Canada Announces Relaxation of Iran Sanctions: Awaiting the Details

On January 26, 2016, Canada’s Minister of Foreign Affairs, Stéphane Dion, announced that Canada will be lifting some of its economic sanctions against Iran. This is the most concrete statement yet from the new Liberal Government in response to the January 16, 2016 determination by the International Atomic Energy Agency that Iran had met the requirements for sanctions relief to begin under the Joint Comprehensive Plan of Action (JCPOA).

A number of Canada’s allies, including the European Union, the United States, Australia and Japan have already announced the lifting of economic sanctions against Iran to varying degrees. Although no details of specific Canadian sanctions relief have been provided, Canadian firms, especially those in the oil and gas, aerospace, mining, automotive, financial services, and high tech sectors, should be carefully assessing the emerging trade and investment opportunities in Iran to ensure full compliance with the remaining patchwork of sanctions and export control measures.

Canada’s Existing Iran Sanctions Regime

Canada maintains two types of sanctions against Iran: multilateral sanctions enforcing UN Security Council resolutions under the United Nations Act, and unilateral sanctions contained in the Special Economic Measures (Iran) Regulations. These measures have been enacted in response to UN Security Council resolutions and the perceived threat of Iran’s nuclear program and sponsorship for certain terrorist groups.

These prohibitions include a list of more than 600 individuals and entities who are classified as “designated persons”. All transactions with, to the benefit of, or involving the property of these designated persons has been strictly prohibited. Most of these individuals and entities have close ties to the Iranian Revolutionary Guard Corps (IRGC), Iran’s nuclear program, or terrorist and paramilitary groups. In addition, Canada maintains a broad trade embargo against Iran, including supply and sourcing bans and prohibitions against providing or acquiring financial services to, from or for the benefit of persons in Iran.

Canada’s previous Conservative Government made clear its suspicions of Iran’s participation in the JCPOA negotiations, and did not provide any assurance that Canada would participate in any of the planned sanctions relief of the JCPOA members.

Canada’s Plans to Lift Sanctions

Late yesterday, Minister Dion announced during question period and the media scrum following that Canada planned to “lift” its Iranian sanctions. He also specifically addressed the issue of the Canadian aviation industry, noting that Bombardier would be allowed to do business with Iran in order to compete with Airbus, a European company. Numerous sources, including officials in the Italian government, have indicated that Airbus is already engaged in negotiations to sell more than 100 planes to Iranian airlines following sanctions relief.

Canada may act in several ways to reduce or eliminate sanctions, including:

  • lifting broad restrictions against provision of financial, insurance, re-insurance, and other related services to or for the benefit of Iran, persons in Iran, and Iranian businesses;
  • removal of a large number of individuals and entities from the list of designated persons;
  • rolling back sanctions on Iran’s energy and petrochemical sectors; and
  • removing the trade embargo on goods supplied to or sourced from Iran.

EU Sanctions Eased

The EU broadly liberalized trade with Iran in most sectors and replaced restrictions in certain sensitive sectors with requirements to obtain licenses prior to any transaction.

The EU has relaxed its prohibitions on a wide variety of transactions with Iran, including on the Iranian oil and gas sector, provision of engineering and maintenance services to cargo aircraft, supply services to Iranian vessels, and related services. In line with US actions on secondary sanctions, the EU has also lifted restrictions on certain financial services including prohibitions on trading in Iranian government bonds and prohibiting insurance and re-insurance in Iran or to Iranian persons.

However, certain EU prohibitions, while they have technically been removed, have been replaced with a prior authorization and licensing scheme. Such authorizations would be in the hands of the individual member States of the EU, some of which maybe more forthcoming than others. In particular, dealings in dual-use equipment – equipment having both military and civilian uses – precious metals, diamonds, and graphite have been targeted as needing prior authorization.

US Embargo Remains Largely Intact

By way of contrast, the US sanctions relief has been mostly confined to “secondary sanctions”, namely sanctions placed on non-US persons. The broad US trade embargo against Iran remains in effect, and it is still illegal to clear transactions involving Iranian persons or entities through US financial institutions. The embargo will be subject to new exceptions for carpets, foodstuffs, and aircraft parts and maintenance.

The United States has also issued a new general license – General License H. This authorizes certain transactions for US-owned foreign affiliates and subsidiaries with Iran that are otherwise prohibited for US persons under the continuing embargo. However, certain transactions continue to be forbidden for US-owned foreign affiliates, including the export or re-export of US goods and services; transferring funds through, to, or from the US financial system; engaging in transactions with individuals on the list of Specially Designated Nationals (SDN) or Foreign Sanctions Evaders list; engaging in transactions with any military, paramilitary, intelligence, or law enforcement officials or agents of Iran; or activity proscribed under certain elements of the US sanctions regime.

Given the continued ban on the export and re-export of US goods and services, it is expected that Canada will continue to require export permits for US goods and technology that will be shipped or transferred from Canada to Iran under the Export and Import Permit Act.

In either case, neither the US nor the EU has completely removed Iranian entities or individuals from their respective black lists of designated nationals. In particular, the US recently added additional Iranians to the US Office of Foreign Asset Control’s SDN list in response to an Iranian ballistic missile test. Others that have remained under sanctions include entities and individuals with close ties to the IRGC and the Quds Force in particular.

The Path Ahead

With international economic sanctions falling away, Iran’s re-entry into the world economy presents significant opportunities for Canadian businesses across a wide range of sectors, including oil and gas, aerospace, mining, automotive, financial services, and high tech.

Those firms that understand and mitigate the risks that arise from economic sanctions measures that remain in place will have a competitive advantage in pursuing these trade and investment opportunities.

The International Trade and Investment Law Group at McCarthy Tétrault is closely following the situation, and will provide continued updates, information, and analysis as the situation develops.



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