1. Canadian and US Export Controls and Economic Sanctions:
Key Steps for Mitigating Risk Exposure for Software and
Technology Companies
2017 IT.CAN 21st Annual Conference
John W. Boscariol
McCarthy Tétrault LLP
October 24, 2017

2. Growing Impact of Canadian Trade Controls
what’s driving this?
since 9/11, new emphasis of Canadian authorities on security (vs. government revenues)
more recently, increased penalties, enforcement by U.S. authorities
pressure from U.S. affiliates, suppliers and customers (and U.S. government)
penalty exposure
operational exposure
reputational exposure
companies are now more concerned than ever before about whom they deal with, where their products and technology end up, and who uses or benefits from their technology and services
financings, IPOs, banking relationships, mergers and acquisitions

3. What Are Canada’s Trade Controls?
export and technology transfer controls
Import Control List
Export Control List, Area Control List
economic sanctions
Special Economic Measures Act
United Nations Act
Justice for Victims of Corrupt Foreign Officials Act (Magnitsky Law)
Freezing Assets of Corrupt Foreign Officials Act
Criminal Code (“terrorist groups”)
domestic industrial security
Defence Production Act, Controlled Goods Program
other legislation of potential concern
blocking orders (Cuba)
anti-boycott policy and discriminatory business practices laws
anti-bribery law (Corruption of Foreign Public Officials Act and US FCPA)

4. Canada’s Economic Sanctions Legislation
Special Economic Measures Act, Magnitsky Law and United Nations Act can include:
ban on providing goods, services, technology
assets freezes – cannot deal with listed individuals, companies, organizations
ban on facilitation
monitoring and reporting obligations
Freezing Assets of Corrupt Foreign Officials Act
Ukraine, Tunisia, Egypt (until March 2016)
application to persons in Canada and Canadians outside Canada
permit process and enforcement (GAC, CBSA and RCMP)
also, Criminal Code – terrorist groups

5. United Nations Act Regulations
countries, groups and individuals subject to sanctions under United Nations Act:
Al-Qaida and Taliban
Democratic Republic of the Congo
Iran
Sudan
Lebanon
Libya
Yemen
Iraq
Somalia
Eritrea
terrorists and terrorist organizations
North Korea
Central African Republic
South Sudan

6. Special Economic Measures Act Regulations
authority for Canada to impose economic sanctions absent or in addition to a UN Security Council resolution
currently in force
Venezuela
Iran
Syria
Burma
Zimbabwe
North Korea
Russia
Ukraine (including Crimea region)
South Sudan

7. Challenges With Trade Controls
measures take effect immediately – no consultations
measures change often, in response to developing international events
measures are “layered”
multiple Canadian regulatory regimes
measures in the country in which you’re doing business
US extraterritorial measures

8. Challenges With Trade Controls
broad application to technology transfers – for example:
telephone discussions
/text communications
uploading to or working on server abroad while in Canada
accessing or downloading from Canadian server while abroad
applies to cloud structures for transmission and storage of data
IT support outside Canada and potential access

9. Challenges With Trade Controls
broad prohibitions against dealings with designated or listed persons and those who own or control them
including dealings in their property, facilitation, providing financial or related services, making goods available
Canada maintains lists with over 2,000 designated or listed persons
any involvement in the transaction – purchaser, ultimate user, vendor, agent, creditor, broker, service provider
applies regardless of where Canadian company or individual is doing business
applies to non-Canadians in Canada

10. Challenges With Trade Controls
Canada’s emergence as a “sanctions hawk” and divergence from US and EU measures
Russia / Ukraine
Belarus, Burma, Libya, North Korea
Iran – even post-JCPOA
in some cases, stricter export controls than the US
encryption
cybersecurity items
network surveillance
intrusion software

11. Challenges With Trade Controls
conflicts with extraterritorial US trade controls
US deemed re-export rules vs Canadian human rights
US trade embargo of Cuba
Canada’s Foreign Extraterritorial Measures Act “blocking” order prohibits compliance with US trade embargo of Cuba
obligation to notify Canadian Attorney General of certain communications
criminal penalty exposure: up to $1.5 million and/or 5 years imprisonment
provincial business discriminatory practices legislation

12. Best Practice #1 – Screening for Designated Persons
prohibition against dealings involving designated or listed persons
screen for any involvement in the activity – research partner, collaborator, purchaser, borrower, ultimate user, agents, vendor, creditor, broker, service provider
limited consolidation of lists by Canada
practical necessity of using a third party screener
due diligence on screener
John W. Boscariol

13. Best Practice #2 – Contract Clauses and Certifications
trade control clauses for agreements with borrowers, vendors, customers, research partners, etc.
they are not designated person nor owned or controlled by same
compliance with trade controls and certifications
controls in place to prevent and detect violations
product information, including ECL/ECCN classification
end-use certification
indemnification for contravention of trade control clauses or law
notification of investigations or inquiries, cooperation
John W. Boscariol

14. Best Practice #3 – Using Voluntary Disclosure Mechanisms
in certain circumstances, can be an effective tool
coordinate with several government depts
Export Controls Division
Economic Law Division
Canada Border Services Agency
RCMP (including mandatory disclosure of dealings with designated persons)
Controlled Goods Directorate (mandatory breach reporting for Defence Production Act and Controlled Goods Regulations)
other (e.g., Canadian Nuclear Safety Commission)
John W. Boscariol

15. Best Practice #4 – “Home Grown” Compliance Policies
trade control compliance in the shadow of the United States
Canadian controls can be more onerous than US controls – e.g., cybersecurity, encryption, Russia, Belarus, Burma, North Korea
Canadian controls over US-origin goods and technology
conflicts
Cuba
deemed re-export rules and human rights violations
John W. Boscariol

16. Best Practice #5 – Controlling Technology Transfers
more difficult to prevent/detect technology transfer violations than export shipment violations
to develop and implement control process, need to understand
how/where is transmitted and stored?
virtual meetings – tele/video conference
plans/drawings – marking
server access – upload/download, IT servicing
cloud computing structures
firm-wide training especially critical for controlling tech transfers
John W. Boscariol

17. John W. Boscariol McCarthy Tétrault LLP International Trade and Investment Law Direct Line:  LinkedIn: Twitter:
John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca
John W. Boscariol