited number of exemptions.
Canadians and Canadian companies are also required to carry out due diligence, and search, freeze and disclose to the RCMP any property in their possession or control that they know or believe to be directly or indirectly controlled by a designated person or by an entity controlled by a designated person.
The Russia Regulations also target the financial and energy sectors. These sector-based objectives are achieved partly by prohibiting any person in Canada or any Canadians abroad from transacting in, providing or dealing in a loan, bond or debenture of longer than 30 or 90 days maturity with the designated persons listed on Schedules 2 and 3, respectively, or with their property or any interests or rights in their property.
Persons in Canada or any Canadians abroad are also blocked from transacting in, providing or otherwise dealing in capital funding through the transaction of shares in exchange for an ownership interest in relation to Schedule 2 designated persons, their property, or interests or rights in their property.
Finally, export, sale, supply or shipment of certain goods used in oil exploration and production (including shale oil) that are listed in Schedule 4 of the Russia Regulations, are prohibited.
Compliance Obligations and Risk Mitigation
Canadian companies and nationals operating abroad can mitigate the risk of non-compliance by carefully reviewing their business activities and monitoring any transactions that could be implicated under the increasingly broader Russia Regulations. Until the situation in Crimea is resolved, we can anticipate seeing additional sanctions being taken against Russia by Canada and its major trading partners.
It is critical that all Canadian businesses operating abroad put into place trade compliance programs and screening procedures, and continue to stay up to date on such regulatory developments. As noted previously, the Canadian government has appeared increasingly willing to enforce its economic sanctions even when the violation is possibly due to inadvertence. In February 2014, Alberta-based company Lee Specialties Ltd. (Lee) was charged with violating the Special Economic Measures Act by attempting to export controlled goods to the Islamic Republic of Iran. The company pleaded guilty in April 2014 and the plea agreement required that Lee pay a fine of $90,000 even though the exported goods in question were a single shipment valued at only $15.