On February 5, 2016, the Government of Canada announced changes to its comprehensive economic and trade sanctions against Iran. The changes signal Canada’s willingness to re-engage in dialogue with Iran and follow the International Atomic Energy Agency’s announcement, on January 16, 2016, that Iran had fulfilled all necessary commitments under the Joint Comprehensive Plan of Action (“JCPOA”). January 16, 2016 is known as “Implementation Day”. On that date, the United Nations Security Council (“UNSC”), in accordance with Resolution 2231, repealed certain previous UNSC resolutions on Iran, and the European Union, Switzerland, and the United States relaxed their trade sanctions on Iran. Canada imposes trade sanctions against Iran under the Special Economic Measures Act (“SEMA”) and, in accordance with UNSC resolutions, under the United Nations Act (“UN Act”). With respect to Iran, the February 5, 2016 changes amend both the Special Economic Measures (Iran) Regulations (“SEMA Regulations”) and the Regulations Implementing the United Nations Resolutions on Iran (“UN Regulations”). While it may appear that Iran is now “open for business”, we caution that significant restrictions to trade with Iran remain in place and both individuals and organizations continue to face significant compliance risks. Before engaging in any new activities involving Iran or Iranian parties, companies should carefully consider the restrictions that remain in place. Below, we provide additional information about the changes adopted by Canada on February 5, 2016. Expanded Jurisdiction Before February 5, 2016, both the SEMA Regulations and UN Regulations applied to: (i) all persons in Canada, regardless of nationality; and (ii) Canadians outside Canada. “Canadian” was defined as “a person who is a citizen within the meaning of the Citizenship Act or a body corporate incorporated or continued by or under the laws of Canada or of a province.” On February 5, 2016, the jurisdiction of the UN Regulations was expanded. The definition of “Canadian” under the UN Regulations now includes not only Canadian citizens and corporations, but also permanent residents as defined in subsection 2(1) of the Immigration and Refugee Protection Act. There was no corresponding change made to the definition of “Canadian” under the SEMA Regulations. This change to the definition of “Canadian” may require fresh consideration by companies of whether any employees holding Canadian permanent resident status are subject to the UN Regulations. We note that an individual who has permanent resident status, as defined in the UN Regulations, continues to have permanent resident status even if they are physically located outside Canada. Scope of Prohibited Activities Amendments have been made to the SEMA Regulations and UN Regulations to significantly reduce the scope of prohibited activities. Generally speaking, the amendments bring Canadian trade sanctions in line with the EU sanctions legislation and the US sanctions legislation, that is, the Canadian restrictions that remain in force are focused on nuclear-related activity, Iran’s ballistic missile activities, and dealings with certain named individuals and entities (known as designated persons or listed persons).
1. SEMA Regulations
Previously, the SEMA Regulations imposed broad restrictions on almost all trade and economic activity related to Iran, including broad restrictions on financial services related to Iran, importing, purchasing or acquiring goods from Iran, exporting, selling or shipping goods to Iran, and making investments in Iranian entities. The amended SEMA Regulations have repealed many of the broad restrictions relating to Iran, including the trade embargo, the prohibitions on providing or obtaining financial services, and investing in Iranian entities. However, the broad trade embargo has been replaced by a prohibition on trade in certain listed goods and technology. These are generally goods and technology with potential nuclear or military applications. The SEMA Regulations also continue to prohibit facilitation activity, that is, causing, facilitating or assisting, or intending to cause, facilitate or assist, any act or thing that is prohibited thereunder. In addition, the list of named persons under the SEMA Regulations (previously defined as “designated persons” but now referred to under the SEMA Regulations as “listed persons”) has been shortened, but remains significant. Where there were previously over 500 entities and 83 individuals listed, there are now 161 entities and 41 individuals. The broad prohibition on almost all dealings with listed persons means that companies continue to face significant compliance risks if they are not thorough in screening potential suppliers, customers, or partners against the listed persons list.
2. UN Regulations
The UN Regulations implement into Canadian law the UNSC resolutions imposed against Iran that focus on Iran nuclear-related activities. Canada has amended the UN Regulations in accordance with the changes made to the UNSC resolutions on Iran on Implementation Day. The UN Regulations continue to impose prohibitions on trade in specific products and technologies related to nuclear or military applications, goods and technology related to ballistic missiles, as well as making available property or providing financial or related services related to uranium mining in Canada, or to the production or use of certain nuclear materials and technology in Canada. The UN Regulations also continue to prohibit facilitation activity, that is, causing, facilitating or assisting, or intending to cause, facilitate or assist, any act or thing that is prohibited thereunder. The designated persons subject to the UN Regulations are those found on the list published by the UNSC pursuant to UNSC Resolution 2231. As with the SEMA Regulations discussed above, the broad prohibition in the UN Regulations on almost all dealings with designated persons means that companies continue to face significant compliance risks if they are not thorough in screening potential suppliers, customers, or partners against the designated persons list. Export Controls / Export Permits Pursuant to the Export and Import Permits Act, an exporter may apply to the Export Controls Division of Global Affairs Canada for a permit to export items listed on the Export Control List. In its announcement on February 5, 2016, the Government of Canada also issued a Notice to Exporters indicating that while all applications for export permits for controlled goods and technology destined to Iran will be considered on a case-by-case basis, permit applications to export to Iran certain items on the Export Control List will normally be denied. Items that will normally be denied export permits to Iran include, in part, all items in Group 2 (Munitions List), Group 3 (Nuclear Non-Proliferation List), Group 4 (Nuclear-Related Dual-Use List), and certain items in the remaining groups, including, for example, telecommunications intercept, surveillance and jamming equipment (Group 1, Dual-Use), certain nuclear and military items (Group 5, Miscellaneous Goods and Technology), and certain toxic chemicals and biological weapon agents (Group 7, Chemical and Biological Weapons Non-Proliferation List).