Enforcing Canadian Sanctions
Special Economic Measures Act
Welcome to a special edition of Insight Intelligence! Today’s newsletter is brought to you by a reader question about sanctions enforcement in Canada. Thanks for the question Douglas, and I hope this helps!
There are a number of different sanctions regimes in Canada: there’s the Canadian terrorist listings process, the Special Economic Measures Act (SEMA), the Freezing Assets of Corrupt Foreign Officials Act, the Justice for Victims of Corrupt Foreign Officials Act and various other acts with other sanctioning powers / exclusions. The Special Economic Measures Act is Canada’s primary sanction tool — we use it extensively, and this is what creates our “Russia” sanctions.
In sanctions, there are four primary mechanisms: targeting, implementation, monitoring, and enforcement. In Canada, enforcement is done by the RCMP, although other departments and agencies could play a role.1 (If you’re interested in reading more about the roles and responsibilities of departments and agencies with regards to SEMA, check out the article at the footnote by my friend Mike Saunders.) Targeting is done by Global Affairs Canada. They are responsible for creating the sanctions list, and responding to enquiries and providing information to the public through the department’s website. Critics of this process point out that Global Affairs has been reluctant to provide actual advice and guidance on the implementation of sanctions.2 That implementation is done by the private sector, such as banks and financial institutions (anyone required under law to implement the sanctions). So how many sanctions breaches have there been in Canada?
In terms of enforcement, there have only been two cases brought before the courts for violations of SEMA. In 2014, an Alberta-based company (Less Specialities Ltd) was charged with violating SEMA by attempting to export controlled goods (valued at $15) to the Islamic Republic of Iran. The company pleaded guilty and agreed to pay a fine of $90,000. The company argued that issue was a “mail room mixup”; they had intended to send the goods to Dubai, but had accidentally sent them to Tehran. (As an aside, this is rather interesting, since Dubai is a well-known re-export hub for dual use goods to Iran.)
The second case involved an individual who was ultimately acquitted of sanctions violations relating to Syria. In 2020, Nader Kalai was accused of violating the Syria regulations by making a payment of $140,000 to a company called Syrialink in November 2013. When the trial opened, the prosecutor told the judge he would be calling no evidence. This might have been a result of an intelligence-to-evidence issue, with expert Michael Nesbitt explaining that some of these cases are seeded by foreign intelligence agencies, and thus the lead or originating information cannot be introduced in court.
In another interesting development, in 2007-2008, FINTRAC reported a case of individuals suspected of circumventing Canadian export controls. While FINTRAC did not specify the country or the export controls involved, the Centre did indicate that the individuals were using companies operating in Canada and abroad to do so. “The individuals were shipping restricted materials in a manner designed to avoid detection and circumvent applicable laws.” The individuals and companies had been reported to FINTRAC through suspicious transaction reports; queries of FINTRAC’s database identified additional companies suspected to be associated with the same network. Electronic funds transfers were reported indicating monthly or bi-monthly funds transfers. The transfers were ordered through foreign banks by a company located in another country to the benefit of one of the Canadian companies reported to be involved in the purchase of industrial machinery. Between 2002 and 2007, the transactions totalled over $35 million.3
Canadians violating US sanctions
While Canada hasn’t been particularly forceful in its enforcement of sanctions, the US has sentenced a number of Canadians for U.S. sanctions violations.
In 2016, Ali Reza Parsa, a Canadian-Iranian dual citizen and resident of Canada, was sentence to three years in prison for his participation in a conspiracy to violate the International Emergency Economic Powers Act (IEEPA) and the Iranian Transactions and Sanctions Regulations (ITSR). Between approximately 2009 and 2015, Parsa conspired to obtain high-tech electronic components from American companies for transshipment to Iran. Parsa used his Canadian company, Metal PM, to place orders with U.S. suppliers and typically had the parts shipped to him in Canada or to a freight forwarder located in the United Arab Emirates, and then transshipped from these locations to Iran or to the location of his Iranian company’s client. Parsa provided the U.S. companies with false destination and end-user information about the components in order to conceal the illegality of these transactions.
In 2017, Ali Soofi (a Canadian citizen) was sentenced to 32 months in prison after he pleaded guilty to participating in a plot to violate U.S. weapons sanctions against Iran. Between 2014 and 2016, he exported military items for the US to Iran directly and through transshipment countries without a license.
In 2020, a Toronto export manager (Angelica O. Preto) for a Mississauga company (UE Canada Inc) was sentenced to prison in the United States for illegally exporting gas turbine engine parts to Iran, in violation of long-standing U.S. embargo and trade sanctions. During Preti’s time as export operations manager, the company was involved in 47 shipments exported from the U.S. Of those shipments, 23 were destined for Iran.
In another case from 2020, Bahram Karimi was accused of bank fraud in an alleged money laundering and sanctions evasion scheme involving Iran’s government, a state-owned oil company in Venezuela, and a complex web of offshore accounts and shell companies (the Venezuela project). In June 2020, the case against him was dismissed because certain evidence was not disclosed to defense lawyers. The indictment indicates Karimi lives in Canada, but offers no details of whether he used a Canadian passport or businesses in the scheme.
Other measures of enforcement / implementation
Aside from these attempted and successful prosecutions in Canada and the United States, we have few other metrics for how our sanctions are enforced. Recently, in relation to the Russia sanctions, the RCMP has told us that $292 million in financial transactions have been blocked and $122 million in assets have been frozen as a result of the SEMA Russia sanctions.
They also said that for Iran and Haiti, the RCMP has received no disclosure on frozen assets. So I suppose we are meant to assume that our Iran and Haiti sanctions have not resulted in any frozen or blocked assets. Currently, Canada has sanctions in place against twenty-two countries. I find it hard to believe that there are no other frozen or blocked assets in Canada from any of these countries, or that there have been no attempts to evade these sanctions. Food for thought as we consider the utility and implementation of sanctions, and how to investigate and enforce potential breaches of sanctions in Canada.
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Michael Saunders, “Capabilities and Gaps in the Canadian Special Economic Measures Act Regime,” Canadian Foreign Policy Journal, November 28, 2022, 1–17, https://doi.org/10.1080/11926422.2022.2145323.
Government of Canada, “A Coherent and Effective Approach to Canada’s Sanctions Regimes : Sergei Magnitsky and beyond / Hon. Robert D. Nault, Chair.: XC11-1/1-421-7E-PDF - Government of Canada Publications - Canada.Ca,” Report of the Standing Committee on Foreign Affairs and International Development ; 7th Report, 42nd Legislature, 1st Session (Ottawa, Canada, 2017), https://publications.gc.ca/site/eng/9.834916/publication.html.
FINTRAC Annual report 2007-2008