Lawrence Herman is the author of Export Controls & Economic Sanctions: A Guide to Canadian Trade Restrictions, a new book which uncovers the rules and sanctions of International Trade.
Tensions in International Relations
Tensions between North and South Korea have again reached the boiling point, this time over North Korea’s torpedoing of a South Korean naval vessel. Pressures are mounting for even more aggressive economic and trade sanctions against that country.
Canadian businesses probably have a general sense of how sanctions and export controls work and prudently stay away from dangerous or undesirable places like North Korea. Other countries like Iran, Congo, Sudan, Zimbabwe and Eritrea are also on Canada’s sanctions list and not likely to be the kinds of places where Canadian companies are engaged.
The important point is that Canada’s sanctions and other export restrictions are subject to rapid change, depending on the state of international relations. Because of this and because criminal penalties are involved for breaching Canadian laws in this area, it’s important for business to monitor these ongoing developments.
Internet Sites – Valuable Tools
The Department of Foreign Affairs and International Trade (DFAIT), the Canada Border Services Agency (CBSA) and regulatory agencies such as the Office of the Superintendent of Financial Institutions (OSFI) provide ongoing and timely information on changes in prohibited destinations, banned organizations and controlled items, such as the recently issued set of sanctions against Eritrea, issued 22 April 2010.
These websites should be regularly consulted for the most current information. Here are some useful sources:
Canada Border Services Agency:
Department of Foreign Affairs and International Trade:
Financial Transactions and Reports Analysis Centre of Canada (FINTRAC):
Office of the Superintendent of Financial Institutions (OSFI):
Sanctions and Embargoes
Canada applies economic sanctions to enforce U.N. Security Council resolutions. Iran, North Korea, Al Qaida and the Taliban are examples of countries under U.N. sanction. Embargos, while similar to sanctions, are applied by governments for their own purposes, not necessarily in furtherance of U.N. authorization. The U.S. trade embargo of Cuba is a good example. Technically speaking, Canada doesn’t maintain a system of unilateral trade embargoes.
Canada’s sanctions are implemented under the United Nations Act and administered by DFAIT under regulations made by the federal cabinet, authorized to take all measures “necessary or expedient” to meet these U.N. obligations. Sanctioned countries include: Iran, North Korea, Congo, Lebanon, Liberia, Sierra Leone, Somalia, Sudan and, most recently, Eritrea. United Nations sanctions also apply to Al-Qaida, the Taliban.
Together with the United Nations Act, another statute, the Special Economic Measures Act (SEMA), gives the government authority to apply sanctions (a) in cases where the federal cabinet determines that “a grave breach of international peace and security has occurred that has resulted or is likely to result in a serious international crisis” or (b) to comply with other international arrangements or agreements. SEMA is administered by DFAIT as well. As of today, sanctions under SEMA apply to Burma and Zimbabwe. As with the United Nations Act, there are criminal penalties for infringing these restrictions.
Canadian Export Controls
Together with economic sanctions, Canada operates a complex set of export controls under the Export and Import Permits Act (EIPA). The Act is administered by the Export Controls Division in DFAIT and is aimed at controlling of exports (and imports) of dangerous and strategically sensitive products (military goods, munitions, biological and chemical weapons, technology, etc.) as well as illicit goods (narcotics and other dangerous drugs and the like).
Under EIPA, an export permit is mandatory for all exports: (a) destined for a country listed on the Area Control List (ACL); (b) of items included on the Export Control List (ECL) or; (c) of goods of U.S. origin.
The ACL lists only Belarus and Myanmar (Burma), both of whom are under U.N sanction. As a result, all goods, regardless of their nature, destined to these two countries require an export permit.
The ECL lists hundreds of specific goods and technology, classified in eight groups, that require an export permit. That does not necessarily mean individual permits for every shipment. The legislation permits General Export Permits (GEPs) to be used in many cases covering multiple exports to different destinations.
The ECL covers strategic and military goods and technology (nuclear materials, weapons, munitions) and as well as items that could be used for chemical and biological weapons or for making of illicit drugs. There are non-strategic and non-military goods on the list, such as raw logs and pulpwood, which Canada controls for domestic policy reasons.
Canadian exports of all goods of U.S. origin also require an export permit. This dates back to World War II, when it was agreed that, to avoid circumventions of American controls and embargoes, Canada would require exports of all U.S.-origin goods to have U.S. authorization as well as a Canadian export permit. As a result, where U.S. goods being exported to countries under American embargo, like Cuba, even if these countries are not under Canadian trade sanction, Canada will refuse to grant an export permit.
Money Laundering and International Terrorism
Closely related to sanctions, Canada has far-reaching criminal legislation to prevent terrorist financing activity. The Criminal Code makes it an offense to engage in or facilitate a “terrorist activity”, directly or indirectly. Section 83.01 defines “terrorist activity” in fairly broad terms and section 83.05 provides for a listing of proscribed terrorist organizations. Section 462.3 of the Code makes it an offense to engage in money laundering for purposes of committing an offense inside or outside of Canada, including, perforce, any terrorist-type of activity.
Additional mechanisms for combating terrorism are contained in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCTFA). The act requires persons in Canada to undertake steps and report on suspected acts or attempted acts related to these kinds of activities. Under OSFI requirements, banks and other financial institutions are required to maintain records and to report all instances of suspicious financial transactions to OSFI and to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
Thus, together with keeping abreast of Canada’s evolving economic sanctions, monitoring and checking the ongoing coverage of banned terrorist organizations places additional burdens on all Canadian businesses.
Developments in the United States
The close economic integration between the Canadian and the U.S. economies makes it essential for Canadian companies to follow developments south of the border as well. While Canadian sanctions tend to parallel those under American law, generally because of national security and defence concerns, U.S. export restrictions are much more stringent than Canada’s. The U.S. continues to maintain a trade embargo on Cuba, for example, and while this has been loosened in recent years, U.S. goods and technology are not allowed to be exported there.
Business pressures have pushed the U.S. government toward rationalizing and simplifying its complex and bewildering system of export controls. The Obama administration is in the process of trying to reduce overlapping jurisdiction and confusion, possibly leading to a single export control authority and a simplified export control list. That could be of benefit to Canadian companies doing business with the U.S., where the overlapping of the State Department’s International Traffic and Arms Regulations (ITARs) and the Commerce Department’s dual-use export control restrictions under the Export Administration Regulations (EARs) have often been a source of frustration.
The international situation today is increasingly volatile. Changes to Canada’s export controls and sanctions evolve as events unfold, depending on U.N. Security Council decisions as well as decisions in other international control arrangements to which Canada belongs. Terrorist groups and proscribed organizations can be added regularly to Canada’s prohibited lists, including lists requiring financial reporting to Federal authorities.
Because of this, nothing should be taken for granted. It may seem an obvious point but businesses engaged in international trade and commerce, including banks and other financial institutions, need to be constantly monitoring Canada’s policies, statutes, regulations, notices and memoranda issued by Canadian authorities to ensure full compliance with these restrictions. DFAIT, CBSA, OSFI and FINTRAC, among others, should be consulted in advance in all cases of concern.
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Lawrence Herman is the author of Export Controls & Economic Sanctions: A Guide to Canadian Trade Restrictions. The first of its kind in Canada, this publication contains a comprehensive review of Canada’s system of trade restrictions, with emphasis on Canadian export controls. It also covers U.N.-mandated sanctions and a range of other measures that may be less well-known but which have a critical impact on Canada’s external trade and on the conduct of business in the international marketplace.