Through the (opaque) looking glass: Canada’s economic sanctions regime almost enforced

The Nova Scotia Supreme Court acquitted Nader Mohamad Kalai in December 2020 of one charge under the Special Economic Measures (Syria) Regulations, after the Crown failed to tender any evidence in the case. If convicted, Mr. Kalai would have faced up to five years’ imprisonment.

The case points out that Canada does in fact enforce its economic sanctions – but that proper enforcement procedures must be met in order to convict.

Acquitted due to lack of evidence

Mr. Kalai was indicted in May 2019 after a two-year investigation, under paragraph 3.1(c) of the Special Economic Measures (Syria) Regulations, with the allegation of having wired 15 million Syrian pounds (approximately $140,000) to Syrialink Joint Stock Company in November 2013, while Mr. Kalai was present in Canada. Mr. Kalai is a Canadian permanent resident. 

Of note is that Mr. Kalai has been on the sanctions lists of both the European Union¹  and United States²  since early 2019, and is listed by the EU because he is a “leading businessperson operating in Syria.” Mr. Kalai is not a designated person under Canada’s regime, which was last updated for Syria in March 2019. 

Paragraph 3.1(c) prohibits any person in Canada, or any Canadian (being a citizen or corporation) outside Canada, to “make an investment in Syria if that investment involves a dealing in any property, wherever situated, held by or on behalf of Syria, a person in Syria or a national of Syria who does not ordinarily reside in Canada.”

As part of the investigation, authorities seized a number of documents and communications found at Mr. Kalai’s residence and on his personal computer. Mr. Kalai’s trial was originally scheduled for May 2020, but was delayed due to the COVID-19 pandemic.

Before the trial, the court held a voir dire hearing to consider whether the seized electronic documents were admissible pursuant to the Canada Evidence Act, and further, whether the documents should be admitted for the truth of their contents, pursuant either to the hearsay branch of the “documents in possession” doctrine, or pursuant to the “principled exception to hearsay.” The court determined that the documents were admissible as being in Mr. Kalai’s possession, but there was not sufficient evidence to admit the documents for the truth of their contents.

Following this decision, on December 8, 2020, the Crown informed the court that it had no evidence to tender and submitted that Mr. Kalai should be acquitted. The court agreed, and acquitted him.

Canada’s sanctions regime

Introduced in May 2011, the Special Economic Measures (Syria) Regulations, enacted pursuant to the Special Economic Measures Act (SEMA), form part of Canada’s broader economic sanctions regime. SEMA and its regulations apply to both individuals and corporations, and contain certain prohibitions depending on the country being sanctioned. Countries covered by the SEMA sanctions regime include North Korea, Iran, Russia, Ukraine and Venezuela. Most recently, in 2020, Canada introduced sanctions under SEMA against Belarus.

Despite the breadth of the economic sanctions regime, Mr. Kalai’s indictment appears to be only the second time an individual or corporation has been charged under SEMA and its regulations (the first being a guilty plea by Lee Specialties Ltd. in April 2014, that paid a $90,000 fine) and the first to proceed to trial.

A number of other federal statutes impose sanctions – including the United Nations Act, the Freezing Assets of Corrupt Foreign Officials Act, the Justice for Victims of Corrupt Foreign Officials Act, the Export and Import Permits Act (including its Area Control List), and the Criminal Code – though there are few instances in which individuals or organizations have been charged or convicted of offences under these statutes.

Key takeaways

While Mr. Kalai was not convicted due to the Crown failing to meet evidentiary requirements, his case illustrates Canada’s willingness to enforce its sanctions prohibitions. Although Canada appears to enforce its sanctions regimes less frequently than the US or the EU, Canadians conducting business in foreign jurisdictions must still be aware of, and comply with, economic sanctions, as they will be enforced. Dual citizens, for example Canadian and US citizens, must also be aware that they may be subject to multiple sanctions regimes.

Conducting robust due diligence before engaging in any transactions or dealings is crucial. Being proactive and transparent, it may be possible to obtain a permit or certificate to permit a transaction that would otherwise be prohibited. As sanctions regimes change quickly, it is also important to keep up to date, plan ahead and have contingency plans should current dealings become sanctioned in the future. Considering these issues before a transaction is crucial to ensuring your business remains compliant with Canada’s economic sanctions regime and avoids reputational damage, financial penalties, or imprisonment of individuals.