B. Free Trade Agreements
On March 24, 2022, Canada and the U.K. launched free trade agreement (FTA) negotiations. Once it enters into force, this agreement will replace the existing Canada-United Kingdom Trade Continuity Agreement, and largely replicates the obligations in the Canada-European Union Comprehensive Economic and Trade Agreement. The fourth round of negotiations was completed December 2022 and the parties have agreed to conclude the agreement by 2024.
Canada is also negotiating a FTA with the Association of Southeast Asian Nations (ASEAN), and the parties completed the second round of negotiations in November, 2022. Three ASEAN Member States—Brunei, Malaysia, and Vietnam—are also Parties to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), though Brunei has not yet ratified the Agreement. Canada also continues negotiating a FTA with Indonesia, and a third round of negotiations was held in October 2022. The negotiation of these two Agreements forms part of Canada’s Indo-Pacific Strategy, announced on November 27, 2022.
C. WTO Developments
In July, an Article 22.6 arbitration decision provided Canada with the methodology that it may use to retaliate against any future U.S. countervailing duties imposed on Canadian-origin supercalendered paper. This decision comes over two years after Canada successfully challenged the U.S. imposition of countervailing duties. Canada settled its dispute with China over the latter’s 2019 decisions to suspend imports of Canadian canola seeds based on the alleged presence of certain pests. The dispute was resolved after China reinstated market access for the affected companies on May 18, 2022.
Canada’s participation in the Ottawa Group on WTO reform continued in 2022. The focus of the Ottawa Group’s advocacy this year was the war in Ukraine, with members issuing several statements condemning Russia’s aggression. Two disputes were finalized in 2022 under the new WTO Multi-Party Interim Appeal-Arbitration Arrangement (MPIA) established by Canada and other WTO Members in response to the WTO Appellate Body impasse.
D. Disputes under Canada’s Free Trade Agreements & Softwood Lumber Developments
In 2022, each of Canada, Mexico, and United States made use of Chapter 31 dispute settlement procedures in the Canada United States Mexico Agreement (USMCA/CUSMA), the long-standing Canada-U.S. softwood lumber dispute continued, and Canada encountered a new dispute under the CPTPP.
In February, a panel released its report respecting Canada’s complaint against U.S. measures on crystalline silicon photovoltaic cells (used in solar panels), finding that the U.S. measures violated the USMCA/CUSMA. The U.S. and Canada resolved the dispute through a subsequent bilateral Memorandum of Understanding. In July, Canada and the U.S. each requested consultations with Mexico based on various measures that allegedly favour Mexico’s state-owned electricity commission. In November, a panel circulated an initial report respecting Canada and Mexico’s challenge to U.S. interpretations of regional value content for automotive goods. While the panel report is not yet public, media reports suggest that Canada and Mexico prevailed.
In May, Canada published new dairy tariff rate quota allocations, which was done in response to a panel report in 2021 that found Canada had breached its USMCA/CUSMA commitments by reserving certain quotas for Canadian dairy processors. The U.S., which brought the original challenge, insists Canada is still not complying with its obligations and launched a second challenge. Finally, New Zealand has brought a nearly identical challenge against Canada’s dairy tariff-rate quota allocations under the CPTPP.
The softwood lumber dispute also continued in 2022 as the U.S. Department of Commerce (USDOC) released its final determinations in its third administrative review on August 9, 2022. While the new AD/CVD rates were reduced, Canada has challenged the finding under the USMAC/CUSMA. Canada also previously challenged the original AD/CVD investigation under the NAFTA, and the first and second administrative reviews under the USCMA/CUSMA. All of these appeals remain outstanding. The USDOC initiated the fourth administrative review on March 9, 2022.
E. Customs–The CARM Initiative and Changes to Importer Liability
In March 2022, the Canada Border Services Agency (CBSA) again delayed the next implementation phase of its Assessment and Revenue Management (CARM) project (Release 2). CARM is a multi-year initiative to replace certain existing customs accounting and enforcement systems with a modernized online solution for the accounting, payment, and collection of duties and certain taxes. Release 2 was originally expected in January 2023 but has now been postponed until at least October 2023. Release 2 is a key milestone because it will permit the submission of electronic commercial accounting declarations, including the ability to make corrections (when duties are owing to the government) and adjustments (when refunds are owed to importers).
Canada’s 2022 federal budget made changes to Canada’s customs law respecting liability for duties and taxes. The changes provide that the entity that declares itself the commercial importer on accounting documents is jointly and severally liable for duties and taxes with the owner and importer of record of the goods. This change is primarily aimed at revenue recapture from importers, third-party-logistics providers, and other intermediaries engaged in the import of e-commerce goods into Canada. While this change was passed in June it has not yet come into force. But, the authors believe it is likely to come into force before the end of 2023 and perhaps in concert with CARM Release 2. We expect this change will result in an increase in post-importation trade compliance audits by the CBSA.
F. Forced Labour and Supply Chain Due Dilligence
Despite Canada amending its customs laws to prohibit the importation of goods produced by forced labour in 2020, Canada continues to significantly lag the U.S. and other trading partners in enforcement action. The CBSA does not publish enforcement statistics but the most recent public information suggests that the CSBA has intercepted just one shipment of goods suspected of being produced by forced labour (an October 2021 shipment of women’s and children’s clothing from China), and even this shipment was subsequently released to the importer. The lack of enforcement spurred an unsuccessful challenge in Federal Court by human rights activists to force the CSBA to implement a “presumptive determination” that goods imported from the Xinjiang region of China were produced by forced labour.
The government has also pressed forward with its support for a new law that would create human rights due diligence reporting requirements, including reporting on efforts to combat child and forced labour, for companies of a certain size operating in Canada. The authors expect that the new law will shine a spotlight on the issue of forced labour generally and will increase pressure on the CSBA to step up its enforcement of the existing import ban.
G. Canadian AD/CVD Proceedings
In 2022, the CBSA initiated two new AD/CVD investigations (respecting drill pipes and mattresses); six country-wide re-investigations (respecting OCTG, line pipe, rebar, seamless casing, grinding media, and corrosion-resistant steel sheet); and the CBSA and Canadian International Trade Tribunal (CITT) conducted four expiry reviews. The CBSA also initiated twenty-four (later terminating three) normal value and export price reviews, which continues the trend of increasing AD/CVD enforcement through this administrative mechanism. Normal value and export price reviews are conducted by the CBSA to update normal values, export prices, and amounts of subsidy on an exporter-specific basis. Normal values are intended, as part of Canada’s prospective anti-dumping regime, to operate as floor prices or methodologies to establish minimum prices for exporters selling goods to importers in Canada.
While the foreign-owned Canadian steel industry continues to be the most prolific users of Canada’s AD/CVD regime, Canada continues to see new cases initiated on consumer goods. For example, upholstered domestic seating in 2021 and mattresses in 2022. These are typically “copy-cat” cases that emerge after similar cases are brought by domestic producers in the U.S. Finally, in the 2022 federal budget, Canada made a number of amendments to its trade remedy laws to, among other things, require the CITT to take into account impacts on workers when assessing injury, consider massive importations, and initiate expiry reviews of certain orders and findings.
II. 2022 Canadian Trade Update Part II
A. Amendments to Regulations Enacted under the Special Economic Measures Act
The Government of Canada has continued to react to global geopolitical and humanitarian crises by implementing and amending existing economic sanctions regulations pursuant to the Special Economic Measures Act (SEMA). The SEMA regulations enforced against Ukraine, Russia, Belarus, Myanmar, and Iran have been amended continuously throughout 2022, and new regulations were implemented against Haiti.
Significant amendments were made to the Special Economic Measures (Russia) Regulations to respond to Russia’s illegal war in Ukraine. There are now over 1,100 designated persons subject to the broad dealings prohibition. The scope of the prohibitions have expanded to include: (1) a prohibition on the docking and passage of ships; (2) a prohibition on the import, purchase or acquisition of certain petroleum products; (3) a prohibition on the export, sale, supply, or shipping of certain restricted goods; (4) a prohibition on the provision of insurance or reinsurance with respect to certain aviation and aerospace goods; (5) a prohibition on the export, sale, supply, shipping, or import of certain luxury goods; (6) a prohibition on the export, sale, supply, or shipping of certain goods used for the manufacture of weapons; (7) a prohibition on the provision of certain services in relation to certain industries; and (8) a prohibition on the import, purchase or acquisition of certain gold products.
In addition to implementing and amending sanctions regulations, Parliament passed amendments to the SEMA in June 2022 which established a civil forfeiture regime. Once an order is made to seize or restrain property the Minister of Foreign Affairs can apply to a judge to order that the property be forfeited to the Crown. The forfeited property can be paid out for the reconstruction of a foreign state adversely affected by a grave breach of international peace and security; the restoration of international peace and security; and the compensation of victims of a grave breach of international peace and security, gross and systematic human rights violations or acts of significant corruption. As of December 2022, the forfeiture regime has yet to be tested in Canadian courts, but the first proceeding is about to be initiated.
B. Amendments to Canadian Export Controls
In addition to amendments to the Russia Regulations, the Government of Canada has also relied on its export controls program to affect the Russian economy. In February 2022, the Government of Canada stopped issuing permits for the export and brokering of controlled goods to Russia. Existing permits were cancelled, effective February 24, 2022.
In November 2022, Global Affairs Canada announced amendments “A Guide to Canada’s Export Control List” (Guide) to reflect the various multilateral export control regimes up to December 31, 2021. After a 30-day notice period, the new Guide came into force as of December 21, 2022. June 2021 amendments to the Export Control List (ECL) incorporate the Guide “as amended from time to time.” Any updates to the Guide to reflect change to the underlying multilateral export control regime enter into force thirty days after publication of the Guide. The addition or amendment of unilateral controls still require regulatory amendments.
C. Modern Slavery Act
The fourth iteration of Canada’s proposed legislation to combat forced and child labour, Bill S-211, the Fighting Against Forced Labour and Child Labour in Suppl Chains Act, has reached its final stage, its third reading, before the House of Commons. Upon receiving royal assent in 2023, the bill will come into force January 2024.
The bill establishes annual reporting requirements for: (1) a government institution that is producing, purchasing, or distributing goods in Canada or elsewhere, and (2) a corporation, or its controlling shareholder, that is either producing, purchasing, or distributing goods in Canada or elsewhere, or importing goods produced outside of Canada, provided that the corporation is listed on the Canadian stock exchange, meets certain financial thresholds, or is prescribed by regulations.
D. Anti-Coruption Enforcement
Looking ahead to Canada’s Phase 4 Organization of Economic Cooperation and Development’s (OECD) Convention on Combatting Bribery of Foreign Public Officials (Convention), the Government of Canada has announced the creation of a national financial crime agency, which would change the course of anti-bribery and financial crime enforcement in Canada, and Canadian agencies have ramped up enforcement of corruption related crimes.
In April 2022, the Government of Canada announced funding for a two-million-dollar study into the creation of a national financial crime agency by Public Safety Canada. Initially, the Government appeared to support an amalgamation of the Canada Revenue Agency, the Financial Transactions and Reports Analysis Center of Canada, and the Royal Canadian Mounted Police (RCMP). It now appears that the Government is less focused on amalgamating existing agencies and, is instead, seeking input from stakeholders as to the role that the proposed agency should undertake in the Canadian financial crime enforcement landscape, perhaps either as a coordinating body or as another independent enforcement agency. The study will continue into 2023 and there is no timeline in place for a final recommendation to Parliament.
With respect to enforcement, the first remediation agreement was entered into with SNC Lavalin and approved by the Quebec Superior Court for fraud and forgery charges under the Criminal Code arising from events related to the refurbishment of the Jacques Cartier Bridge between 1997 and 2004. In September 2022, the RCMP announced charges for fraud under the Criminal Code and bribery under the Corruption of Foreign Public Officials Act (CFPOA) against Ultra Electronic Forensic Technology for events that occurred in the Philippines. Soon after the RCMP announced the charges, the Crown advised the court that the accused and the Public Prosecution Service of Canada had negotiated the first remediation agreement under the CFPOA, which is still subject to approval by the court.
In June 2023, Canada will be reviewed by Austria and New Zealand in the OECD’s Phase 4 review of compliance with the Convention. The Phase 4 review focuses on, amongst other things, weaknesses identified in earlier evaluations and enforcement efforts and results.
III. Canada’s Sanctions & Export Controls Regime
A. Overview: Canada’s Sanctions Regime
Canada’s sanctions regime is a foreign policy tool used to address concerns relating to international peace and security, gross violations of human rights and significant foreign corruption. The regime targets individuals, organizations and foreign states through restrictions on property, financial and business dealings, restrictions on the import and export of goods and services, and transportation bans, among other measures.
Canada’s sanctions regime is implemented primarily through the Special Economic Measures Act (SEMA). The regime also includes the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) (SML), the Freezing Assets of Corrupt Foreign Officials Act (FACFOA), the United Nations Act (UNA), and certain provisions in the Criminal Code. In addition, the Foreign Extraterritorial Measures Act (FEMA) allows the Canadian government to prevent sanctions imposed by other countries from being applied in Canada.
1. Sanctions Under the Special Economic Measures Act
Canada’s economic sanctions are implemented under the SEMA against target countries, individuals and entities engaged in activities that threaten the security or stability of Canada and the international community. The SEMA empowers the federal government (specifically, the Governor in Council (GIC) (i.e., the Cabinet)) to impose economic sanctions in response to breaches of international peace and security; gross and systematic human rights violations; and acts of serious corruption. The SEMA also allows Canada to impose sanctions on the basis of decisions or recommendations of international organizations or associations of states of which Canada is a member.
The SEMA sanctions have been imposed in response to acts of war (including by Russia in Ukraine), the proliferation of weapons of mass destruction (including nuclear tests and ballistic missile launches by the Democratic People’s Republic of Korea), and serious human rights violations (including the killing of Mahsa Amini by Iran’s “morality police” and the repression of protests in Iran).
The SEMA sanctions generally prohibit dealing (transacting) by Canadians anywhere in the world, as well as any other persons in Canada, in the property of listed individuals or entities, and require the freezing and reporting of such assets. Specifically, the SEMA authorizes the GIC to restrict dealings in property and freeze the assets of foreign nationals or entities. The SEMA also authorizes the GIC to prohibit Canadians and other persons in Canada from providing financial services or other services to foreign nationals or states. Other types of restrictions against nationals and entities of a given foreign state may include prohibitions on importing or exporting goods or services or technical data; limiting the provision of financial or related services; and banning the docking of ships or landing of aircraft to or from the sanctioned state. In addition to these types of prohibitions, the SEMA sanctions also prohibit Canadians and persons in Canada from facilitating or assisting any activity prohibited by the SEMA sanctions.
The Special Economic Measures (Russia) Regulations impose a number of requirements on Canadian financial institutions and money service businesses (including banks, insurance companies, credit associations, foreign currency exchanges, and cryptocurrency exchanges, federal and provincial trust and loan companies, and entities dealing in securities). Such entities must determine on a continuing basis whether they are in possession or control of property subject to the SEMA. The sanctions regime further requires Canadian financial institutions, Canadians anywhere in the world, and any person in Canada, to disclose to law enforcement authorities the existence of property in their possession or control that they have reason to believe is owned or controlled by a designated person, directly or indirectly. In November 2022, the RCMP reported that $121 million worth of assets were reported as frozen and $290 million in financial transactions were reported as blocked as a result of the prohibitions in the Special Economic Measures (Russia) Regulations.
Orders made by the GIC are reviewable by the courts. Persons subject to an order may apply for their property to cease being the subject of an order or for a permit to engage in activity that would otherwise be prohibited, which the Minister of Foreign Affairs may only grant if there are reasonable grounds for doing so. Persons subject to an order may also apply in writing to the Minister of Foreign Affairs for a permit to be removed from an order. The Minister may also issue permits to any person in Canada or any Canadian outside Canada to carry out a specified activity or transaction, or any class of activity or transaction, that is otherwise restricted or prohibited under the SEMA regulations.
Additional measures can also be imposed. Such measures include travel bans implemented through the Immigration and Refugee Protection Act. They also include “lookouts” for individuals sanctioned under the SEMA, of which the Canada Border Services Agency (CBSA) has issued over 900 to date.
The SEMA offenses are administered and enforced by the Minister of Foreign Affairs, together with investigation and enforcement efforts by the RCMP and CBSA.
2. Sanctions Under the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law)
Canada enacted the SML to help tackle foreign corruption and to bring Canadian sanctions in line with evolving international standards. The SML allows the Government of Canada to freeze the assets of, and prohibit dealings with, foreign nationals who are involved in, or complicit in, acts of corruption or gross violations of internationally recognized human rights.
The SML came into force in October 2017. The first targets of sanctions were officials related to the custody and death of Sergei Magnitsky in Russia, along with officials complicit with incidents of corruption and gross human rights violations in Venezuela and South Sudan. While sanctions imposed under the SML continue to apply, use of the SML is typically secondary because amendments to the SEMA now also allow for designation of individuals complicit in gross human right violations and the SEMA has greater flexibility to target certain conduct and to sanction entities.
The SML authorizes the GIC to restrict dealings in property and freeze the assets of foreign nationals in response to a number of defined circumstances. Specifically, the GIC can make orders and regulations to this effect when it is of the opinion that a foreign national (1) is responsible or complicit in gross violations of internationally recognized human rights; (2) acts on behalf of a foreign state in relation to such a violation; or (3) has materially assisted or provided support (including goods and services) to an act of significant corruption by a foreign public official or their associate. Additionally, the GIC can (4) take action against foreign public officials, or their associates, responsible for or complicit in ordering, controlling, or directing acts of significant corruption.
As with the SEMA, the SML imposes a number of reporting requirements on Canadian financial institutions and money service businesses, which must determine on a continuing basis whether they are in possession or control of property subject to the SML.
B. Legislative & Regulatory Developments in 2022
Canada made an unprecedented number of legislative and regulatory changes to its sanctions regime in 2022. Sanctions were imposed both through the United Nations Act and the SEMA.
In addition to expanding the number of countries that are subject to sanctions, Canada also imposed a variety of new sanctions measures in response to international conflicts.
1. New Sanctions in 2022
Canada announced multiple waves of new sanctions in 2022 in response to global conflict and regional upheavals. The new sanctions focus on four main countries (1) Russia; (2) Belarus; (3) Iran; (4) Haiti; and (5) Myanmar. Below we discuss the developments related to each of these countries.
a. Russia
Following Russia’s invasion of Ukraine in February 2022, Canada, along with numerous other countries, announced a series of sanctions against Russian individuals, entities, goods, and services.
Canada implemented Russia-specific sanctions via the SEMR. These regulations were initially implemented in 2014 following Russia’s annexation of Crimea. They were expanded substantially in 2022 and now include a number of sectoral prohibitions as well as lengthy lists of designated persons subject to dealings prohibitions and asset freezes (similar to the Specially Designated Nationals list in the United States).
The SEMR impose an asset freeze and dealings prohibition on persons listed in Schedule 1, which include both individuals and entities. It is prohibited for any person in Canada and any Canadian anywhere in the world to:
(1) Deal in any property, wherever situated, that is owned, held or controlled by or on behalf of a designated person whose name is listed in Schedule 1;
(2) Enter into or facilitate, directly or indirectly, any transaction related to such a dealing;
(3) Provide any financial or other related services in respect of such a dealing;
(4) Make any goods, wherever situated, available to a designated person listed in Schedule 1 or to a person acting on their behalf; or
(5) Provide any financial or related service to or for the benefit of a designated person listed in Schedule 1.
Prior to 2022, the SEMR already imposed some restrictions on the financial and energy sectors. With some exceptions, the SEMR prohibit any person in Canada and Canadians anywhere in the world from dealing in new debt of longer than thirty days maturity in relation to persons listed in Schedule 2, or ninety days maturity in relation to persons listed in Schedule 3. Additionally, the SEMR prohibit any person in Canada or Canadians anywhere in the world from dealing in new securities in relation to persons listed in Schedule 2.
The SEMR also prohibit the export, sale, supply or shipping of goods listed in Schedule 4, to Russia or to any person in Russia for their use in offshore oil (depth greater than 500m), shale oil or Arctic oil exploration and production. This includes a ban on the provision of any financial, technical or other services related to the goods subject to this prohibition.
The SEMR were amended twenty-six times in 2022. These amendments include the prohibitions listed in section A of the article “2022 Canadian Trade Update” above.
i. Additional Measures Implemented Outside of the SEMR
Beyond traditional sanctions, Canada implemented other measures to deter Russian aggression, such as revoking Russia’s “most favoured nation” (MFN) tariff treatment status. Specifically, on March 2, 2022, Canada revoked Russia’s MFN status under the Customs Tariff, effectively rescinding Canada’s agreement to afford Russian goods the same favoured treatment as other World Trade Organization countries. Russian goods are now subject to the General Tariff rate of 35 percent under the Customs Tariff.
Canada also joined the European Commission, France, Germany, Italy, the United Kingdom, and the United States in committing to remove Russia from the Society for Worldwide Interbank Financial Telecommunications (SWIFT) global banking system. Removing Russia from SWIFT cut Russian banks off from the specialized financial messaging service used by banks to exchange financial data.
ii. Sanctioned Individuals & Entities
As of December 2022, over 1,100 Russian individuals are subject to an asset freeze and dealings prohibition, either for “grave breaches of international peace and security” or “gross human rights violations.” Approximately 260 entities are also subject to an asset freeze and dealings prohibition. Prior to 2022, only 129 Russian individuals and seventy-one Russian entities were subject to such sanctions, an increase of 580 percent in sanctioned persons.
Canada’s sanctions on Russia have focused on key economic sectors, including financial, oil and gas, mining, and industrial manufacturing.
Russia’s financial sector was targeted through the designation of large Russian financial institutions as Schedule 1 entities. Sanctioned banks include VTB, Sberbank, Gazprombank, and Alfa-Bank.
In addition, Canada designated the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation under the SEM Russia Regulations. While these entities were first subject only to financing restrictions (specifically, persons in Canada and Canadians anywhere in the world could not deal in new debt (either long- or short-term) issued by these entities), these entities were moved to Schedule 1 of the SEMR, meaning they are now subject to the broader prohibition on dealings and to the asset freeze.
iii. Service Prohibitions
In June 2022, Canada targeted the provision of services to Russia or persons in Russia. These new sanctions prohibit a broad range of services to oil and gas, mining, and chemical manufacturing sectors.
The services prohibited within these sectors include bulk storage services for liquids or gases; wholesale trade services for fuels or related products; transportation of petroleum and natural gas; construction; engineering; accounting; auditing and bookkeeping; computer services; market research and public opinion polling; scientific, technical, and management consulting; equipment rental and repair; and water transportation.
iv. Restricted Goods & Technologies List, Goods for Weapons Manufacturing, & Luxury Goods
Canada has also prohibited the export of goods to certain goods to Russia. First, Canada created a new “Restricted Goods and Technologies List” which prohibits the export or supply to Russia of listed goods. This list is separate and distinct from Canada’s export controls regime.
Separately, Canada has prohibited the export of various goods related to weapons manufacturing. The list includes military items such as tanks, industrial robots, and unmanned aircraft. It also includes items such as measuring instruments, barber and dentist chairs, cameras, and thermostats.
Canada has also imposed restrictions on the import and export of certain “luxury goods” in relation to Russia. Persons in Canada and Canadians anywhere in the world cannot export certain luxury goods to Russia, including cigars, silk, footwear, luxury clothing and accessories, and jewelry. Additionally, they cannot import Russian gold and certain luxury goods such as caviar, spirits and alcoholic beverages, and diamonds.
v. Regional Prohibitions: Donetsk, Luhansk, Kherson, & Zaporizhzhia
Canada had previously imposed broad regional prohibitions in respect of occupied Crimea in 2014. Crimea remains subject to these prohibitions.
Canada announced comprehensive regional sanctions that target the regions of “the Donetsk People’s Republic” and the “Luhansk People’s Republic” following Russia’s decision to recognize the independence of these two regions. Canada later announced similar comprehensive sanctions targeting two additional occupied regions: the Kherson oblast and the Zaporizhzhia oblast. These sanctions were all imposed under the Special Economic Measures (Ukraine) Regulations.
The sanctions on these regions are comprehensive. They prohibit: investing or dealing in property in these regions; providing or acquiring financial or related services in these regions; importing, purchasing, or acquiring goods from these regions; exporting goods to these regions; providing technical assistance such as instruction, training, or consulting services to a person in these regions; and docking certain cruise ships in these regions.
Over 250 individuals have been sanctioned in relation to these regions. The listed individuals are generally senior officials of the so-called “governments” or other so-called leaders of the occupied regions. A single entity – the “Salvation Committee for Peace and Order,” the so-called government authority in the Kherson oblast – has also been listed under these regulations in 2022.
vi. Russian Oil Ban & Price Cap
On March 3, 2022, Canada prohibited any person in Canada and Canadians anywhere in the world from importing, purchasing or otherwise acquiring Russian petroleum products. The specific products covered under this ban include crude petroleum oil, refined petroleum oil and petroleum gases. Although Canada is a net exporter of crude oil and does not import significant volumes of Russia crude, the ban is a display of support for Ukraine and ensures Canada will not begin importing Russian oil in the future.
In September 2022, the G7 countries agreed to impose a price cap on Russian-origin crude oil and petroleum products. Products sold above the price cap would be subject to transportation and other prohibitions. The goal of the cap is to apply downward pressure on global energy prices while also limiting the funds available to Russia for its war efforts.
On December 7, 2022, Canada introduced its price cap implementing measures in the form of a new prohibition against the provision of certain services relating to the maritime transport of Russian crude. The same prohibitions will come into force for refined petroleum products on February 5, 2023. The prohibited services include trading and commodities brokering, financing, financial assistance, shipping, insurance and reinsurance, protection and indemnity, flagging, and customs brokering. The prohibition applies when the oil is purchased above the price set by the G7+ Coalition Oil Price Cap List, which, at the date of writing is $60 per barrel.
b. Belarus
Canada has also imposed significant sanctions against Belarus as a result of that country’s support of Russia’s war on Ukraine. As with Russia, Canada revoked Belarus’ MFN status. Any goods imported from Belarus are now subject to the 35 percent General Tariff.
i. Sanctioned Individuals & Entities
Over 180 Belarussian individuals and fifty-five Belarussian entities are subject to an asset freeze and dealings prohibition under the Special Economic Measures (Belarus) Regulations. These Regulations were first implemented in 2020 following the presidential election of Alexander Lukashenko. In 2022, numerous additional individuals were listed for their role in assisting Russia, including senior military defence officials as well as financial elites, oligarchs, and their associates. The listed entities encompass key Belarussian industries, including potash, tobacco, energy, defence entities and Belarus’s national railway company.
ii. Restricted Goods & Technologies, Goods for Weapons Manufacturing, & Luxury Goods
Canada has prohibited a wide variety of goods from being exported to Belarus. These prohibitions largely mirror the goods prohibitions made in relation to Russia. The restriction on exporting goods on the “Restricted Goods and Technologies List” applies equally to Belarus. Canada has also prohibited the export of goods to Belarus that can be used in weapons manufacturing. Finally, Canada has restricted the import and export of certain “luxury goods” in relation to Belarus.
c. Iran
Canada’s newest sanctions against Iran, announced in fall 2022, are the first imposed since 2007. The 2007 sanctions were designed to respond to the proliferation of Iranian nuclear program, but were largely repealed in 2015 after Iran entered into the Joint Comprehensive Plan of Action with the five permanent members of the United Nations Security Council.
Canada established new sanctions against Iran following the death of twenty-two-year-old Mahsa Amini, who died in custody of the Iranian “Morality Police,” and following Iran’s violent crackdown against civilian protestors and its use of force against its own citizens.
i. Sanctioned Individuals & Entities
As of December 2022, Canada has sanctioned an additional eighty-four Iranian individuals and twenty-five Iranian entities for either grave breaches of international peace and security or gross human rights violations. Some of the sanctioned entities include the “Morality Police,” the Islamic Revolutionary Guard Corp (a branch of the Iranian armed forces), and the Law Enforcement Forces (Iran’s national police). Sanctioned individuals include leaders and officers of sanctioned entities among others.
ii. Other Sanctions – Travel Restrictions & Export Controls
Canada imposes travel restrictions on persons listed by the United Nations’ Security Council via the Immigration and Refugee Protection Act. Also, Canada continues to restrict the export to Iran of a wide range of goods listed on the Export Control List; however, there have been no changes in relation to Iran in 2022.
d. Haiti
Canada imposed sanctions in relation to Haiti for the first time in December 2022. The sanctions were imposed under both the United Nations Act and the SEMA in response to the ongoing humanitarian crisis occurring in Haiti.
On October 21, 2022 the UN passed Resolution 2653 that imposes a travel ban, an asset freeze and a targeted arms embargo for designated individuals in connection with the ongoing situation in Haiti. As a result, Canada implemented the asset freeze and arms embargo via the Regulations Implementing the United Nations Resolution on Haiti, which came into effect on November 10, 2022.
Under its autonomous regime, Canada sanctioned several additional Haitian individuals in December 2022 under the Special Economic Measures (Haiti) Regulations. The sanctions target the “Haitian political elite who use their position and influence to support criminal armed gangs spreading terror and violence in Haiti.”
e. Myanmar
Canada expanded its list of designated persons from Myanmar three times during 2022. The designated individuals and entities were listed for their roles in arms flow, violence against civilians, misinformation efforts, and the weaponization of the judiciary. These sanctions were developed in conjunction with the United States and the United Kingdom. As of December 2022, sixty-three entities and eighty-nine individuals are subject to an asset freeze and dealings prohibition.
C. Export Controls in 2022
Canada has acted in concert with key allies and made changes to its export controls regime with the goal of denying Russia access to controlled dual-use and military goods and technologies. The Notice to Exporters and Brokers issued by the Government of Canada specifies that Canada will stop issuing permits for the export and brokering of controlled goods and technology to Russia. In addition, all existing export permits for the export or brokering of such items are cancelled, effective February 24, 2022. These changes are expected to affect up to $650 million worth of goods.
As noted above, Canada also prescribed a new Restricted Goods and Technologies List as part of its Russian and Belarusian sanctions regimes. Despite resemblances, it does not form part of Canada’s export controls regime.
1. Global Affairs Restructures to Better Enforce Sanctions
With the recent upsurge in Canadian sanctions activity, there has been increased focus on the gaps and inadequacies in Canada’s enforcement of the SEMA and other sanctions regulations.
a. Seizure and Forfeiture Powers
The amendments enhance the Canadian Government’s ability to seize assets. The changes expand the definition of property to include any type of property that is real or personal property; immovable or moveable; tangible or intangible; corporeal or incorporeal; and include money, funds, currency, digital assets and virtual currency. The changes also grant the RCMP the power to seize or restrain such property that is owned, held, or controlled (either directly or indirectly) by foreign nationals.
Once property has been seized, the Minister of Foreign Affairs has the ability to apply to a judge of a superior court for forfeiture of the property. When such an application is made, the judge “must” order the property subject to the application forfeited to the Canadian state, subject to certain notice and due process safeguards to protect third parties that may have interests in the property (e.g., secured creditors). The goal of these new forfeiture powers is to add a restorative element to Canadian sanctions: “Funds resulting from asset forfeiture may be used to compensate victims of human rights abuses, restore international peace and security or rebuild affected states.” As of November 22, 2022, no Russian assets had yet been forfeited or liquidated for the benefit of Ukraine.
On December 5, 2022, the Parliamentary Secretary to the Minister of Foreign Affairs, stated that since the passage of the legislative reforms to Canada’s sanctions regime, a “whole-of-government effort has been underway to operationalize the new authorities and move forward with respect to the first potential seizure of assets.” Canada’s Minister of Foreign Affairs, announced on December 19, 2022 that Canada will pursue the forfeiture of property (dividends held in a financial institution) related to Granite Capital Holdings Ltd., owned by Roman Abramovich. Mr. Abramovich is a Russian oligarch sanctioned under the Special Economic Measures (Russia) Regulations.
b. Information Sharing
The amendments also established broader information sharing powers between government agencies and law enforcement authorities The SEMA was amended to allow various government departments, including Foreign Affairs, the Canadian Security Intelligence Service, and the CBSA, among others, to share information related to sanctions enforcement. The amendments also allow the Minister of Foreign Affairs to require any person who has information regarding the enforcement of sanctions to provide that information where there are reasonable grounds to believe it is relevant for the purposes of the making, administration or enforcement of an order or regulation.
c. Global Affairs Canada Sanctions Bureau and Increased Funding
The federal government’s 2022 budget implementing legislation contained important changes to strengthen the SEMA and the SML, and which came into force on June 23, 2022.
On October 7, 2022, Canada announced it would inject $76 million to strengthen Canada’s capacity to implement sanctions. Canada also announced a new dedicated Bureau within Global Affairs to support the RCMP in their investigation and identification of assets and other evidence regarding sanction violations.
D. Canadian Court Provides Framework for Assessing Entities Controlled by Blocked Persons
A recent decision from an Alberta court has provided, for the first time, some case law on the meaning of “control” under Canada’s sanctions regime. Global Affairs Canada has yet to publish such guidance, leaving companies and their advisors to rely on statutory interpretation principles and communications with Global Affairs Canada to assess what level of control by a sanctioned person is required to find that a non-listed entity is itself “blocked.”
The decision clarified key aspects of the meaning of “control,” which in turn impact the companies that are considered to be in control of sanctioned persons. The court applied a fact-specific analysis that relies on “functional factors.” It found that there was a strong prima facie case that the respondent in the proceeding, Angophora Holdings Limited (“Angophora”), was controlled by Gazprombank JSC (Gazprombank), a bank based in Russia and sanctioned by Canada. Second, the judge found instructive the U.K. and U.S. definitions of control, while likening Canada’s actual approach to that of the E.U. (a de facto control approach).
The case involved the Canadian property of a Russian national, Andrey Ovsyankin. Angophora was a judgment debtor against Mr. Ovsyankin. Mr. Ovsyankin brought the application for a stay of the enforcement order on the grounds that Angophora is controlled by a sanctioned entity. Angophora is a wholly-owned subsidiary of Mir Capital SICAR SCA (a Luxembourg investment fund, MIR). MIR is owned equally by two international banks, one of which is Gazprombank.
The court considered whether there was a strong prima facie case that execution of the award would trigger Canadian sanctions. The court considered that Angophora meets the 50 percent ownership test enunciated under U.S. sanctions law (such that entities owned at 50 percent or more by sanctioned persons are themselves blocked), and that there were numerous fact-specific factors indicating functional control by the sanctioned entity Gazprombank over Angophora. The court also referred to the E.U.’s “Commission Opinion” on the issue of control, and found that Canada’s approach is, as in the E.U., a “factual” approach relating to whether the designated person has “de facto” control over the entity. Echoing the E.U. Commission Opinion, the court further stated that despite the lack of Gazprombank’s structural control over Angophora, it had de facto control and “sanctions should not allow a designated person to circumvent an asset freeze by continuing to have access through non-designated parties that they control.”
