Canadian Citizenship and Immigration Minister Chris Alexander suggested this week on Canadian television that Canadian sanctions against Russia were a possibility if Russia was to support violent strife in Ukraine.  Although Alexander has since declined to comment on specific sanctions against Russia and other “hypothetical scenarios,” the idea that Canada would sanction Russia in some form should not come as a surprise.

Canada has quietly developed an economic sanctions regime that may be the world’s most aggressive outside the United States.  Case in point is Iran.  While the United States and the EU are at the negotiation table with Iran, Canada has stood steadfastly by its sanctions, which now include a comprehensive trade embargo as of last May.

Some in the Canadian press have pointed out that Canadian Prime Minister Stephen Harper’s alliance with Israel and its Prime Minister Benjamin Netanyahu, who called Harper a “great friend,” is the reason for increasing sanctions against Iran.  But Canadian sanctions remain aggressive in other parts of the world as well.  Canada, unlike the EU, has a comprehensive trade embargo against North Korea.  Canada also has strong sanctions remaining against Burma as well as some of the strongest global sanctions against Syria.

The glaring omission is, of course, sanctions against Cuba, which Canada does not have.  In fact, Canada is Cuba’s largest export destination. Canada’s Foreign Extraterritorial Measures Act, moreover, has long created a transnational dilemma because it prohibits any business in Canada from complying with U.S. sanctions against Cuba.  Businesses subject to both U.S. and Canadian laws will violate someone’s law in deciding whether or not to do business with Cuba.  As aggressive as Canada is in imposing sanctions against some countries, it is also aggressive in countering sanctions which it does not support.

But why shouldn’t Canada have a leading role in developing global sanctions policy?  Canada is the second-largest country in the world and one of the few countries with over a trillion dollars in GDP.  Eastern Canada’s traditional ties to Europe and western Canada’s increasing ties to China, Japan and the rest of the Pacific Rim make Canada one of the most globally connected countries.

For exporters with business in the United States, EU and Canada that presume that U.S. sanctions set the bar for your global compliance efforts, you may increasingly need to think again with respect to Canada.  Remember the Canadians can beat us at our own game: the Blue Jays won the World Series (twice)!

ABOVE: Associated Shipbroking HQ

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Monaco-based Associated Shipbroking was, earlier this week, quietly removed from the Office of Foreign Assets Control’s List of Specially Designated Nationals and Blocked Persons, fondly known simply as the SDN List. As is normally the case with these removals, OFAC declined to give a reason for the company’s removal from the list, either because of its aversion for admitting mistakes or because it is disinclined to offer any guideposts to others on the list about avenues for removal.

This is exceedingly odd given everything that was said by the U.S. Government when it whacked Associated Shipbroking with these ultimate sanctions in the first place. It all started on May 24, 2011, when the Department of State sanctioned seven companies, including Associated Shipbroking, under the Iran Sanctions Act. Three of these companies –Tanker Pacific (Singapore), Ofer Brothers Group (Israel), and Associated Shipbroking — were added to the State Department’s Sanctioned Entity List because they were said to have dealt with a front company used by the Islamic Republic of Iran Shipping Lines (“IRISL”) to buy an $8.65 million dollar tanker.

Tanker and Ofer were sanctioned for failure to exercise due diligence to discover that they were dealing with an IRISL front company. Accordingly, they were prohibited from receiving Ex-Im Bank loans, obtaining loans over $10 million from U.S. financial institutions or receiving U.S. export licenses. Associated Shipbroking was sanctioned more severely because it was deemed to have acted knowingly and was aware that the company was an IRISL front. As a result, it was prohibited from “U.S. foreign exchange transactions, U.S. banking transactions and all U.S. property transactions.” On the same day, OFAC added Associated Shipbroking — but not Ofer or Tanker — to the SDN List which, in addition, would block all property of Associated that comes into the control of U.S. persons.

Several months later Ofer was removed from the State Department list, apparently because the Ofer family convinced the State Department that they were not responsible for the decisions made by their affiliate Tanker Pacific. Somewhat later, Tanker Pacific got itself removed from the State Department list after promising the State Department that it would behave in the future. Then about a week before the OFAC action, the State Department removed Associated Shipbroking from its sanctions list stating, somewhat oddly, that Associated “is no longer engaging in sanctionable activity.” That is odd because since Associated was sanctioned for a single transaction, it was no longer engaging in sanctionable activity the day after that transaction closed.

So, although OFAC does not state a reason for removing Associated Shipbroking from the SDN list, it presumably was simply following the State Department’s lead in removing the company a week earlier. It still leaves open the question as to why a company caught “knowingly” dealing with IRISL through a front company got a get-out-of-jail-free card from OFAC.  Of course, it can’t be ruled out that this delisting is based on larger diplomatic considerations in the context of ongoing discussions with Iran about dismantling its nuclear program.

A reader and colleague sent me an email with a great story (and the wire documents to back it up) about OFAC screening software gone bad. At issue was a relatively small wire transfer that was blocked because the SWIFT message referenced Sudan. What was the reference? Well in SWIFT message field 59, which contains the beneficiary account number, the account number was shown as XDQSUDAN13DE4. (For obvious reasons, I have munged all the alphanumeric characters of the actual account number except for S, U, D, A and N).

Now, I realize that being given an account number with the words Sudan, Iran, Cuba or some SDN name is about the same as the chance of a chimp randomly typing out in its entirety Hegel’s Phenomenology of Spirit (although there are some who might suggest that is precisely what happened), this amusing incident indicates that screening software is stupid and relentless and that you need to check everything about a transaction to avoid unexpected glitches. It makes me wonder how Mark Cuban can conduct any business at all these days.

ABOVE: Professor Reece Roth

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John Reece Roth, a former professor at the University of Tennessee who was convicted of violating U.S. export laws for, among other things, transferring technical data relating to drones to foreign graduate students, is getting another sentencing hearing. Currently serving a four year sentence in a federal penitentiary, Mr. Roth can thank Jeffrey Skilling of Enron infamy, for his new sentencing hearing.

In addition to the export law violations, Roth was also convicted under the “honest services” provision of 18 U.S.C. § 1346. That provision was subsequently interpreted by the U.S. Supreme Court on appeal by Skilling of his conviction under that statute to apply only in cases in which a bribe or kickback had been paid, something which both the government and Roth’s counsel agree did not occur in his case. The issue at the hearing will be whether his conviction on the remaining 16 counts will be enough to justify his four-year sentence. You can, of course, guess which side of this argument each side is on. The hearing is scheduled for February 24, 2014

The only news story on the resentencing hearing is in the Knoxville News Sentinel. No link to that story is provided because, unbelievably, every single word of that newspaper is behind a paywall. The idea that the News Sentinel should charge for all of its content (unlike, say, the New York Times which provides a limited number of articles free to each reader per month) is particularly ironic when you consider that the reporter said this about the original Roth trial

His trial served as a test case nationwide for whether information itself can be a “defense article” subject to export control. Traditionally, export control violations have involved actual equipment or devices.

Er, no. Obviously the reporter neither reads this blog or knows how to work the Google or she might have stumbled on the Chi Mak trial which preceded Roth’s and where the defendant was convicted for exporting technical data about submarine engines to China.