The trade landscape is changing for many Canadian companies. Canada is involved in the renegotiation of NAFTA. The Canada-Ukraine Free Trade Agreement comes into effect on August 1, 2017. The Canada-EU CETA enters into provisional effect on September 21, 2017. The Government of Canada is updating export controls and economic sanctions laws and Global Affairs policies. The Canada Border Services Agency is detaining goods that are suspected of violating Canada's export controls and economic sanctions laws. The Royal Canadian Mounted Police are investigating alleged violations of Canada's Corruption of Foreign Public Officials Act. While many of these changes present unique opportunities for Canadian organizations, many also generate or enhance existing trade compliance requirements.
There is so much going on and businesses need to catch up on
compliance before mistakes are made. Organization must be
proactive and reactive. We often see clients getting themselves
into trouble (with significant financial, operational, and
reputational consequences) because their success gets ahead of
them. The best time to start a compliance program is before
attempting to enter a new market or selling to a new
client/customer. The best time to develop or update your compliance
program is when your organization decides to:
(1) enter or develop new business in a new market [this could
include direct business development or development through a joint
venture partner, representative or agent];
(2) purchase from new suppliers; or
(3) sell to new customers or clients.
In other words, the best time to act is NOW.
The comment we often get is that Canadian companies do not know
where to start in developing a compliance program. The first
step is to identify the risks. For example, start by asking a
few basic questions, such as:
1. Does your business sell goods or technology or services outside
Canada? If yes, where does your company sell goods or technology or
services?
2. Does your business source materials, parts or finished goods
from companies located outside Canada or from companies that source
from outside Canada?
3. Are any of those countries subject to Canada's economic
sanctions? Currently, Canada imposes multi-lateral sanctions
pursuant to the United Nations Act against 12 countries (Central
African Republic of Congo, Eritrea, Iran, Iraq, Lebanon, Libya,
North Korea, Somalia, South Sudan, and Yemen) and Al
Qaida/Taliban/Terrorist entities. Canada imposes unilateral
sanctions (somewhat coordinated with major trading partners)
pursuant to the Special Economic Measures Act against 9 countries
(Burma/Myanmar, North Korea, Iran, Libya, Russia, South Sudan,
Syria, Ukraine and Zimbabwe).
4. Are any of the countries you sell to, or buy from, known
transshipment points to any of the sanctioned countries? For
example, the United Arab Emirates is a known transshipment point
for Iran. China is a known transshipment point for North
Korea. Switzerland is a known transshipment point for Iran
and Syria.
5. What does your company sell? This seems like a basic
question, but sometimes the technical people in the organization
have to help provide a detailed answer.
6. Are any of those goods made with U.S-origin components? See
Don't Be Surprised If The Components of the Goods Being
Shipped Triggers Export Controls of Economic Sanctions
Concerns
7. Do you require an export permit to sell those goods or
technology or services (because you need goods/technology to
provide the services)?
8. Are those goods or technology or services subject to targeted
international sanctions?
9. What access do you provide to restricted goods or technology?
Will any of your transactions or interactions with vendors,
purchasers, representatives, agents, partners, etc. in country
employees, etc. permit access to any restricted goods or
technology?
10. Who do you sell to? Are you selling to foreign officials
or dealing with foreign officials when selling the goods or
technology or services? Are you selling to designated persons
subject to Canada's economic sanctions (on a Canadian list in a
regulation - unfortunately, Canada does not have a consolidated
list and you must review various regulations).
11. Who do you buy from? Are you purchasing from designated
persons?
12. How well do you know your
customer/client/vendor/partner/agent? Is your customer or
client or vendor or partner or agent a front for a sanctioned
country or a sanctioned person? Is your
customer/client/vendor/partner/agent related to or working for or
on behalf of a foreign official? Is your
customer/client/vendor/partner/agent controlled directly or
indirectly by a designated person subject to Canada's export
controls or sanctions?
13. How are you selling goods or technology or services? Are you
selling via an agent or foreign representative or subsidiary?
Can these intermediaries get your business into trouble with the
Canadian authorities? Could these intermediaries offer bribes to
foreign public officials in order to increase their business (to
make more money from you)? How are you protecting against this type
of activity?
14. How are you paid (or how will you pay) and in what
currency? Are the banks and financial institutions subject to
Canadian economic sanctions? Do the transactions go through
another country that imposes economic sanctions? Are the
transactions in a foreign currency (such as United States dollars)
that may be transferred through a foreign financial
institution?
15. How do you pay your agents and representatives? Is it is
cash (do you know where the money goes)? Is there a large upfront
payment or budget? Is it a percentage commission of what is sold
(so there is an incentive to bribe foreign public officials)?
Does the name on bank accounts match the name of the person you are
paying? Is there something unusual about the payments? Do you
have a formal agreement that clearly sets out responsibilities and
obligations?
16. How is your compliance? What are you doing in terms of due
diligence? Do you conduct periodic reviews of your compliance
to ensure everything is working? Do you conduct training? Do
you use end-use certificates and due diligence checklists?
17. When was the last time you reviewed recent developments?
See
Canada Has Made Important Changes To The Export Control List And
Export Controls Guide: It is Time To Update Company Export
Controls
18. Do you know what paperwork you must file when goods are
exported or imported? For example, do you have to notify the CBSA
about the export of the goods? What is the value of the goods
to be shipped? See
Checklist for Exporting Commercial Goods From Canada
19. Can you find all the relevant paperwork for a particular
transaction quickly? If you cannot find documents, you may
not be able to respond to governmental authorities? If you cannot
find documents, documents may be missing for a reason (that is to
cover-up wrongdoing).
20. Who do you trust? Have you retained a trusted legal
advisor who is ready to assist if you are faced with time-sensitive
government requests for information? This cost effective step
could make the difference between a seamless and effective response
and a costly, reputation damaging, operation stopping regulatory
non-compliance issue.
An effective compliance program requires that you ask the hard
questions and find that the answers are satisfactory. If you
cannot answer a question and have no process to answer questions,
you will have problems when questions are raised. The enforcement
officials will not accept that "I never considered this"
to be the appropriate answer to a possible breach of Canada's
laws.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.