This article discusses the significant legal developments involving export controls and economic sanctions that occurred in 2023.
On April 12, 2023, the U.S. Department of State published a final rule, effective May 12, amending Supplement No. 1 to part 126 of the ITAR. The amendments expanded the types of defense articles that may be exported and defense services that may be furnished pursuant to the Treaty between the U.S. and Australia Concerning Defense Trade Cooperation, the Treaty between the U.S. and the U.K. Concerning Defense Trade Cooperation, and the Canadian exemption in the ITAR.
On April 27, State published an interim final rule that amended, effective May 21, USML Category XI(c)(5), to remove from Category XI “certain high-energy storage capacitors and to clearly identify the high-energy storage capacitors that remain in USML Category XI.”
In 2022, State launched a one-year pilot program involving two open general licenses (OGLs), effective August 1, 2022, through July 31, 2023. On June 1, State updated the OGLs to extend validity through July 31, 2026, and to update citations for ITAR sections moved by rulemaking subsequent to the OGLs issuance. The OGLs permit certain reexports and in-country retransfers to the Australian, Canadian, and United Kingdom governments and to certain persons within those countries.
Effective October 1, State extended its temporary suspension of Cyprus’ ITAR § 126.1 proscribed destination status through September 30, 2024. License applications involving a proscribed destination are generally reviewed with a policy of denial, except under certain circumstances for certain proscribed destinations.
On October 7, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), which administers the EAR, issued sweeping new export controls focused on leading edge semiconductors and associated manufacturing equipment, materials, software, and technology to restrict China’s ability “to produce advanced military systems including weapons of mass destruction; improve the speed and accuracy of its military decision making, planning, and logistics, as well as of its autonomous military systems; and commit human rights abuses” (the “2022 Semiconductor Export Controls”). Among the new controls were four new Export Control Classification Numbers (ECCNs) and two new ECCN paragraphs on the Commerce Control List (CCL), a China-specific Regional Stability destination-based control, new supercomputer and semiconductor manufacturing end-use controls, new U.S. person activities controls, modifications to the Entity List Foreign Direct Product (FDP) Rule, and new Advanced Computing and Supercomputer End-Use FDP Rules.
On January 17, BIS expanded the 2022 Semiconductor Export Controls to apply to the Macau Special Administrative Region (Macau), which is treated distinctly from China under the EAR. BIS also imposed Nuclear Nonproliferation (NP) destination-based controls against China and Macau by adding each to NP Column 2 effective August 11, 2023—China and Macau were previously subject only to NP Column 1 controls. In imposing the additional NP Column 2 controls, BIS noted the 2022 Semiconductors Export Controls “were intended ‘to protect U.S. national security and foreign policy interests by restricting [China’s] access to advanced computing for its military modernization, including nuclear weapons development … ’”
On October 17 (effective November 17), BIS announced significant updates to the 2022 Semiconductor Export Controls. With respect to semiconductor manufacturing equipment (SME), BIS, inter alia,
· added additional types of SME to those previously described by ECCN 3B090 and moved all the items from ECCN 3B090 to ECCNs 3B001 and 3B002;
· revised software ECCNs 3D001, 3D002, and 3D003, and technology ECCN 3E001 to conform to the movement of SME to ECCNs 3B001 and 3B002;
· revised related license exceptions to conform to the above changes;
· imposed National Security destination-based controls on newly added SME and SME moved to ECCNs 3B001 and 3B002 for destinations in EAR Country Group D:5 (“U.S. Arms Embargoed Countries”) and Macau;
· expanded the Regional Stability (RS) destination-based control to apply to Macau and U.S. Arms Embargoed Countries;
· added a 0% de minimis rule for lithography equipment described in the new ECCN 3B001.f.1.b.2.b;
· revised and reformatted the U.S. person activities controls and supercomputer and semiconductor end-use controls;
· added two new defined terms for “extreme ultraviolet” and “advanced node-integrated circuits;” and
· added a new Temporary General License (TGL) to ease transition to the newly modified controls for SME producers in the U.S. and Country Groups A:5 and A:6.
With respect to advanced computing and supercomputing (and the semiconductors that enable the same), BIS, inter alia,
· revised ECCN 3A090 to implement calculations of “total processing performance” and “performance density” to more precisely control the types of semiconductors presentation national security concerns, revised ECCN 4A090 to refer to ECCN 3A090’s performance-based parameters, and made a conforming change to ECCN 3A991.p;
· revised several ECCNs to add a paragraph “.z” referring to the new end semiconductor performance-based parameters of ECCN 3A090 (either directly or by reference to ECCN 4A090);
· clarified the scope of the U.S. person and end-use controls relating to advanced computing items and supercomputers;
· revised License Exception Consumer Communication Devices to include eligibility for mainstream semiconductors in ECCN 3A991.p and computers containing mainstream semiconductors in ECCN 4A994.l;
· expanded the RS license requirements and amended the RS licensing policy to adopt a case-by-case license review policy for certain items as well as to adopt a favorable presumption of approval for destinations other than U.S. Arms Embargoed Countries and Macau, except where the recipient(s) are headquartered or have an ultimate parent company headquartered in the same;
· revised the model certificate first published as part of the 2022 Semiconductor Export Controls and clarified it may be used for all FDP rules;
· added five new red flags to assist with compliance;
· added a new TGL; and
· creating a new License Exception Notified Advanced Computing to authorize exports, reexports, and in-country transfers of certain items to or within certain Country Group D countries and to give BIS the opportunity to stop problematic transactions through a prior notification process.
Periodic BIS escalations of export controls against Russia (and Belarus) continued in 2023, albeit at a more moderate pace than in 2022. On February 24, the first anniversary of Russia’s further invasion of Ukraine, BIS released four rules. First, BIS expanded its luxury goods sanctions by adding 276 six-digit Harmonized Tariff Schedule (HTS) codes, expanded the Russia and Belarusian Industry Sector Sanctions (RBISS) by adding various chemical and biological weapons precursors as well as 322 HTS codes for industrial items, imposed a policy of denial for licenses to export, re-export, or in-country transfer items used for deepwater, Arctic offshore, or shale projects in Russia or Belarus, and added Taiwan to a list of countries excluded from the application of certain FDP rules. Second, BIS targeted Iran’s supply of unmanned aerial vehicles (UAVs) to Russia for its war of aggression against Ukraine by imposing license requirements for certain EAR99 items destined to Iran identified by HTS codes, added a new Iran-specific FDP rule, and revised the existing Russia/Belarus FDP Rule to reference the EAR99 items. The third and fourth rules added a total of approximately ninety entities inside and outside Russia due to their support of Russia’s war effort.
On May 19, BIS further expanded export controls on Russia and Belarus by, inter alia, adding 1,224 HTS codes (including the entirety of Chapters 84, 85, and 90), six chemicals, and other items to the RBISS, expanding the Russia/Belarus FDP Rule to apply to the “temporarily occupied” Crimea Region of Ukraine, and adding seventy-one entities to the Entity List.
In published remarks at CFIUS’s second annual conference on September 14, Paul Rosen, Assistant Secretary for Investment Security, highlighted CFIUS’s focus on enforcement, noting CFIUS is “on track to have more civil monetary penalties issued [in 2023 than in its] entire history.” Assistant Secretary Rosen also noted CFIUS had more than 230 active mitigation agreements in place and forecasted potential amendments to CFIUS’s regulations to “(1) allow for increased efficiency and effectiveness in our case processing and review functions, (2) update the Committee’s penalty and enforcement authorities, (3) sharpen and enhance the Committee’s tools in the non-notified space, and (4) broadly ensure the Committee’s tools and processes are best aligned to the current landscape.”
On August 9, President Biden issued the highly anticipated executive order directing the U.S. Department of the Treasury (Treasury) to develop and implement regulations to prohibit or require notification of U.S. persons’ investments into foreign markets that support the advancement of three industry sectors in “countries of concern:” (i) semiconductors and microelectronics; (ii) quantum information technologies; and (iii) artificial intelligence (the “Outbound Investment E.O.”). The Outbound Investment E.O.’s Annex expressly identifies China (including the Special Administrative Regions of Hong Kong, and Macau) as a “country of concern.”
On the same day as the Outbound Investment E.O.’s signing, Treasury released an Advanced Notice of Proposed Rulemaking (ANPRM) outlining the intended scope of the prohibitions and required notifications under the Outbound Investment Program, which will implement the Outbound Investment E.O. The ANPRM indicates Treasury will not retroactively apply any final rules once issued. But Treasury may request information from U.S. persons concerning covered outbound investment transactions completed or agreed to on or after August 9.
According to the ANPRM, Treasury anticipates imposing prohibitions or notice requirements when “U.S. persons” engage in certain transactions and investments—“covered transactions”—involving “covered foreign persons,” which the ANPRM proposes to define as persons of a “country of concern” the U.S. person knows or should know will be engaged in an identified activity regarding a “covered national security technology or product.”
It is anticipated “covered transactions” will include acquisitions of an equity interest or contingent equity interest in a covered foreign person, the provision of debt financing to a covered foreign person where such debt financing is convertible to an equity interest, greenfield investment that could result in the establishment of a covered foreign person, and the establishment of a joint venture, wherever located, that is formed with a covered foreign person or could result in the establishment of a covered foreign person.
The ANPRM outlines the specific “covered national security technologies and products” and related activities (e.g., development, production, design, fabrication, packaging, installation, or sale) that will cause a company to be considered a “covered foreign person.” The broad economic categories that include “covered national security technologies and products” match the three highlighted in the Outbound Investment E.O.
After Iranian UAVs deployed by Russia began appearing in Ukraine, the Office of Foreign Assets Control (OFAC) and State imposed sanctions under Executive Order 14024 in November 2022 against Private Military Company Wagner (Wagner Group), Iran’s Islamic Revolutionary Guards Corps Aerospace Force, Shahed Aviation Industries Research Center, and individuals and counterparties working with those entities on UAV supply to Russia. Later, in January and early February of 2023, OFAC used authorities under Executive Order 13382, “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters,” to impose sanctions against several entities and their executives involved in the UAVs’ production or transfer, as well as on two Iranian government-owned vessels involved in UAV launch operations.
On February 24, the first anniversary of Russia’s further invasion of Ukraine, President Biden, OFAC, and State, in conjunction with G7 partners and allies, announced the imposition of new sanctions, export controls, tariffs, and duties relating to Russia, Belarus, and Iran. OFAC and State imposed sanctions on more than 200 individuals and entities, including Russian and third-country actors accused of supporting Russia’s war effort. The sanctions targeted a dozen Russian financial institutions, as well as Russia’s defense and technology industry. Additionally, the sanctions targeted Russia’s future energy capabilities, and expanded sanctions on Russia’s metals and mining sector. OFAC also issued a determination pursuant to Executive Order 14,024, enabling it, in consultation with State, to impose sanctions on persons who operate or who have operated in the Russian economy’s metals and mining sector.
On May 19, OFAC and State, again in conjunction with G7 partners and allies, imposed additional sanctions against Russia. Collectively, OFAC and State imposed sanctions on over 300 individuals, entities, vessels, or aircraft. OFAC also announced prohibitions on the provision of architecture and engineering services from the United States or by a U.S. person, wherever located, to any person located in Russia pursuant to Executive Order 14071 and issued a determination pursuant to Section 1(a)(i) of Executive Order 14024, authorizing it, after consultation with State, to impose sanctions against persons who operate or who have operated in the architecture, engineering, construction, manufacturing, and transportation sectors of the Russian economy. Also on May 19, OFAC amended Directive 4 under Executive Order 14024 to impose a new annual reporting requirement on U.S. persons who possess or control property in which the Russian Central Bank, Ministry of Finance, or National Wealth Fund has an interest.
On October 18, in recognition of the announcement of a political agreement between representatives of President Nicolás Maduro and the Unitary Platform, OFAC issued three General Licenses temporarily authorizing all transactions related to Venezuelan oil and gas sector operations, certain transactions involving the Venezuelan state-owned mining company Minerven, and removing the secondary market trading bans of certain Venezuela sovereign bonds and PdVSA debt and equity (although the ban on
trading in the primary Venezuelan bond market remained in place).
On February 24, the Directorate of Defense Trade Controls (DDTC) concluded an administrative settlement with 3D Systems Corporation (3D Systems). In the proposed charging letter, DDTC alleged 3D Systems and its subsidiaries engaged in three categories of ITAR violations. First, DDTC alleged 3D Systems exported, reexported, and retransferred (in-country) technical data without authorization to or within China, Germany, and Taiwan. Specifically, DDTC alleged 3D Systems’ China-based subsidiary,
Quickparts.com, Inc. (Quickparts) exported ITAR-controlled technical data received from U.S. customers to Quickparts employees in China without authorization, and that the employees then retransferred and re-exported the data to third-party suppliers in Taiwan and China. 3D Systems and its subsidiary also allegedly engaged in unauthorized exports of ITAR-controlled technical through the use of an unencrypted email server located in Germany. Second, DDTC alleged 3D Systems violated 22 CFR § 127.1(a)(1) by provided unauthorized access to ITAR-controlled data in the United States (i.e., a deemed export) to two non-U.S. person employees from India and the United Kingdom, respectively. Third, DDTC alleged 3D Systems failed to maintain adequate records of its ITAR-related activities
in accordance with ITAR § 122.5.
Under a consent agreement, 3D Systems agreed to a civil penalty of $20,000,000, half of which was suspended on the condition that 3D Systems apply this amount to remedial compliance costs. Among other considerations, DDTC cited 3D Systems’s failure to voluntarily disclose its alleged unauthorized activities, 3D Systems’s disregard for export control compliance requirements and lack of a formal compliance program, and the violations involving exports and retransfers to China, an ITAR § 126.1 proscribed destination, as aggravating factors.
On April 20, DDTC concluded administrative proceedings against VTA Telecom Corporation (VTA). DDTC alleged VTA violated ITAR § 127.1(a) (1) by exporting or attempting to export ITAR-controlled defense articles without authorization to Vietnam, including an electro-optical imaging (EO Imaging) video tracker, which is designated as Significant Military Equipment, and related technical data, hobby rocket motors, and a gas turbine engine. DDTC further alleged VTA knowingly made false statements on shipping
documentation associated with the unauthorized shipments. DDTC determined to pursue the alleged violations based on VTA’s alleged exports and attempted exports to an ITAR § 126.1 proscribed destination at the time of the alleged violations (Vietnam), and VTA’s failure to voluntary disclose the alleged violations as aggravating factors. Under a consent agreement, VTA agreed to an administrative debarment for a period of three years.
On August 25, DDTC concluded an administrative settlement with Island Pyrochemical Industries Corp. (IPI). In the proposed charging letter, DDTC alleged IPI and its affiliates engaged in ITAR-controlled brokering activities in violation of ITAR § 127.1 by facilitating the transfer of foreign origin chemical defense articles from China to Brazil without prior DDTC authorization. DDTC further alleged IPI violated ITAR § 127.2 by falsely listing itself as a manufacturer, seller, and/or source of defense articles on DSP-5 license applications. To resolve the allegations, DDTC directed IPI to pay a civil penalty of $850,000, $425,000 of which was suspended on the condition that IPI use the suspended funds for remedial compliance costs. As aggravating factors, DDTC cited IPI’s failure to voluntarily disclose its alleged unauthorized activities, the alleged violations involved a state-owned corporation of ITAR § 126.1 proscribed destination (China), and certain alleged violations involved false statements, misrepresentations, or omissions of material fact, among other considerations.
On February 16, Justice and Commerce launched the Disruptive Technology Strike Force (the “Strike Force”). Under the leadership of Justice’s National Security Division and BIS, the Strike Force targets illicit actors, strengthens supply chains, and protects critical technological assets from being acquired or used by nation-state adversaries. The Strike Force brings together experts from throughout the U.S. Government including the FBI, Homeland Security Investigations, and fourteen U.S. Attorneys’ Offices across twelve metropolitan regions across the country.
On May 16, the Justice announced its first enforcement actions since establishment of the Strike Force in a series of five cases and four arrests from five different U.S. Attorneys’ offices. In part, the cases involved actions by companies and individuals for attempting to divert electronics and aircraft parts to Russia in violation of the EAR, and BIS issued Temporary Denial Orders against several companies and individuals in connection with the cases. Later in the year, BIS issued a series of temporary denial orders in support of the Strike Force in cases involving Russia.
On April 19, BIS announced its largest ever standalone administrative penalty in BIS history in an enforcement action against Seagate Technology LLC (Seagate). BIS imposed the penalty to resolve alleged violations of the EAR’s foreign direct product rule related to selling hard disk drives to Huawei Technologies Co. Ltd. (Huawei). The BIS resolution also included a multi-year audit requirement and a five-year suspended Denial Order.
The penalty was imposed for Seagate’s continued business with Huawei after BIS’s August 2020 controls over certain foreign-produced items to Huawei. Seagate had continued to do business with Huawei despite the fact that its only two competitors had stopped selling the hard disk drives to Huawei, resulting in Seagate becoming Huawei’s sole source provider.
BIS announced two other multi-million dollar penalties in 2023. On February 7, BIS announced imposition of a $2,777,750 penalty on 3D Systems. The BIS settlement resolved nineteen violations by 3D Systems of the EAR by exporting controlled aerospace technology and metal alloy powder to China and export-controlled technology to Germany without the required licenses. On April 6, BIS announced imposition of a combined $3.3 million in civil penalties against Microsoft Corporation for alleged and apparent violations of U.S. export controls and sanctions laws. The joint BIS/OFAC action involved violations by Microsoft’s Russian subsidiary involving Ukraine/Russia, Cuba, Iran, and Syria.
On July 26, Assistant Secretary for Export Enforcement Matthew Axelrod issued a memorandum for all Export Enforcement employees focused on Strengthening Antiboycott Reporting and Compliance. Axelrod’s memorandum followed his earlier policy memorandum on Enhanced Enforcement of Antiboycott Rules. Axelrod’s July memorandum reiterated the purpose of the EAR’s antiboycott rules and amended BIS’s “Boycott Reporting Form.”
Axelrod’s July memorandum followed the May 18 announcement of BIS’s imposition of a $283,500 penalty against Regal Beloit FZE (Dubai), a controlled-in-fact foreign subsidiary of Regal Beloit America, Inc. That BIS action resolved eighty-four violations of the EAR’s antiboycott provisions and was the first major administrative action reached under the Enhanced Enforcement of Antiboycott Rules.
Several criminal enforcement actions involving sanctions on Russia stem from individuals engaging in schemes to provide various forms of assistance to sanctioned Russian oligarchs. For example, Justice charged Vladimir Voronchenko a Russian national and permanent U.S. legal resident, with conspiring to evade U.S. sanctions imposed on Russia, alleging that Voronchenko maintained properties owned by sanctioned Russian oligarch Viktor Vekselberg and hired a lawyer in New York to acquire properties on behalf of Vekselberg and to manage the finances of the properties through
the attorney’s IOLTA account.
In another case, Sergey Karpushkin and John C. Unsalan were charged with conspiring to violate U.S. sanctions imposed on Sergey Kurchenko and two related companies, Kompaniya Gaz-Alyans, OOO and ZAO Vneshtorgservis. According to Justice’s announcement, Karpushkin purchased nearly $150 million in metal products through his company, Metalhouse LLC, from two companies he knew were owned by Kurchenko. Unsalan, president of Metalhouse LLC, was charged separately. In September, Karpushkin pleaded guilty to one count of conspiring to violate the IEEPA and money laundering, and agreed to forfeit $4,723,625. On October 3, Unsalan agreed to forfeit $160,416,948.56, equal to the funds obtained through the conspiracy, after pleading guilty to one count of conspiracy to commit money laundering to promote violations of the IEEPA. Both Unsalan and Karpushkin are awaiting sentencing.
In another criminal case, Justice announced that one Russian national, Vladislav Osipov, and one U.K. national, Richard Masters, were charged with facilitating sanctions evasion and money laundering. Justice alleged that Masters and Osipov conspired to operate and mask the ownership of a $90 million 255-foot luxury yacht called Motor Yacht Tango, which is owned by sanctioned Russian oligarch Viktor Vekselberg.
The majority of the other reported enforcement actions relate to sanctions on Iran. Notably, on September 8, 2023, Justice announced that it had resolved the first-of-its-kind criminal case arising from Suez Rajan Limited’s facilitation of a sale and transport of Iranian-origin oil involving the IRGC and IRGC Qods Force, which resulted in Justice seizing 980,000 barrels of the sanctioned Iranian oil. Other criminal actions have stemmed from alleged violations of the Iranian Transactions Sanctions Regulations, where U.S. persons were involved in knowingly procuring and shipping goods to Iran, often through third-party companies or through other means to obfuscate the destination of the goods. Another criminal enforcement development was the sentencing of Niloufar Bahadorifar of Irvine, California, who pleaded guilty to violating the IEEPA by providing services to Iran and the government of Iran in connection with a scheme to kidnap a journalist, author, and human rights activist. Bahadorifar was sentenced to four years in prison followed by three years of supervised release. One case brought by Justice arose because a person knowingly exceeded the scope of an OFAC authorization in conducting business in Iran.
Civil enforcement actions have involved a broader swath of U.S. sanctions programs compared to the criminal actions. Over the past year, there have been approximately thirteen different enforcement actions (including Penalties, Settlements, or Findings of Violation) announced by OFAC, with the penalties totaling 567,046,816.08. While the number of civil enforcement actions are below the sixteen announced in 2022, the penalties imposed this past year exceed 2022’s figure ($42,664,006.65) by $524,382,809.43. Most of this increase can be accounted for by the settlement with British American Tobacco (BAT), which stemmed from BAT’s violations of sanctions on North Korea. The total penalty imposed by the U.S. regulator was $629,000,000, representing the largest nonfinancial institution OFAC settlement in history.
During 2023, Canada implemented a number of changes to its legal framework on export controls and economic sanctions. The most significant were the implementation of a “deemed ownership” rule, amendments allowing the Canadian government to impose secondary sanctions, and several provisions aimed at enhancing Canada’s unique mechanism for confiscating sanctioned personal property in Canada.
In addition to the above structural changes to its legal framework, Canada has continued to expand the scope of its existing sanctions programs. Much of this effort has focused on combating Russia’s aggression in Ukraine. There have been more than ten additional rounds of amendments to the Special Economic Measures (Russia) Regulations to intensify pressure on Russia, and to counter sanctions circumvention. Canada has also imposed additional sanctions on Belarus, a longstanding Russian ally, and individuals working in Ukraine’s occupied museums and cultural centers who are contributing to the theft and destruction of Ukrainian cultural objects. A new sanctions regime against Moldova has also been implemented to target Moldovan oligarchs and politicians connected to Russia. Over this past year, Canada has also expanded its existing sanctions against Iran, Myanmar, and Haiti.
Regarding export controls, Canada updated its Export Control List to reflect its commitments under various multilateral export control and non-proliferation regimes, including the Wassenaar Arrangement. There are new controls for marine equipment, aerospace and propulsion technology, and human and animal pathogens and toxins. Canada has also made changes to its Export Permit Regulations to clarify requirements for information to be provided by applicants. General Export Permit No. 41, which authorizes the export of a wide range of dual-use items to eligible destinations, was also amended to exclude transfers of goods or technology that are intended for rocket systems or unmanned aerial vehicles with a range of 300 km or greater.
Canada added a “deemed ownership” provision to its primary autonomous sanctions statutes—the Special Economic Measures Act (SEMA) and the Justice for Victims of Corrupt Foreign Official Act (Sergei Magnitsky Law) (the “Magnitsky Act”)—that sets out the circumstances in which the property of non-designated entities will be considered to be owned by designated entities or individuals. This significantly expands the scope of prohibitions involving dealings in property “owned, held or controlled by or on behalf of a designated person” as well as related disclosure obligations and a new mechanism for seizing and forfeiting property of designated persons.
Under the new rule, property that is owned—or that is held or controlled, directly or indirectly—by any entity will be deemed to be owned by a person, including a designated person, if that person “controls” that entity. Such control is considered to exist where:
(2) [A]ny of the following criteria are met:
(a) the person holds, directly or indirectly, 50 percent or more of the shares, ownership interests or voting rights in the entity;
(b) the person is able, directly or indirectly, to change the composition
or powers of the entity’s board of directors; or
(c) it is reasonable to conclude, having regard to all the circumstances, that the person is able, directly or indirectly and through any means, to direct the entity’s activities.
This control test appears broader than what is applied under other Western sanctions regimes, including those of the United States, the United Kingdom, and the European Union. To date, the Canadian government has not issued guidance on how any of the above criteria are interpreted or applied. For instance, it is not clear what is required to appropriately assess the ability of a person to change the composition or the powers of a board, or in what circumstances it is “reasonable to conclude” a person is able to direct an entity’s activities.
Amendments to SEMA in 2023 also laid the groundwork for the imposition of secondary sanctions. Specifically, subsection 4(2) of SEMA was expanded to allow the Canadian government to designate parties in third countries (countries other than Canada and the foreign state that is the target of sanctions) for purposes of the prohibition against dealings in property of designated persons, required disclosures and the property seizure and forfeiture provisions.
In 2022, Canada adopted its asset seizure, forfeiture and redistribution mechanism for property situated in Canada that is owned—or that is held or controlled, directly or indirectly—by designated persons under SEMA and the Magnitsky Act. This mechanism was used for the first time, on December 19, 2022, to restrain funds alleged to be indirectly held in a Canadian bank by Russian oligarch Roman Abramovich—a designated person under SEMA. On June 10, Canada announced its seizure of a Russian-owned aircraft that had been grounded at Toronto’s Pearson International Airport since the Russian invasion of Ukraine in February of 2022. The owner of the aircraft, Volga-Dnepr Airlines, has reportedly initiated a bilateral investment treaty claim against the Canadian government over the seized aircraft. The Canadian government has announced that will be pursuing forfeiture of both the Abramovich funds and the Volga-Dnepr aircraft in Canadian courts for purposes of assisting Ukraine in its defence against the Russian invasion.
