New round of Russia sanctions targets dozens of parties, including the telecom sector
Canada has further amended the Special Economic Measures (Russia) Regulations (“SEMA Russia Regulations”) by designating 64 entities and individuals and expanding its restrictions on services, technology, and goods in the defense sector. The amendments were publicly announced on July 20, 2023 (“July 20 Amendments”) and came into effect on July 19, 2023. Companies should be reviewing their sanctions compliance policies and screening protocols to ensure they reflect these latest changes, especially since Canada has targeted a number of parties that have not been sanctioned by its allies, including the United States, the United Kingdom and the European Union.
An overview of the new measures
There were two separate regulations adopted on July 20, 2023: one imposing sanctions against 20 individuals and 21 entities connected to Russia’s military-industrial complex and another against 19 individuals and four entities in the Russian cultural and education sectors. In its news release reporting on the amendments, Global Affairs Canada emphasized that by this round of measures it is designating persons who are “complicit in Russia’s ongoing violation of Ukraine’s sovereignty and territorial integrity”. Global Affairs Canada named Wagner Group leaders, leaders in Russia’s nuclear sector, persons involved in the development of unmanned aerial vehicles, so-called volunteer organizations that support Russia’s war against Ukraine, as well as a number of Russian celebrities who promote Russia’s war in Ukraine, among persons hit by this sanctions wave.
In addition to the large number of new designations, the July 20 Amendments also prohibit persons in Canada and Canadians abroad from importing from Russia or from a person in Russia, and exporting to Russia or to a person in Russia, arms and related material, including any type of weapon, ammunition, military or paramilitary equipment, including vehicles and spare parts. They also prohibit providing any financial, technical or other services in relation to such imports or exports.
Targeting the Russian telecommunications sector
Although not mentioned in GAC’s press release, these new measures also target major players in the Russian telecommunications sector, including MTS, Megafon and TELE-2.
Persons in Canada and Canadians are prohibited from engaging in dealings with all designated persons, including these newly listed parties. Prohibited activities include the following:
(a) dealing in any property, wherever situated, that is owned, held or controlled by or on behalf of designated persons;
(b) entering into or facilitating, directly or indirectly, any transaction related to a dealing referred to in paragraph (a);
(c) providing any financial or other related service in respect of a dealing referred to in paragraph (a);
(d) making available any goods, wherever situated, to designated persons or to persons acting on their behalf; and
(e) providing any financial or related service to or for the benefit of designated persons (“Dealings Prohibition”).
Further, in light of the deemed ownership rule that came into effect last month, any property that is owned — or that is held or controlled, directly or indirectly — by an entity controlled by a designated person, is now covered by the Dealings Prohibition. Canada’s criteria for determining whether an entity is controlled by a designated person is broader than those of other sanctions authorities, including the United States, the United Kingdom and the European Union. For more details on the application of the new deemed ownership rule please see our July 19, 2023 alert “Deemed Ownership” Rule Now in Force: Addressing Heightened Canadian Sanctions Risk.
The breadth of the new listings, taken together with the new deemed ownership rule, effectively means that the entire Russian telecommunication sector appears captured by the Dealings Prohibition. The listed entities include the handful of federal mobile and internet providers in Russia that cover the entire country with their services. These major telecom players operate through a plethora of affiliated companies and subsidiaries. For instance, Rostelecom, the largest integrated digital services and products provider in Russia, owns TELE 2. Rostelecom was listed under Part 2 of Schedule 1 to the SEMA Russia Regulations more than a year ago, on February 24, 2022. With the adoption of the July 20 Amendments, that added the major Russian service providers to Schedule 1, it would be difficult to find any Russian telecommunication company, operating on a multi-regional or national level, that is not covered by the Dealings Prohibition.
The newly listed telecom companies, as well as the companies controlled by them, provide a wide range of telecommunications services both inside and outside Russia, including but not limited to telephone services (both fixed line and cell phone), local voice services, Voice over IP (VoIP) services, internet, television, and wireless services, as well as a broad range of software and software development services. The July 20 Amendments pertaining to the Russian telecommunication sector will have major ramifications not only for those Canadian businesses who still have presence in Russia, but also for those businesses who conduct business activities in the Russian market or have Russian partners. The new measures might also impact companies operating elsewhere in the CIS region.
To date, no explanations have been provided by Canada regarding its decision to sanction almost the entire Russian telecommunication sector. This raises concerns as restrictions on telecommunication services could significantly curtail the ability of a civilian population to access information from various domestic and international sources. For states that are generally prone to isolationism, blocking the flow of information is a boon to their efforts. Perhaps for these reasons, none of Canada’s allies, including the United States, the United Kingdom or the European Union, have made the Russian telecommunication sector their sanctions target. Further, this approach does not appear to be aligned with other Canadian sanctions programs which avoid targeting communications services used by civilian populations or which in some cases contain explicit exemptions for telecommunication services, equipment, as well as related financial services.
Companies should be reviewing their sanctions compliance policies and procedures to ensure they adequately reflect the new sanctions measures. Among the immediate measures, there should be a comprehensive review of the existing screening procedures that would allow companies to assess their business partners and counterparties in light of both the new listings and the new deemed ownership rule.
Given the rapidly changing nature of sanctions and geopolitical events, we strongly recommend staying updated with legal developments in this area. McCarthy Tétrault’s team continues to monitor Canadian sanction programs and report on new developments.