Effective May 24, 2011, Canada imposed economic sanctions on certain Syrian individuals and government entities in support of similar measures taken by the United States and the European Union and consistent with Canada’s responses to recent events in Libya, Egypt, and Tunisia.
These new sanctions should become part of the export compliance and screening protocols of Canadian companies who do business not just in and around the countries involved, but in international trade more generally. For more information, please also see our newsletter “Sanctions against Libya, Egypt and Tunisia".
Special Economic Measures Against Syria
The Special Economic Measures (Syria) Regulations (the “Regulations”) apply to any individual, body corporate, trust, partnership, fund, unincorporated association or organization in Canada and any Canadian citizen or Canadian corporation outside Canada. They impose significant restrictions on transactions with designated Syrian individuals and entities, including the following:
- An asset freeze that prohibits any dealings with the property of designated individuals and entities.
- Prohibitions against any trade or other economic transactions with or for the benefit of designated individuals and entities.
- Prohibitions against the provision of any financial or related services to or for the benefit of designated individuals and entities.
- Searching, monitoring, and reporting obligations for companies and financial institutions.
a) Measures Targeting Designated Persons and Entities
The Regulations designate a number of Syrian individuals and Syrian entities as subject to sanctions. Designated individuals include President Bashar Al‐Assad, senior government officials, and certain prominent Syrian businesspersons. Designated entities are primarily those connected to the Syrian defence, security, and intelligence establishment and include the Syrian Ministry of Defence, the General Intelligence Directorate, and the Syrian Ministry of the Interior.
Under the Regulations, persons in Canada and Canadians outside Canada are essentially prohibited from entering into any transaction with, or providing any service or benefit to, these designated persons. This includes assisting or otherwise causing a prohibited transaction.
More specifically, Canadians or persons in Canada are prohibited from dealing directly or indirectly with any property, wherever situated, that is owned or controlled by designated individuals or entities or their agents, or entering into or facilitating any transaction in respect of such property. In addition, Canadians or persons in Canada may not directly or indirectly provide any goods, wherever situated, to a designated person or entity or provide any financial or related service to or for the benefit of designated persons or entities. Anyone who willfully contravenes or fails to comply with the measures is guilty of an offence and is liable to a fine or imprisonment or both.
Canadian exporters are expected to conduct due diligence to verify the identity and legitimacy of new and existing Syrian customers and commercial relationships, even where transactions occur outside of Canada or Syria. It appears that various members of the Assad family, their inner circle, and members of the Syrian security services who are listed as designated persons in the Regulations have considerable interests in the Syrian economy. For example, Rami Makhluf, a cousin of President Assad, is considered one of the most powerful businessmen in Syria. His main holding company, Cham Holding, is Syria’s largest private company and is deeply involved in Syria’s telecommunications, commercial, real estate, oil, gas, and banking sectors. Mr. Makhluf also controls SyriaTel, Syria’s largest mobile phone provider.
b) Monitoring and Reporting Obligations
Every person in Canada and every Canadian outside Canada must disclose, without delay, to the RCMP the existence of property in their possession or control that they have reason to believe is owned or controlled, directly or indirectly, by a designated person or by an entity owned or controlled by a designated person. Actual or proposed transactions related to such property must also be disclosed.
As with other economic measures of this sort, financial institutions have an additional and continuing duty to search, monitor, freeze, block, and disclose whether they are in possession or control of any property owned or controlled by or on behalf of a designated person. At a minimum it is expected that federally regulated deposittaking institutions search their records for designated persons on a weekly basis and more frequently if need be. The Superintendent of Financial Institutions’ Notice respecting the Regulations provides further guidance for Canadian financial institutions subject to these sanctions.
The sanctions in place against Syria do not constitute a ban on all financial dealings to or from Syria; transactions are permitted provided they do not infringe any of the prohibitions in sections 3 and 4 of the Regulations. To recap, transactions are prohibited if they involve designated persons or their property or are being conducted on behalf or for the benefit of a designated person.
However, given the ongoing uncertainty of the situation in Syria and the considerable interests of the Syrian government and its officials in the Syrian economy, it is not unlikely that large Canadian financial institutions will choose to err on the side of caution by refusing to facilitate any or most transactions involving Syria, including legitimate transactions. Persons who find their legitimate business dealings impeded in this manner should consult legal counsel.
The prohibitions do not apply to any activity engaged in pursuant to an agreement or arrangement between Canada and Syria or to humanitarian goods and services provided by recognized international aid agencies. Moreover, any payment made by or on behalf of a designated person that is due under a contract entered into before the person became a designated person is not subject to the prohibitions, provided that the payment is not made to or for the benefit of a designated person. The Regulations also provide for special permits to be granted at the discretion of the Minister to allow what would otherwise be prohibited transactions. It is unclear how readily such permits will be issued. If you think you may require such a permit, our International Trade Group can assist you in your efforts to obtain one.
Future Ban on Exports of Particular Goods and Technology
In addition to the Special Economic Measures Regulations, the Government of Canada has indicated that it also intends to institute a ban under the Export and Import Permits Act on exports to Syria of goods and technology that are subject to export controls. This includes, but is not limited to, arms, munitions, military, nuclear, and strategic items that are intended for use by the armed forces, police, or other government agencies of Syria. This additional measure had not been implemented at the time this newsletter was released, but once enacted it will significantly broaden the trade restrictions on Canadians doing business with Syria.
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. What this means to business is 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, informing transactional due diligence, and upholding 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;
- 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; 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.