As Global Pandemic Spreads, Economic Sanctions and Humanitarian Exemptions Coming into Focus for the Business and NGO Communities
The COVID-19 pandemic is increasingly forcing exporters, financial institutions, non-governmental and civil society organizations (“NGOs”) and others to deal with prohibitions or restrictions imposed under economic sanctions as they apply to goods, services and technology provided in connection with COVID-19-related sales abroad as well as other humanitarian relief efforts.
The coronavirus pandemic has already affected more than 220 countries and territories, including regions that are under long-standing economic sanctions, such as North Korea, Iran, Cuba, Syria, Russia, Ukraine and Venezuela. Many of these countries are in a precarious position when it comes to fighting the spread of the disease among their vulnerable populations. In light of what is anticipated to be a long multi-wave pandemic battle, there are mounting concerns that both broad and targeted sanctions measures significantly impede access to essential medicines, therapeutics, vaccines, personal protective equipment (“PPE”), ventilators and other critical care equipment causing serious harm to their fragile communities.
As a result of this humanitarian crisis, several United Nations officials have called for easing or even suspending sanctions, stressing both the need to support lives of the local populations and to enhance the overall effort to resist the pandemic spread: in the context of a globalized world an outbreak in any region, however distant, heightens risks for the rest of world. Yet, there is no consensus in the global community as to how this should be done or what measures should be lifted. As sanctions are considered by many to be an important tool in promoting foreign policy objectives, it is highly unlikely that full suspension is a realistic option unless and until those objectives are attained.
At this time, Canada has not made any substantive changes to its sanctions regimes to relax the measures in the face of COVID-19. However, there are existing mechanisms that exporters, financial service providers and other organizations doing business abroad can utilize to facilitate these activities and mitigate their sanctions risk exposure. These are discussed further below.
Canada’s Economic Sanctions Regime
Canadian economic sanctions are implemented under five statutes: the United Nations Act (“UNA”), the Special Economic Measures Act (“SEMA”), the Freezing Assets of Corrupt Foreign Officials Act (“FACFOA”), the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) (“Magnitsky Law”), and Part II.1 of the Criminal Code. The measures include (i) list-based sanctions that prohibit dealings involving listed individuals and entities and the entities they own or control and (ii) trade and sectoral sanctions that can include a wide range of prohibitions against sourcing and supplying goods, services and technology, providing and acquiring financial and other related services, making investments, data transfers, and providing equity or debt financing.
At the present time, Canada has in place sanctions measures of varying degrees with respect to the following countries:
Central African Republic
Democratic Republic of Congo
Generally speaking, these measures are administered by Global Affairs Canada and enforced by the Royal Canadian Mounted Police and the Canada Border Services Agency. Contravention of these measures is subject to criminal prosecution and penalties, including fines and imprisonment.
There is no general exemption from economic sanctions for companies, financial institutions, charities, non-profits or NGOs engaged in charitable, humanitarian, COVID-19 or other health and safety initiatives. Any organization that is considering engaging in activities involving these countries should first ensure they have developed and implemented effective sanctions compliance and screening policies and procedures designed to assess potential transactions before proceeding and to monitor ongoing activities with these jurisdictions as well as individuals, companies and organizations connected to sanctioned countries. This is especially important in order for organizations to be able to provide comfort to their banks who provide the necessary financial services for humanitarian sales and donations that they “have all their ducks in a row” in mitigating any sanctions risk.
Although some of these sanctions programs listed above, i.e., those regarding Venezuela, Tunisia, Mali, Saudi Arabia, and Yemen, consist solely of list-based measures that only target specific entities and individuals, organizations and financial instructions engaged in humanitarian-related transactions in or with these countries must still proceed carefully. This includes employing due diligence and screening tools to ensure that none of their initiatives involve listed persons or entities that are owned or controlled by them.
Canada’s Export and Technology Transfer Controls
Separate and apart from economic sanctions, Canada also applies export and technology transfer controls under the Export and Import Permits Act and its Export Control List and Area Control List. These controls primarily relate to dual-use, defense and weapons-related items, however, there are two aspects of these regulations that are especially relevant for businesses and NGOs seeking to assist countries with COVID-19 and other humanitarian assistance.
First, all US-origin goods and technology are controlled for export or transfer from Canada. General Export Permit No. 12 provides a general exception for transfers of US-origin items to all countries other than Syria, North Korea, Iran and Cuba. Any transfers of aid or humanitarian assistance to those countries that involves US-origin goods or technology are prohibited unless a permit is applied for and obtained from Global Affairs Canada.
Second, all exports and transfers of any goods or technology from Canada to countries listed on the Area Control List are prohibited unless a permit is first obtained from Global Affairs Canada. This applies to humanitarian items as well. At the present time, North Korea, a potential recipient of humanitarian assistance, is the only country identified on that list.
Humanitarian Exemptions and Sanctions Permits
As noted above, sanctions differ by country and can range from a full trade embargo to more narrow list-based sanctions or sectoral restrictions. Each act, or regulations under such act, prescribes certain narrow exemptions from the sanctions, and/or a licensing or permit mechanism by which persons who wish to do something that is prohibited can obtain a permission for such activity. A substantial difference between these two types of provisions lies in the fact that if the activity falls under the umbrella of the exemption, such activity is generally allowed and it is not required to apply for and obtain a permit. This can be crucial as time is of the essence in the new COVID-19 reality.
Even though humanitarian, health and safety exceptions of one sort or another can be found in many sanction programs, most of them are not well-suited for the current pandemic context. Typically, they are too narrowly defined. For example, an exemption can cover supplies of specific goods, such as supplies of non-lethal military equipment intended for humanitarian and protective use, or supplies intended for particular categories of recipients, such as the personnel of United Nations and humanitarian missions. There are no Canadian sanctions programs, except for Iran, that contain a relatively broad exemption for humanitarian supplies.
Some sanctions programs allow dealings related to humanitarian or development assistance. They exclude from the application of sanctions goods and services for the purpose of safeguarding human life, disaster relief, democratization, stabilization or providing food, medicine, medical supplies or equipment. However, such exemptions are available only for specific categories of entities, such as international organizations with diplomatic status, UN agencies, the International Red Cross and Red Crescent Movement, and non-governmental organizations that have entered into a grant or contribution agreement with Global Affairs Canada or the Canadian International Development Agency. Notably, NGOs other than the Red Cross and Red Crescent Movement can not benefit from this exemption and in most cases would need to seek a permit or a certification to roll out a humanitarian program involving sanctioned goods or the provision of services, including financial services, in or to sanctioned countries.
Permits and Certificates
When a humanitarian or other exemptions are not available, one may apply for a permit or certificate to proceed with the proposed activities. Canadian sanctions regulations generally include mechanisms for the Minister of Foreign Affairs to allow activities or transactions that are otherwise prohibited.
Sanctions issued under SEMA, FACFOA and the Magnitsky Law set out procedures to obtain a permit, while the UNA regulations typically provide for the possibility to apply to the Minister in writing for a certificate to exempt the act or thing from the application of the UNA. In the latter case, the Minister may issue a certificate allowing the proposed activity to proceed in two narrowly-defined instances: (i) if the United Nations Security Council did not intend that such activity be prohibited or (ii) if the Security Council or the relevant committee of the Security Council has approved the activity in advance.
The decision on whether to grant a permit or a certificate is usually discretionary. Moreover, to date there is no official guidance on the permit application process for humanitarian activities, for example, clarifications regarding the factors will be taken into consideration, the conditions that NGOs need to fulfill to be able to run the program, timeframes, and extensions.
Sanctions Challenges Facing the COVID-19 Response
Even though Canadian legislation seems to provide some mechanisms to exempt certain supplies from application of Canadian sanctions laws on humanitarian grounds, the narrowly defined exemptions and the lack of guidance with respect to procedure for obtaining permits or certificates can create challenges for applicants. It is especially problematic in light of the fact that the two main categories of applicants are frequently (i) NGOs and (ii) individuals or small businesses trying to support their families and communities abroad. These potential applicants may not possess the necessary resources for navigating through the complex regulatory sanctions regime and the application process, which can significantly hinder the deployment of aid.
Additional challenges arise from the fact that COVID-19 has resulted in significant supply chain disruptions and logistical difficulties that hamper both the planning and implementation of any humanitarian program. Moreover, COVID-19 prevention measures, such as quarantines or travel bans, could make virtually impossible regular and timely monitoring activities that are a typical tool organizations use to ensure that medicines, medical equipment, PPE, and other humanitarian relief reach the intended recipients.
These difficulties can be further exacerbated by the phenomena of “over-compliance”. Many companies, including financial institutions, may refrain from taking part in any activity that they perceive as having high sanctions risk even though on its face it appears to be legal. Companies and NGOs engaging in humanitarian ventures can often address this, at least in part, by demonstrating to banks and other potential participants that they have undertaken appropriate diligence and implemented monitoring measures to ensure full compliance with economic sanctions. In many cases, however, that may be insufficient, especially in the absence of clear guidance from regulators and enforcement authorities on the interpretation of sanctions measures, including with respect to activities that qualify for humanitarian, safety, and health exemptions as well as on the permit process.
What Can Regulators and Enforcement Authorities Do?
The spread of COVID-19 is not abating and it is anticipated to severely impact a number of developing countries, including countries subject to sanctions. There is already a need for assistance in certain countries and that is only expected to grow throughout this year and next.
There are a number of steps governments should be taking to help mitigate unnecessary sanctions risk for the business and NGO communities and assist in facilitating the provision of medicines, vaccines, PPE, ventilators and other health and safety equipment and humanitarian assistance. These include:
- publishing clear guidance on the interpretation of broadly drafted sanctions measures. For example, certain Canadian sanctions prohibit providing or acquiring financial services to, for or for the benefit of a “person in” the sanctioned country. However they do not define what the phrase “persons in” means, nor do they limit it to persons physically located within the sanctioned country at the time of the humanitarian activity;
- implementing a formalized application process for obtaining permits or certificates required for COVID-19 and other humanitarian assistance, including the establishment of timelines for processing and responding to applications;
- issuing and publishing general permits that pre-approve a class of defined activities relating to humanitarian assistance. To date, we are aware of only one such general permit in Canada. It is not yet published and it relates to assistance to individuals attempting to leave Syria because of COVID-19 concerns;
- implementing a voluntary disclosure process that allows businesses and NGOs to come forward to report possible contraventions in order to mitigate the likelihood of enforcement action, particularly in the case of inadvertent or unintentional violations; and
- increasing outreach to the business and NGO communities through public seminars and establishing and publicizing a point of contact within the regulator for specific questions regarding humanitarian activities.
Some countries with strict sanctions regimes have already issued guidance on their sanction programs to facilitate humanitarian assistance. For example, the United States updated its guidance on humanitarian aid to Iran in light of COVID-19 pandemic. On March 6, 2020, the US Office of Foreign Assets Control (“OFAC”) issued guidance clarifying that not only the donations of medicine are authorized, but also commercial sales and export of humanitarian goods, including food, medicine and medical devices, to Iranian people are allowed. Such activities do not require specific licences but are subject to certain conditions. For instance, transfers of funds by a single non-government organization to support its humanitarian activities may not exceed $500,000 in the aggregate over a 12-month period. Further, on April 16, 2020, OFAC issued its “Fact Sheet: Provision of Humanitarian Assistance and Trade to Combat COVID-19” which consolidates the most relevant exemptions, exceptions, and authorizations for humanitarian assistance and trade under US sanctions against Iran, Venezuela, North Korea, Syria, Cuba, Ukraine and Russia.
Back in March and April of this year, Canada issued statements announcing its plans to help the world’s most desperate people fight COVID-19. Those include vulnerable populations in sanctioned countries. Given that the potential for state aid in these trying times is limited, facilitating the efforts of the business and NGO communities in delivering COVID-19 and other humanitarian assistance to vulnerable countries is critical. Regulators and enforcement authorities need to publish clear guidance and establish efficient processes to assist businesses and NGOs in mitigating their sanctions risk exposure.
What Can Businesses and NGOs Do?
For their part, businesses and other organizations seeking to provide COVID-19 aid and other humanitarian assistance to sanctioned countries should ensure that they have implemented effective policies and procedures for ensuring compliance with applicable economic sanctions and can readily provide evidence of implementation on an ongoing basis. These should include:
- a clear and easily accessible compliance manual and related documentation and guidance for the organization’s leaders and employees;
- procedures for screening all parties involved in a given transaction against sanctions and anti-terrorism lists and for clearing any false positives;
- appointment of compliance officer(s) responsible for implementation and daily application of the policies and procedures;
- a process for monitoring compliance with sanctions during the life of a particular humanitarian project;
- periodic audit and assessment procedures to ensure the controls are working;
- a process for correcting any potential non-compliance and making any required disclosures to enforcement authorities; if a voluntary disclosure process is available, procedures for assessing whether such disclosure is appropriate;
- regular training programs for business leaders and staff to endure they are fully aware of their and the organization’s responsibilities;
- key sanctions compliance clauses in contracts with counterparties; and
- even if the organization is not US-based, an assessment of the US touchpoints in any proposed transaction to ensure full understanding of the potential application of US sanctions measures.
These core elements of a sanctions compliance policy will help ensure that companies, charities, non-profits, and NGOs engaged in charitable, humanitarian, COVID-19, or other health and safety initiatives mitigate their exposure to sanctions risk and put them on a strong footing to be able to fulfill their objectives in the current pandemic environment. These steps will not only protect your organization, but will also assist in providing comfort to other potential participants and partners, including financial institutions that are often needed to provide support for humanitarian and pandemic-related transactions.
 See The COVID-19 and humanitarian rights: we are all in this together, April 2020, available at https://www.un.org/sites/un2.un.org/files/un_policy_brief_on_human_rights_and_covid_23_april_2020.pdf; COVID-19: Letter from the Secretary-General to G-20 Members , available at https://www.un.org/africarenewal/news/coronavirus/letter-secretary-general-g-20-members; Bachelet calls for easing of sanctions to enable medical systems to fight COVID-19 and limit global contagion, available at https://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID=25744&LangID=E
 See Section 8.1 of Special Economic Measures (Iran) Regulations, SOR/2010-165
 Such exemptions can be found in Special Economic Measures (Burma) Regulations, SOR/2007-285, Special Economic Measures (Democratic People’s Republic of Korea) Regulations, SOR/2011-167; or Special Economic Measures (Syria) Regulations, SOR/2011-114.
 See https://toronto.citynews.ca/2020/03/25/canada-to-help-worlds-poor-cope-with-covid-19-amid-un-appeal-aid-minister/ and https://www.cbc.ca/news/politics/covid-pandemic-coronavirus-foreign-aid-1.5525508