Canadian Trade & Customs Outlook for Fall 2023: Compliance with Economic Sanctions and Export Controls

The year 2023 has proven to be marked by a dynamic trade agenda in Canada, with no signs of slowing down during the summer months. From May to August, the Government of Canada passed significant legislation related to supply chain transparency and introduced amendments and legislative proposals that have implications for compliance with Canadian customs, export controls, and economic sanctions regulations.

Baker McKenzie’s Canadian trade and customs team is diligently monitoring several key developments in sanctions and export controls throughout the rest of 2023:

Sanctions:

1. Amendments to the Special Economic Measures Act (SEMA) and the Justice for Victims of Corrupt Foreign Officials Act (JVCFOA): These amendments bring changes to country-specific sanctions regulations.

Export Controls:

1. Enhanced Enforcement Commitments: Canada has committed to bolstering enforcement efforts in the realm of export controls.
2. Amendments to General Export Permit 41 (GEP-41): Amendments have been made to GEP-41 to address recent geopolitical developments.

Sanctions

New Deeming Provision under SEMA and JVCFOA

Canadian individuals and entities, including citizens, Canadian incorporated entities, and individuals physically present in Canada, are subject to prohibitions on dealing with property owned, held, or “controlled” by designated persons under SEMA and JVCFOA. These prohibitions are broad and akin to asset freezes.

In June 2023, the Canadian government introduced a “deeming provision” within SEMA and JVCFOA. This provision outlines criteria for determining whether a designated person “controls” an entity based on the following:

1. The designated person holds, directly or indirectly, 50% or more of the shares or ownership interests in the entity or 50% or more of the voting rights in the entity.
2. The designated person has the ability, directly or indirectly, to change the composition or powers of the entity’s board of directors.
3. It is reasonable, considering all circumstances, to conclude that the sanctioned person can, directly or indirectly and through any means, direct the entity’s activities.

If a designated person meets any of these criteria, property owned by the entity is deemed to be owned by the controlling designated person. Consequently, the broad dealings prohibition would apply to that property, significantly expanding the scope of the prohibition. These amendments add complexity to sanctions due diligence by requiring a review of information that is not typically publicly available to determine the issue of “control.”

Amendments to Existing Sanctions Regulations

Since June 2023, the government has continued to amend Canada’s unilateral sanctions. Amendments have been made to the SEMA regulations pertaining to various countries, including Haiti, Iran, Russia, and Belarus. Additionally, in August 2023, the JVCFOA was amended to designate Lebanese nationals for the first time since 2019.

Export Controls

The Canadian government has made several notable developments in export controls since May 2023:

1. Cooperation with Five Eyes: Canada has formalized cooperation with the Five Eyes alliance for enforcing its export control measures.
2. Guide to Canada’s Export Control List Update: An updated Guide to Canada’s Export Control List has been released.
3. Amendments to Export Permits Regulations: Amendments have been made to align Export Permits Regulations with existing permit application processes, enhancing regulatory clarity and certainty.
4. Amendments to General Export Permit No. 41 (GEP-41): GEP-41 has been amended to prohibit its use for exporting or transferring goods or technology intended for the development, production, or use of rocket systems or unmanned aerial vehicles with a range of 300 km or greater. Normally, GEP-41 permits the export or transfer of certain items to eligible destinations.

These developments underscore the evolving landscape of trade, customs, and compliance in Canada, emphasizing the need for businesses and stakeholders to stay informed and adapt to changing regulations and requirements.

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