International Sanctions Lead to Charges Being Laid in Canada and Iran by US Authorities

On January 12, 2021, the United States Department of Justice announced that it charged three individuals, including two residents of Ontario, Canada in an indictment with conspiracy to export U.S. goods to Iran in violation of the International Emergency Economic Powers Act (IEEPA) and the Iranian Transactions and Sanctions Regulations (ITSR). In addition to the foregoing, the roster of charges includes conspiracy to smuggle goods from the United States, and conspiracy to engage in international money laundering spanning 11 countries and stretching over two years.

The indictment and arrests of those individuals in Canada demonstrate the strength of sanctions law and its extra-territorial nature. Charged in the indictment are:

  • Arash Yousefi Jam, also known as Arash Yousefijam, 32, an Iranian national living in Ontario, Canada.  Arash Jam was arrested by U.S. authorities on December 23, 2020;
  • Amin Yousefi Jam, also known as Amin Yousefijam, 33, an Iranian national living in Ontario, Canada; and
  • Abdollah Momeni Roustani, also known as Abdollah Momeni, Ab Momeni, and Amir Amiri, 44, an Iranian national believed to be living in Iran.

Quoting the indictment, the announcement by the Justice Department states that “between January 2015 and February of 2017, Arash Jam, Amin Jam, and Abdollah Momeni allegedly conspired with each other and others to obtain goods in the United States and export them to Iran.  Specifically, the individuals are alleged to have conspired to fraudulently and knowingly export and send nine electrical discharge boards, one CPU board, two servo motors, and two railroad crankshafts from the United States to Iran in violation of economic sanctions.

According to a news source, “the shipment made it to port in Iran. Payments for the supplies were wired through different countries, including Turkey and Uganda.”

These allegations have not been proven in a criminal trial. However, if convicted, the individuals face a statutory maximum penalty of five years in federal prison and a $250,000 fine on the export and smuggling violations, and 20 years in federal prison and a $500,000 fine on the money laundering violation.

The lawyers at Tereposky & DeRose have significant experience in the design and implementation of sanctions-related compliance programs, including policies, procedures, employee training, and internal control mechanisms. They also regularly assist both Canadian and international businesses, financial institutions, and individuals with internal investigations when “red flags” appear and provide advice on compliance in these areas. Where breaches have occurred, they have worked closely with their clients in making voluntary disclosures and in engaging with the ensuing investigations conducted by the RCMP and Global Affairs Canada.

If you would like to discuss any aspect of the Canadian sanctions regime, contact Vince DeRose, Jennifer Radford or Umair Azam at:

Vince DeRose

Jennifer Radford

Umair Azam

Canada Launches Public Consultations on a Potential Comprehensive Economic Partnership Agreement with Indonesia

On January 11, 2021, the Honourable Mary Ng, Canadian Minister of Small Business, Export Promotion and International Trade, announced the launch of public consultations on a possible comprehensive economic partnership agreement (CEPA) with Indonesia.

The press release announcing these consultations explains that “[e]xpanding Canada’s trade and investment opportunities in Southeast Asia’s fastest-growing economy will diversify Canada’s trade portfolio and support our economic recovery from the COVID-19 pandemic.”

Indonesia is one of the member states of the Association of Southeast Asian Nations (ASEAN). Previously, Canada and the ASEAN member states have engaged in exploratory discussions for a possible Canada-ASEAN free trade agreement. The conclusion of these discussions was announced on September 10, 2019, when the Government of Canada expressed its “aim to expand trade and investment with large, fast-growing markets, including ASEAN”, explaining that, taken together, the “ASEAN member states represent the fifth largest economy in the world, and Canada’s sixth largest trading partner”.

Indonesia is Southeast Asia’s largest economy, a G20 member, Canada’s largest export market in Southeast Asia, and the second-largest destination for Canadian direct investment in Southeast Asia. According to the Government of Canada, the value of bilateral merchandise trade between Canada and Indonesia was $3.7 billion in 2019, and the total value of Canadian direct investment in Indonesia totaled $3.84 billion at the end of that year. Notable Canadian exports to Indonesia include agricultural products, including cereals, fertilizers, and wood pulp.

In the notice of the consultations published in the Canada Gazette, Part I on January 9, 2021 (Vol. 155, No. 2), Global Affairs Canada invites “all interested parties” to submit their views by February 23, 2021. The consultations are broad in scope, and “examples of areas where the Government would appreciate receiving views from Canadians” include the following:

  • Goods of interest in terms of export opportunities, import needs (e.g., input materials for Canadian manufacturing), and import sensitivities;
  • Rules of origin for preferential tariff treatment;
  • Procedures vis-à-vis origin (e.g., determining, certifying, and verifying origin);
  • Non-tariff barriers (e.g., technical barriers to trade and sanitary/phytosanitary measures);
  • Cross-border and customs issues;
  • Investment barriers;
  • Trade facilitation issues;
  • Services of interest in terms trade with Indonesia;
  • Temporary entry of business people from Canada into Indonesia and vice versa;
  • Electronic commerce;
  • Government procurement markets in Indonesia, including at the central, sub-central and local levels, for Canadian suppliers;
  • Issues affecting business practices when interacting with state-owned enterprises;
  • Indonesia’s application and enforcement of intellectual property (IP) protection rules;
  • Matters relating to competition policies;
  • Trade remedies with respect to ASEAN member states and Canada;
  • Any unfair business practices that may need to be addressed;
  • Issues relevant to the development of small and medium-sized enterprises; and
  • Matters relevant to Canada’s progressive trade priorities (including, for example, the rights and interests of Indigenous peoples, transparency, rule of law, gender equality, human rights, and environmental protection). In this regard, Canada has also announced its intention to conduct impact assessments with respect to the potential Canada-Indonesia CEPA, including an “initial environmental assessment” and a “gender-based analysis plus”.

Tereposky & DeRose regularly provides advice on international trade agreements. Should you have any questions regarding the consultations outlined above or any other trade matter, we are at your disposal.

Umair Azam

Daniel Hohnstein

Greg Tereposky

Canada Shines Light on US Solar Cell Tariffs by Initiating USMCA/CUSMA Dispute Settlement Process

On December 22, 2020, the Government of Canada requested dispute settlement consultations with the United States under Chapter 31 of the Canada-United States-Mexico Agreement (CUSMA, which is also referred to as the USMCA in the United States and the T-MEC in Mexico) concerning the continued US safeguard tariffs on Canadian crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products (CSPV products).

By way of background, the US International Trade Commission (USITC) initiated a Section 201 global safeguard investigation on imports of solar photovoltaic products (i.e., cells, modules, panels, laminates) on May 23, 2017, and imposed a 30% tariff on imports of solar products from Canada on January 22, 2018 (with the tariff set to decline by 5 percent each year). The first 2.5 gigawatts of imported solar cells in each of the four years were exempted from this measure. In October 2020, the White House issued a proclamation that would make the fourth-year tariffs 18 percent instead of the expected 15 percent. The rate is set to take effect in February 2021.

Canada has taken the position that under Chapter 10 of the CUSMA, an emergency safeguard action by the United States would exclude Canada unless those imports (i) account for a substantial share of total imports, and (ii) contribute importantly to serious injury caused by imports. The USITC found that neither of these two conditions were met. As a result, the US was required under the North American Free Trade Agreement (NAFTA), and now CUSMA, to exclude Canadian solar products from its safeguard tariffs.

In her letter to the United States Trade Representative, the Honourable Mary Ng, Canadian Minister of Small Business, Export Promotion and International Trade, wrote: “In addition, Chapter 10 of CUSMA prohibits a party from imposing restrictions on a good that would have the effect of reducing imports below the trend over a recent period with allowance for reasonable growth. The United States failed to observe this prohibition in taking its emergency action and continues to fail to observe this prohibition with respect to imports from Canada.”

Under the state-to-state dispute settlement rules provided in Chapter 31 of the CUSMA, if the parties fail to resolve a dispute through consultations, the establishment of a dispute settlement panel may be requested. Chapter 31 states that when a party believes that another party has “nullified or impaired” a benefit that the first party “could reasonably have expected to accrue to it” under the trade agreement, a request may be made for setting up the dispute settlement panel.

According to the statement issued by Minister Ng on January 7, 2021, the US safeguard tariffs have caused Canada’s exports of solar products to the United States to decline by as much as 82% since they were imposed in January 2018.

How the incoming US administration will address this dispute is not currently known. On December 9, 2020, the USTR requested formal consultations with Canada under Chapter 31 concerning how Canada regulates fourteen categories of dairy imports (See “Who’s Milking the New NAFTA? USTR Challenges Canada’s Dairy Quotas under the CUSMA/USMCA”). Stakeholders in Canada, the United States, and Mexico across the economic spectrum will be watching with great interest how these disputes unfold under the dispute settlement machinery of the CUSMA.

Tereposky & DeRose regularly provides advice on the interpretation, application, and implementation of international trade agreements and acts as counsel in international trade disputes, including WTO and regional trade agreement dispute settlement proceedings. Should you have any questions regarding the CUSMA, or any other trade matter, we are at your disposal.

Umair Azam

Daniel Hohnstein

Greg Tereposky

Leading the world – the African Continental Free Trade Area (AfCFTA) sets a new high-water mark for dispute settlement under regional trade agreements

On 1 January 2021, trading began under the African Continental Free Trade Area (AfCFTA), a regional trade agreement aimed at all 55 member states of the African Union. The agreement is publicized as encompassing the world’s largest free trade area since the formation of the World Trade Organization (WTO). Once fully implemented, the AfCFTA will establish a new high-water mark for dispute settlement under regional trade agreements.

To date, most trade disputes have been resolved using the WTO dispute settlement mechanism, even when the matters concerned could have been resolved under a regional trade agreement. This is largely because the WTO was viewed as offering a better mechanism to address complex factual and legal issues. Disputes that reach the formal dispute settlement stage inevitably involve political sensitivities, particularly for the country whose measures are being challenged, but also for the challenging country.  Whatever the outcome, both disputing countries must “sell” that outcome to their constituents. To best achieve this, particularly if the outcome is negative, the constituents need to be convinced that the strongest possible case was put forward, that the decision-making body understood and considered that case, and that the decision that was issued is factually accurate and legally well-reasoned. Although it has been the subject of criticism by some WTO Members, the WTO mechanism has generally been successful at meeting these requirements. This is due to its well-developed procedures, the ability to appeal findings of dispute settlement panels, and dispute settlement support by an experienced and professional Secretariat. Until now, the ad hoc trade dispute settlement mechanisms under regional trade agreements have lacked these components.

The AfCFTA changes this by creating a dispute settlement mechanism that closely resembles the WTO mechanism, including panels, a process for appeals, a procedure governing the “suspension of concessions” (e.g., trade retaliation), and a supporting Secretariat.  Although it does not have the 165-country membership of the WTO, the AfCFTA membership of 55 countries should generate enough formal disputes to reasonably utilize the mechanism.

Tereposky & DeRose LLP regularly provides advice and acts as counsel in international trade disputes, including WTO and regional trade agreement dispute settlement proceedings.

Daniel Hohnstein

Greg Tereposky