The Standing Committee on International Affairs and International Development recently released its report entitled “A Coherent and Effective Approach to Canada’s Sanctions Regimes: Sergei Magnitsky and Beyond”.
The report looks at the effectiveness of sanctions as a foreign policy tool, and considers the regulatory and administrative structures the Government of Canada has put in place to implement sanctions measures through the Freezing Assets of Corrupt Foreign Officials Act, the Special Economic Measures Act and related legislation. The report goes on to discuss issues related to private sector compliance with sanctions regulations as well as their enforcement by the Government. Thirteen recommendations are made in the report, with a focus on promoting an effective and coherent Canadian sanctions program.
One of Tereposky & DeRose’s partners, Vince DeRose, testified before the Standing Committee. Mr. DeRose’s testimony was relied upon by the Standing Committee in developing several its recommendations.
Canada’s Sanctions Regime is Complex
The report highlights the complexity of Canada’s sanctions system.
There exist significant differences between sanctions regimes and the variety of measures imposed. These range from blanket prohibitions to sectoral or geographic measures, and those targeting individuals and entities.
The use of multiple pieces of legislation, namely the Freezing Assets of Corrupt Foreign Officials Act, the Special Economic Measures Act, the United Nations Act, the Export and Import Permits Act, further complicates the imposition of sanctions. A given sanctions regime can be governed by a series of regulations, each with their own enabling Act, all of which must be read and interpreted together.
Moreover, this complexity extends into the administration of Canada’s sanctions system, which has both domestic and international elements, and involves law enforcement, financial regulation and border control.
Restructuring the Administration of Canada’s Sanctions Regime
While the government enacts and administers Canada’s sanctions regimes, its effectiveness ultimately rests with the private sector.
Private sector firms must have a clear understanding of the scope of sanctions measures – including clear understandings of both the restriction put in place and related exceptions. Vagueness and lack of clarity result in over-compliance, wherein firms and individuals choose to follow the safest or broadest interpretation of a measure to avoid risking punishment for non-compliance. The cost of complying with sanctions regulations also affects how the private sector chooses to implement sanctions measures.
The more difficult sanctions regulations are to interpret, the greater the risk for over-compliance. The cost of complying with a sanctions regime further amplifies this problem, as Canadian businesses unwilling to bear the compliance costs will turn away legitimate business from a country targeted by sanctions.
While significant, large sophisticated institutions like banks can carry the burden of compliance, smaller businesses, often lack the resources and expertise to do so. Many companies in Canada, particularly small and medium-sized enterprises, do not have sophisticated and expensive control systems in place to ensure that they remain compliant with Canada’s economic sanctions.
The Standing Committee concluded that there is a need to restructure the administration of Canada’s sanctions regime. Changes are needed to better reflect their essentially dual nature – as both a tool of international statecraft and a domestic regulatory system – and to ensure that the proper resources are provided to fulfil both elements of their administration.
A number of witnesses, including Vince DeRose from Tereposky & DeRose, requested written guidance on how programs for compliance with Canadian economic sanctions can be developed and how Canadian companies that have already developed compliance programs can determine whether their existing compliance programs are adequate from the perspective of the Canadian government. The Standing Committee agreed, recommending that the Government of Canada provide comprehensive, publicly available, written guidance to the public and private sectors regarding the interpretation of sanctions regulations to maximize compliance. The Standing Committee also concluded that the Government of Canada should produce and maintain a comprehensive, public and easily accessible list of all individuals and entities targeted by Canadian sanctions containing all information necessary to assist with the proper identification of those listed.
In our view, implementation of these recommendations will improve Canada’s sanctions regime. Most importantly, such changes should better facilitate cost-effective compliance with Canada’s sanctions regime by the private sector.
The Enforcement of Sanctions Legislation
The Standing Committee was of the view that criminal violations are likely occurring and going uninvestigated.
The Standing Committee also observed that the reasons why so few criminal investigations and prosecutions for sanctions violations have occurred was not fully answered by testimony. Neither the RCMP nor CBSA representatives suggested that any aspect of the legislation impeded prosecutions, nor was this suggestion made by any other witness.
The testimony from a number of witnesses supported a conclusion that the lack of investigations arose because of the combination of lack or resources, the prioritization of investigations by the RCMP with focus placed on anti-terrorism and violent crime, and a general expectation and assumption by the government that Canadian companies will comply with Canadian law.
The Standing Committee concluded that the proper enforcement of sanctions measures is critical to the overall effectiveness of Canada’s sanctions regimes and that the Government should make enforcement a priority. The Standing Committee recommended that the Government ensure that law enforcement agencies highly prioritize the enforcement of sanctions measures and are given the necessary resources to fulfil their duties.
As this recommendation is implemented, it will become more important than ever for Canadian businesses to ensure compliance with Canada’s sanctions regime.
The lawyers at Tereposky & DeRose have significant experience in the design and implementation of sanctions-related compliance programs, including policies, procedures, employee training, and internal control mechanisms. They also regularly assist both Canadian and international businesses, financial institutions, and individuals with internal investigations when “red flags” appear, and provide advice on compliance in these areas. Where beaches have occurred, they have worked closely with their clients in making voluntary disclosures and in engaging with the ensuing investigations conducted by the RCMP and Global Affairs Canada.