John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca Best Practices in Export Compliance: Five Key Issues in Canadian Trade Control Compliance and Enforcement Canadian Association of Importers and Exporters Webinar John W. Boscariol September 10, 2013

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 1 Today’s Focus… ¬background and overview of trade control regime ¬key challenges for exporters ¬five best practices for exporters ¬red flag destinations ¬exporters and anti-corruption compliance

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 2 Growing Impact of Canadian Trade Controls ¬what’s driving this? ¬since 9/11, new emphasis of Canadian authorities on security ¬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 ¬Canadian companies are now more concerned than ever before about whom they deal with, where their products and technology end up, and who uses their services ¬financings, banking relationships, mergers and acquisitions, certifications, terms & conditions

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 3 Overview of Canada’s Trade Control Regime ¬export and technology transfer controls ¬Export Control List ¬Area Control List ¬economic sanctions ¬Special Economic Measures Act ¬United Nations Act ¬Freezing Assets of Corrupt Foreign Officials Act ¬Criminal Code ¬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 FCPA ) ¬“compliance convergence”

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 4 Key Trade Control Challenges for Exporters ¬measures take effect immediately – no consultations ¬measures change frequently and in response to developing international events ¬measures are “layered” ¬multiple Canadian regulatory regimes (UN, SEMA, ECL, ACL, Criminal Code) ¬measures in the home country or country in which the operation is located ¬US extraterritorial measures

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 5 Key Trade Control Challenges for Exporters ¬their scope extends beyond export shipments ¬technology transfers ¬activities outside Canada ¬designated persons screening ¬their application must always be considered in the context of US trade controls ¬affiliates ¬business partners ¬differences and conflicts

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 6 Exporter Best Practice #1 – Screening for Designated Persons ¬lists of designated persons – individuals, companies, organizations ¬Special Economic Measures Act regulations ¬United Nations Act regulations ¬Freezing Assets of Corrupt Foreign Officials Act regulations ¬Criminal Code anti-terrorism provisions ¬any involvement in the transaction – purchaser, ultimate user, vendor, creditor, broker, service provider

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 7 Exporter Best Practice #2 – Contract Clauses and Certifications ¬vendor (sourcing) agreement clauses ¬designated person ¬compliance with trade controls and certifications ¬product information, including ECL/ECCN classification ¬indemnification ¬notification of investigations or inquiries, cooperation

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 8 Exporter Best Practice #2 – Contract Clauses and Certifications ¬distributor/customer agreement clauses ¬designated person ¬compliance with trade controls ¬end-use certification ¬indemnification ¬notification of investigations or inquiries, cooperation

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 9 Exporter 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 ¬CBSA ¬RCMP ¬PWGSC Controlled Goods Directorate (mandatory reporting) ¬other (e.g., Canadian Nuclear Safety Commission)

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 10 Exporter 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., encryption, Belarus, Burma, North Korea ¬Canadian controls over US-origin goods and technology ¬conflicts ¬Cuba ¬ITAR and dual or third country nationals

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 11 Exporter Best Practice #5 – Controlling Technology Transfers ¬higher risk vs export shipments ¬process governing ¬ ¬virtual meetings – tele/video conference ¬plans/drawings – marking ¬server access – upload/download ¬cloud computing

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 12 What Are Your “Red Flag” Destinations? ¬incorporate ACL, UN and SEMA embargo destinations into your compliance program ¬raise red flag where you have knowledge, suspicions, or reason to believe that technology, goods or services are ultimately destined for or may be accessed or used in or by any of the following countries or entities: – Myanmar (formerly Burma) – Belarus – Syria – Libya – Sudan – Iraq – terrorists and terrorist organizations – Al-Qaida and Taliban – Zimbabwe – Afghanistan – Pakistan – Cuba – Guinea – Iran – Democratic Republic of the Congo – Eritrea – Côte d’Ivorie – Liberia – Sierra Leone – North Korea – Lebanon – Somalia – Tunisia – Egypt

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 13 Exporters and Anti-Corruption Compliance ¬Canada’s Corruption of Foreign Public Officials Act ¬what is prohibited? the four key elements: ¬direct or indirect giving or offering of a benefit of any kind, ¬to or for the benefit of a foreign public official, ¬as consideration for act or omission in connection with performance of the official’s duties or functions or to induce the official to use his or her position to influence acts or decisions of the foreign state, and ¬in order to obtain or retain an advantage in the course of business

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 14 Exporters and Anti-Corruption Compliance ¬increased enforcement against Canadian companies doing business cross-border ¬Niko Resources (June 2011) - $9.5 million and probation order ¬Griffiths Energy (January 2013) - $10.35 million ¬Nazir Karigar (August 2013) ¬ongoing disclosures by Canadian companies ¬approx 35 ongoing RCMP investigations

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 15 Exporters and Anti-Corruption Compliance ¬what are your government touch-points? ¬supplying government or government owned/controlled entities ¬permits, business licensing, other authorizations ¬concessions in mining and energy sectors ¬moving your product through customs

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 16 Exporters and Anti-Corruption Compliance ¬areas of particular challenge ¬distributors and agents ¬suppliers ¬joint venture partners ¬hospitality ¬facilitation payments

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 17 Exporters and Anti-Corruption Compliance ¬key June 18, 2013 amendments to CFPOA ¬increased sentence to 14 years ¬repeal of facilitation payments exception ¬new books and records requirements ¬new “nationality” jurisdiction

John W. Boscariol, International Trade and Investment Law Group, McCarthy Tétrault LLP / mccarthy.ca 18 Core Elements of Economic Sanctions and Anti-Corruption Compliance Programs ¬basic components should include: ¬corporate compliance manual ¬screens and lists ¬appointment of compliance officers ¬internal audit procedures ¬correction / voluntary disclosure process ¬training programs ¬contract review ¬conflict procedures

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