On August 6, 2014, the continued turmoil in eastern Ukraine caused the Government of Canada to expand its economic sanctions against Russia and Ukraine by adding entities and individuals to its lists of “designated persons”.
Persons in Canada and Canadians outside Canada are prohibited from engaging in a range of activities that involve designated persons. The restrictions differ depending on which Schedule to the Special Economic Measures (Russia) Regulations (Russia Regulations) the designated person is listed.
On July 25, 2014 the Russia Regulations were amended (see our previous client alert for a detailed outline of these amendments). As a result of these amendments, there are now three schedules of designated persons:
- Schedule 1: There are broad prohibitions against dealing in the property of these designated persons, facilitating such dealings, providing or acquiring financial services to or for their benefit, and making goods available to them. Up until now, this has been the only list for designating Russian individuals and firms.
- Schedule 2: There are restrictions on new debt and new equity transactions involving persons designated under this schedule.
- Schedule 3: There are restrictions on new debt transactions involving these designated persons.
Targeted Ukrainian and Russian Companies
In addition to adding 41 individuals and entities to the sanctions list, the Canadian government has designated a range of Ukrainian and Russian companies. Most of these additions mirror the recent changes to the EU and US sanction lists.
The following commercial entities have been added to Schedule 1 of the Russia Regulations and are subject to the broad prohibitions described above:
- United Shipbuilding Corporation
- Dobrolet (also known as Dobrolyot)
- Russian National Commercial Bank
- Kerch ferry
- Kerch commercial seaport
- Sevastopol commercial seaport
- Azov distillery plant
- Magarach of the national institute of wine
- Factory of sparkling wine Novy Svet
- National Association of producers “Massandra”
- Resort “Nizhnyaya Oreanda”
The following commercial entities have been added to Schedule 2 of the Russia Regulations and are subject to the prohibitions regarding new debt and new equity transactions:
- VTB Bank OAO
- Bank of Moscow
- Russian Agricultural Bank (Rosselkhozbank)
New Controls on Energy and Defence Exports and Transfers
Recently, the EU implemented export restrictions on military and military dual-use goods and technology destined to Russia. The US has not adopted explicit restrictions on the export of dual-use or military goods and technology to Russia; however, the US Government has withdrawn Russia’s favourable licensing status for items subject to national security controls. Canada has indicated that it has implemented similar restrictions on exports and transfers of technology to Russia under its export control regime which already requires permits for such transfers to most countries.
Further, in a written statement, Prime Minister Harper stated that Canada is “committed to imposing the necessary regulations to enact export restrictions on technologies used in Russia’s oil exploration and extraction sector”. Prime Minister Harper explained that these additions would be implemented in unison with other allied countries. Both the US and the EU have already implemented new restrictions on the export of energy sector related goods.
Continued Due Diligence Regarding Designated Persons
All persons in Canada and all Canadians outside Canada should continue to screen their transactions and conduct due diligence regarding these and over 2,000 other entities and individuals listed under Canada’s economic sanctions legislation. Subject to certain limited exceptions, it is prohibited to engage in any dealings involving the property of these persons, to provide financial or other related services to them, or to make goods available to them.
There are also reporting obligations for persons in Canada and Canadians outside of Canada who have in their possession or control property they believe is owned or controlled, directly or indirectly, by a designated person. This reporting obligation extends to information about transactions or proposed transaction in respect of such property.