The Special Economic Measures
On March 17, 2014, the Canadian Government imposed economic sanctions against Russia pursuant to the Special Economic Measures (Russia) Regulations (the “Russian Regulations”). Since then the economic sanctions have been expanded seven (7) times. The most recent amendments, issued by the Government on July 24, 2014, substantially widen the range of activities affected by these sanctions.
The Russian Regulations initially imposed an asset freeze on a small list of designated persons and entities. As of July 24, 2014, 48 Russian individuals and 26 Russian companies have been listed by the Canadian Government as “designated persons”. These designated persons are now referred to as “Schedule 1” designated persons.
The Russian Regulations prohibit persons in Canada and Canadians abroad from:
- dealing in any property, wherever situated, held by or on behalf of a designated person;
- entering into or facilitating, directly or indirectly, any transaction related to such a dealing;
- providing any financial or related service in respect of such a dealing;
- making goods, wherever situated, available to a designated person; and
- providing any financial or related service to or for the benefit of a designated person.
In addition to these prohibitions applicable to designated persons, the most recent amendments create two additional categories of designated persons – referred to as “Schedule 2” and “Schedule 3” designated persons. Schedule 2 or 3 designated persons are entities owned or controlled by, or acting on behalf of, a person engaged in activities that directly or indirectly facilitate, support or provide funding for or contribute to a violation or an attempted violation of the sovereignty of Ukraine. Currently there are two Schedule 2 entities, Gazprombank OAO and VEB, and one Schedule 3, Novatek.
The most recent amendments introduce, for the first time, limitations on certain types of debt and equity financing. Specifically:
- Persons in Canada and any Canadian outside Canada are now prohibited from transacting in, providing or otherwise dealing in a loan, bond or debenture of longer than 90 days’ maturity in relation to a Schedule 2 or 3 designated person, the property of a Schedule 2 or 3 designated person or the interests or rights in property of a Schedule 2 or 3 designated person; and
- Persons in Canada and any Canadian outside Canada are now prohibited 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 person, the property of a Schedule 2 designated person, or the interests or rights in property of a Schedule 2 designated person.
The rapid expansion of these economic sanctions, in particular the broadened scope created by this most recent amendment, highlights the need for Canadian companies conducting business in Russia, or with Russian business partners outside of Russia, to take all steps necessary to ensure ongoing compliance with Canadian law.