Effective May 22, 2012, Canada imposed new sanctions against Syrian individuals and government entities in response to the ongoing violence perpetrated by the regime of Syrian President Bashar Al‐Assad. In exercising its power under the Special Economic Measures Act (“SEMA”), the Canadian government amended the Special Economic Measures (Syria) Regulations (the “Regulations”). This amendment furthered standing sanctions on trade with Syria.
This alert provides an overview of the new sanctions. These additional measures should be reviewed carefully and incorporated into the export compliance and screening protocols of Canadian companies who do business not just in and around Syria, but in international trade more generally. Anyone contemplating any form of business transaction or undertaking which even indirectly involves Syria would be well advised to seek legal advice prior to proceeding.
On May 24, 2011, Canada first imposed economic sanctions against Syria with legislation authorized under SEMA. The Canadian legislation was written consistently with sanctions imposed by the United States and European Union.
The Canadian regulations, which have already been amended seven times since their inception, apply to any individual, body corporate, trust, partnership, fund, unincorporated association or organization in Canada and any Canadian citizen or Canadian corporation outside Canada. The Regulations impose significant restrictions on transactions with designated Syrian individuals and entities including the following:
- An asset freeze that prohibits any dealings, direct or indirect, with the property of designated individuals and entities;1
- Prohibitions against the importation of goods from Syria to Canada;
- Prohibitions against new investments in Syria;
- Prohibitions against the provision or acquisition of all financial related services to or from Syria;
- Prohibitions against selling, exporting or shipping any goods used in the monitoring of telecommunications, including the provision of related technical data; and
- Prohibitions against selling, exporting or shipping luxury goods to Syria.2
Overview of New Sanctions
The May 22, 2012 amendments are aimed to strengthen and expand the suite of sanctions already imposed by the Canadian government, by:
- Prohibiting the export, sale, supply and shipping to Syria of luxury goods such as: jewellery, gems, precious metals, watches, cigarettes, alcoholic beverages, perfume, designer clothing and accessories, furs, sporting goods, private aircraft, gourmet foods and ingredients, lobster, computers, televisions and other electronic devices;3 1 A full list of the designated individual and entities may be found in a Schedule to the Regulations.
- The luxury goods sanction is new, and a major focus of this client alert.
- This list is non‐exhaustive. Goods left unlisted may nevertheless be considered as ‘luxury goods’ subject to sanction. 2. Imposing asset freezes and prohibitions on dealings with three new individuals: Salim Altoun, Youssef Klizli and Adbig Mayleh; and 3. Imposing asset freezes and prohibitions on dealings with three further entities associated with the Assad regime: the General Organization of Radio and TV (also known as GORT), the Altoun Group, and the General Organization of Tobacco.
While the sanctions dealing with prohibited individuals and entities are substantially clear, the prohibition against dealing luxury goods, which offers an imprecise definition of the term ‘luxury goods,’ is not.
Exporters may encounter difficulty in interpreting the scope of goods listed in the definition, as certain examples are classified with vague terminology. For instance, it may be difficult for an apparel company to determine whether its goods are ‘designer clothing’ or for a footwear company to determine whether its product is, in fact, a ‘sporting good.’ The list featured in the ‘luxury goods’ definition is also non‐exhaustive, which means that it is possible for an unlisted good to be considered a ‘luxury good’ despite its absence from the definition.
As a practical matter, where such uncertainty arises in the legislation it is common for the regulator (the Export Controls Division of the Department of Foreign Affairs and International Trade) to decline to offer conclusive interpretations but rather to advise exporters to simply apply for an export permit. Particularly for exporters who have not previously undertaken this process, it is recommended that permit applications be prepared with the aid of expert legal advice.
New Designated Entities and Individuals
The General Organization of Radio and TV is a state‐run media entity which has, according to the US Treasury, “served as an arm of the Syrian regime as it mounts increasingly barbaric attacks on its own population and seeks both to mask and legitimize its violence.”4
The General Organization of Tobacco is likewise owned by the Syrian state. The organization funds the Assad regime through profits from its monopoly on the sale of foreign brands of tobacco, and taxing import foreign brands to Syria. 5
The Altoun Group is a large state‐connected conglomerate involved in the export of Syrian oil and in international trade more generally, including trade in food, machinery and vehicles. Under its chairman Salim (Saleem) Altoun and his assistant Youseef Klizli, it uses the listed company ‘Sytrol’ to provide revenue to the Assad regime.6
Salim Altoun, Youseef Klizli and Adib Mayaleh,the Governor of the Central Bank of Syria, now appear on Canada’s list of individuals subject to an assets freeze and a prohibition on economic dealings.
Furthermore, given that the Altoun Group in particular has extensive and diverse interests in the Syrian economy and international trade, Canadian exporters should carefully scrutinize any existing or proposed deals with Syrian companies and individuals to ensure they are compliant with the new sanctions. The Canada Border Services Agency (CBSA), which enforces sanctions, will undoubtedly have a close eye on exporters of all types of goods to this area of the world.
Canada increasingly uses trade controls and economic sanctions against failed or failing regimes as part of diplomatic efforts to change the conduct of those regimes. As demonstrated by the history of the Syria Regulations, the frequency with which these regulations are amended mean that an activity that was legal one day may become illegal or prohibited the next. As a result, it is critical to have well‐designed internal controls that are continuously monitored to ensure an ability to react effectively to such changes in the law.
Apart from reducing the risk of liability and penalties imposed by legislation, an effective internal compliance regime can minimize business interruptions, inform transactional due diligence, and uphold contractual representations and warranties.
Depending upon the nature of your business and clientele, as well as the comprehensiveness of your existing internal compliance protocols, the following steps may be appropriate:
- Development or revision of export and other internal compliance strategies to ensure proper identification and screening of sanctioned individuals and entities among existing and future customers;
- Assigning sanction compliance responsibility to senior corporate executive(s) to ensure strong, explicit and visible support from senior management;
- Awareness training for employees, officers and directors who are responsible for business development, sales, and regulatory compliance in general;
- Review and possible revision of licences, standard sales agreements, supplier or service contracts, real estate leases and financial services and payment arrangements;
- Review of in‐process or contemplated M&A transactions, including asset purchases;
- Screening of property, including intellectual property, in the company’s possession or control which may be owned or controlled, directly or indirectly, by a sanctioned person or entity;
- Due diligence and compliance requirements for the retention and oversight of agents and business partners, including the documentation of such due diligence, ensuring they are aware of the company’s commitment to trade sanction compliance, and seeking reciprocal commitments;
- Standard provisions in agreements with agents and business partners to prevent trade sanction violations and provide termination rights in the event of any breach of any trade sanction;
- Regular review and testing of trade sanctions compliance systems; and
- For financial institutions, deployment and continuous updating of systems for ongoing searching, monitoring and disclosure of suspect transactions so as to comply with the “duty to determine” imposed by sanctions legislation. Canadian companies are also reminded that Canada’s imposition of new sanctions and controls on trade will generally supersede, or place new limits on, any import or export permits which may have been granted prior to the sanctions taking effect. Certain exceptions or special permits may be available, but access to these should not be taken for granted.