Foreign Affairs Committee on Oct. 26th, 2016

[The Chair (Hon. Robert Nault (Kenora, Lib.)), Liberal, Bob Nault]

Colleagues, we'll bring this meeting to order. This is meeting number 29, for those who are counting, of the Standing Committee on Foreign Affairs and International Development. I would like to continue, pursuant to the order of reference given to us on Thursday, April 14, with section 20 of the Freezing Assets of Corrupt Foreign Officials Act, a statutory review of that act.

With us today are three witnesses. Two are on video conference. We can see both of our witnesses via video conference, and I understand they can hear us over there in Geneva and in Toronto.

One of our witnesses today is John Boscariol. He's a partner and the leader of the international trade and investment law group at McCarthy Tétrault. John is in Toronto, as I said.

In front of us is Meredith Lilly, associate professor at the Norman Paterson School of International Affairs at Carleton University. Welcome, Meredith.

Last, we have Thomas Biersteker, professor and director of policy research at the Graduate Institute in Geneva.

We welcome all three witnesses to the committee. As you know, we're in the midst of a very important review of legislation. What we're proposing to do this afternoon is have all three witnesses make presentations, and then we'll go into a good hour or so of our questions and your answers.

It looks like we're going to go with John now, who is first on our witness list. Then we'll go to Meredith, and then Thomas, if that's good with everyone.

I'll turn the floor over to John Boscariol.

[John Boscariol, Partner, Leader of International Trade and Investment Law Group, McCarthy Tétrault LLP, As an Individual]

Thank you very much, Mr. Chair, and thank you to the committee members and the committee clerk for inviting me to appear today to discuss Canada's economic sanctions.

The views I express today are my own. I'm not appearing on behalf of anyone else or any of our firm's clients. I have been practising in the area of international trade and investment law since I was called to the bar in 1995. My focus in my practice is on economic sanctions and export and technology transfer controls, and in particular, on how these Canadian rules interact with their counterparts in the United States and other countries.

Today I certainly want to address all the questions and comments you might have for me, but I want to use my eight minutes of initial speaking time to highlight some of the significant challenges Canadian businesses are facing under Canada's economic sanctions regime, including SEMA, the Special Economic Measures Act, and FACFOA, the Freezing Assets of Corrupt Foreign Officials Act.

I think it's important to understand the history and the context of these measures. I'm sure others appearing before you who are speaking to this are giving you a government, an academic, a policy point of view. I want to give you a practitioner's point of view of this recent history, in the context of where we are currently.

The United States has traditionally established the high water mark for broad and autonomous or unilateral economic sanctions measures. Often those measures are extraterritorial, as you see with respect to Cuba and Iran. It's really only within the last 10 years, I think, that Canada has become more aggressive in this area, implementing broad unilateral measures under SEMA and certainly outside the auspices of the United Nations.

I like to think that started, at least in recent history, around 2006 when Canada added Belarus to the area control list under the Export and Import Permits Act, which essentially prohibited any transfers of technology or any exports to Belarus. It was an extremely aggressive step and measure.

In 2007 Canada implemented sanctions under SEMA against Burma. At the time the government touted those as the most aggressive sanctions imposed against Burma by any country.

In 2010 Canada began to impose autonomous sanctions against Iran, starting with the oil and gas sector, then in subsequent years moved to banning financial services and targeting other sectors, right up until May 2013, when we put a full trade embargo in place against Iran that has since been repealed in part.

In addition to those countries, we've been imposing escalating measures against Russia and Ukraine, North Korea, and Syria. In many instances those measures are more onerous than those of the United States or our trading partners.

I'm not here today to question or debate the policy behind targeting certain countries, entities, or individuals. My primary concern is the administration of these measures. Unfortunately the system today, I believe, is broken.

As Canada has been increasing the use of these sanctions measures, the government has failed to devote even the most basic resources to assisting the business community in complying. This is despite the fact that in two of our recent Canadian budgets over the past years, Finance has promised more resources and funding to be allocated to the administration of these sanctions measures. We've seen no changes, however. There are no officials within Global Affairs Canada or elsewhere in the government who will provide guidance or assistance on economic sanctions.

The economic law section within Global Affairs Canada, staffed with a handful of lawyers, is charged with handling the permit process under 20 or so sanctions regulations. However, it's been made very clear that the lawyers there are responsible for providing legal advice to the government for that permit process and in respect of economic sanctions more broadly, but not to provide any formal or informal guidance or assistance to exporters seeking to comply with these measures. When the business community reaches out to them for even the most seemingly straightforward questions, they're told by Global Affairs to retain legal counsel.

That's great for legal business; it's great for me and maybe I shouldn't be complaining about it, but the fact is, the system shouldn't work that way. Canadian companies doing business abroad, I can tell you, want to comply with these measures, but it shouldn't be this difficult and costly.

In my view, the government lawyers within Global Affairs are hard working, very competent and knowledgeable, but the economic law section remains understaffed and under-resourced. While the government has continued to implement expanding economic sanctions measures over these years, it has failed to keep up by devoting any resources to the administration of those measures.

Even in the administration of the permit process, we see long delays. In some cases, over 12 months pass before we have a response to the permit application. As you expect, Canadian companies, exporters, and investors need to be able to act quickly in response to emerging international opportunities, and our Canadian sanctions system right now is ill-equipped to deal with that reality.

I note that this is a challenge for large and small businesses alike. It has its most negative impact, though, on SMEs that can't afford such delays and the expensive legal bills for the often complex advice that's necessary when the government doesn't provide direction or guidance. I've been working with industry groups and associations, including the Canadian Association of Importers and Exporters, among others, and making submissions to Global Affairs on these issues, but unfortunately, nothing has been done.

I also think this has now become a competitive issue for Canadian companies. Other jurisdictions, including Australia, the United States, and the European Union, provide significant guidance and tools for their exporters to effectively compete and allow them to do that while still complying with these measures. Canadian businesses don't get the benefit of that direction or guidance from our government, and we're at a competitive disadvantage internationally.

Just to give you a simple example, something as basic as a consolidated list of individuals and entities that are subject to an asset freeze is not available from the Canadian government right now. Canadian companies have to screen their counterparties list by list under each sanctions regulation or retain a third party screening service to do that for them. This increases costs, which is difficult, especially for small and medium-sized enterprises.

In addition to imposing this unnecessary burden on Canadian business, the failure of the government to provide this administrative support, I think, significantly undermines their policy objectives. We've seen this arise in at least two cases.

Let me give you an example with Iran where effective February 5, 2016, Canadian sanctions were significantly repealed. Iran is an emerging market of 80 million educated young consumers. It's a huge opportunity for our oil and gas sector here in Canada. What remains for sanctions under SEMA are prohibitions on dealing with blacklisted individuals and entities, as well as prohibitions against supplying listed items and related technology.

Those items include things such as aluminum and silver. Aluminum and silver are contained in solar panels, for example. The question arises as to whether solar panels are now prohibited from being shipped to Iran. That's a question many Canadian businesses have asked us, whether it's for solar panels or other products, and we've been able to get no guidance from the Canadian government on that. Canadian businesses are being frustrated in their attempts to get guidance. They find the process expensive and time consuming, and often they simply decide not to do business with that country.

This is not what the policy-makers intended by relaxing sanctions against Iran. They didn't intend for Canadian companies to stay away from that market. I believe they intended for them to participate in the market, but still comply with the limited sanctions that are in place.

There's another impact on policy. The fact that we have no guidance from the Canadian government creates a vacuum. In those circumstances, companies will look to other countries to see how they are interpreting sanctions measures, and they might start following those interpretations that other countries use.

I have some examples in my written remarks, and I'm going to have them translated and formally presented to the committee later.

We've seen this happening already with the Russia sanctions and the Ukraine sanctions. I feel that can't have been the intention of the policy-makers either. SEMA sanctions are made-in-Canada sanctions and they should be administered, followed, interpreted and enforced as such.

Again, I'm not suggesting we shouldn't impose economic sanctions. I think they're an important policy tool that should be available to the Canadian government to address international emergencies and crises. However, as this committee considers the use of sanctions and expanding possibly the scope of SEMA, FACFOA, or other measures, I'd ask you first to consider fixing the administration of these measures.

Canadian companies doing business abroad respect and want to comply with our economic sanctions. Please provide them with the basic tools and support to do so.

Thank you very much, Mr. Chair.

[The Chair, Liberal, Bob Nault]

Thank you very much, Mr. Boscariol. That was very useful.

I want to now go to Meredith Lilly for her presentation.

[Dr. Meredith Lilly, Associate Professor, Norman Paterson School of International Affairs, Carleton University, As an Individual]

Ladies and gentlemen, thank you for inviting me to appear before your committee. It is a pleasure to be here today.

The presentation that I'm making today is based on my experience working with Canadian sanctions legislation and policy instruments as a former foreign affairs adviser in the Prime Minister's Office, as well as my current work as a professor in the Norman Paterson School of International Affairs at Carleton University.

My presentation is based on the brief that I submitted to the committee which outlined four recommendations for amending SEMA, the Special Economic Measures Act. As the committee considers whether Canadian legislation should encompass gross violations of human rights, I would note that the United Nations has long considered gross violations of internationally accepted human rights as an acceptable rationale for imposing economic sanctions, as have the United States and the European Union.

In considering potential amendments to SEMA to also address these violations, I offer several suggestions. First, as the committee is aware, subsection 4(1) of SEMA allows Canada to act unilaterally to impose sanctions in the absence of actions by the UN Security Council. This section of the act allows Canada to introduce economic sanctions in two ways, either as a member of an international organization of states, of which the Commonwealth would be an example, that has called upon its members to impose economic sanctions against a foreign state, or unilaterally, provided that the Governor in Council is satisfied that “a grave breach of international peace and security has occurred that has resulted or is likely to result in a serious international crisis”.

In 2014-15, that unilateral provision allowed Canada to act via an informal coalition of willing states, namely the United States and the European Union, to impose sanctions against Russia and pro-Russia forces over the crisis in Ukraine. Since the UN could not respond to that crisis due to Russia's veto at the Security Council, and given that Canada was not a member of an organization of states that was willing to act, Canada would not have had the legislative authority to act without the SEMA provisions as they're written. Through this example, we can see how SEMA provisions enabling Canada to act unilaterally have been usefully applied, even though Canada acted multilaterally in practice.

In considering now whether to add “gross violations of internationally recognized human rights” to the rationale for SEMA, it's my sincere hope that a similar logic would be applied before invoking its provisions. To be clear, while broadening the legislation in this way would give Canada the authority to act unilaterally, I hope that Canada would still follow previous practice and would seek to join a coalition of willing states to do so and would do so only in the absence of a recognized forum such as the UN, NATO, or the Commonwealth.

Canada has never acted in a truly unilateral fashion to invoke sanctions under SEMA. It's my view that adding human rights violations to the legislation should not be used as a rationale for doing so now.

My second recommendation relates to the implications that adding human rights provisions to this legislation will have for the test of when Canada will act unilaterally against another state. What I mean by this is that the existing SEMA legislation allows Canada to act unilaterally only when a serious breach of international peace and security has occurred and when a serious international crisis is likely to result. Therefore, by definition, the purpose of adding gross violations of human rights as a rationale for invoking SEMA must be to allow Canada to act when a grave breach of international peace and security has not occurred and when an international crisis is not likely to result, since gross human rights violations that could result in a serious international crisis such as genocide are already captured under the existing legislation. Adding the specific provisions to the act would necessarily lower the threshold for Canadian intervention against foreign states.

Therefore, if this new human rights justification for imposing sanctions is included in the act, then the act must also define what the new threshold for Canada's intervention would be. It could be, for instance, as broad as indicating that these violations have shocked the international community, or they could be much more prescriptive. For instance, the act could adopt elements from Bill C-267, a private member's bill introduced by the member for Selkirk—Interlake—Eastman. That bill seeks to invoke SEMA sanctions for those who have committed gross violations against individuals who are either seeking to expose illegal activity carried out by government officials or who are seeking to promote human rights, democratic and other freedoms, people who we would generally think of as human rights and democracy activists.

Whether the committee supports that kind of rationale or something else, it will be necessary to identify a trigger for Canadian intervention, if Parliament decides to add gross violations of human rights to the rationale for SEMA.

A third issue I wish to raise stems directly from my experience working with SEMA generally as it pertains to the use of travel bans. I know that you heard from folks on this the other day. Changes made to the Immigration and Refugee Protection Act, or IRPA, several years ago allow the Minister of Immigration to use public policy considerations to deny entry to Canada by foreign nationals who have been subject to economic sanctions by Canada. The minister can also ban individuals identified under the Freezing Assets of Corrupt Foreign Officials Act, FACFOA, which I know you're also studying.

Separately and unrelated to economic sanctions, these public policy considerations also give that minister the authority to ban individuals who promote terrorism, violence, criminal activity, hate speech proponents, for instance, or those who pose a public health risk to Canada. While I'm not an expert on our immigration legislation, I suspect that the minister's authority to issue travel bans remains discretionary, due to this other set of considerations.

What this means in practice is that the immigration minister must individually approve each travel ban exercise under these provisions regardless of the rationale. When we come back to economic sanctions, this discretionary authority could result in inconsistent implementation of Canadian policy if the Minister of Foreign Affairs lists a foreign national for economic sanctions but the immigration minister either declines to do so or declines to do it in a prompt fashion.

Despite this potential for inconsistency, the two ministers and the respective departments can in practice coordinate their activities to ensure that travel bans and sanctions are implemented concurrently. Nevertheless, in my mind, given that there's no convincing rationale that the Canadian government would want to impose economic sanctions against an individual yet still allow that person to come to Canada, the government may wish to strengthen the language under IRPA to remove the Minister of Immigration's discretion in this area. I recommend that the government make travel bans automatic for individuals listed under SEMA.

Finally, returning to the issue of human rights violations, I want to highlight for the committee that travel bans on their own are already a foreign policy tool available to demonstrate Canadian action and displeasure with human rights abusers overseas even if the committee declines to recommend that the government take further action on human rights via SEMA.

Under section 35 of IRPA, persons can already be found inadmissible to Canada who have engaged in gross human rights violations. The Minister of Immigration can certainly apply these provisions more liberally in the future if he wishes. While I recognize that travel bans on their own represent a relatively weaker diplomatic response than economic sanctions, Canada may wish to issue travel bans early as part of a broader diplomatic strategy to gradually escalate pressure against a foreign state.

It would also be very straightforward to prompt Canada to issue travel bans alone unlike economic sanctions, which I believe Canada should impose in concert with other willing states.

This concludes my presentation. I'd be happy to answer any questions.

[The Chair, Liberal, Bob Nault]

Thank you very much, Ms. Lilly.

Now we'll go to Mr. Biersteker.

[Dr. Thomas Biersteker, Professor, Director of Policy Research, The Graduate Institute, Geneva, As an Individual]

Thank you very much for the invitation to comment on these issues.

I've selected a couple of general questions with which I'm most familiar.

I'll give you a little bit of additional background. I've been working on the issue of primarily United Nations targeted sanctions over the course of the past 15 to 16 years, and a consortium of a group of colleagues, both academic and policy practitioners, including some from the Canadian foreign affairs department, have participated in what we call the targeted sanctions consortium. It was about 50 individuals around the world looking at the impacts and effectiveness of the UN targeted sanctions from 1990 to the present. In fact, we just published a book this past year called Targeted Sanctions: The Impacts and Effectiveness of UN Action, published by Cambridge University Press in 2016.

I'm going to reflect on that work, primarily focused on the UN, but I've also worked more recently serving as a member of an EU task force on EU sanctions against Iran, Russia, and Syria.

I want to focus on a couple of points. First is the question in the briefing memo about the use of sanctions and how it has evolved over time. I'll make four brief points about this.

First, today there has been a significant increase in the frequency with which sanctions have been applied. There are more UN sanctions in place today than at any time in the UN's history, at least in this past year. Even though some have described the 1990s as the so-called sanctions decade, there were twice as many UN sanction regimes in place in 2016 as there were at any point in the 1990s.

There are also record numbers of European Union and U.S. sanctions in place. After the termination of the sanctions against Siberia and Côte d'Ivoire, the United Nations has 14 sanctions regimes in place. The European Union has 38 sanctions regimes in place. The United States has 28 different sanctions regimes in place. Sanctions appear to have become a policy instrument of choice.

The second point, in terms of trends and evolution, is that all sanctions regimes today are targeted in some form. Even the U.S., although it may retain some comprehensive measures, has not applied any new comprehensive sanctions since 2000.

There are different types of targeting. You've already heard references to individual targeting. There's individual and corporate entity targeting. There's targeting on one sector of economic, diplomatic, or military activity. There is some targeting that is in fact focused on simply territories of the target country rather than on an entire country, or areas under the control of a rebel group in a country.

I don't know whether anyone there is familiar with this, but I believe the Canadian government has used something called SanctionsApp, which is an app for mobile devices, available also online, for evaluating the impacts and effectiveness of UN sanctions. We now have a menu of 76 different variations of UN-applied restrictions over the last 25 years. These are different measures.

A point that came up in the first presentation dealt with a question about what we call the challenge of keeping targeted sanctions targeted, and this is something that I've heard frequently. It's not just a Canadian problem, by the way. It's a problem in many other countries where private sector firms are having difficulty with regard to the implementation of the measures and keeping them targeted.

In our research, we have come up with a scale of combinations of targeted measures, because it's hard to single out the effects of a travel ban versus an asset freeze versus a sectoral measure. We look at the combination of measures in place by any given centre, and we've developed a five category set of classifications, almost like, I suppose you could say, hurricane classifications. Category one is just individual measures. Category two is diplomatic or arms embargos. Category three refers to sectoral, particularly commodity sanctions measures. Category four is relatively non-discriminating sectoral measures, such as sanctions on oil, sanctions on the financial sector, or sanctions on shipping. Category five would be comprehensive trade embargos.

We were interested in analyzing and trying to understand the challenge of keeping a measure, which may be designed either in New York, Brussels or Ottawa to be a targeted measure targeted and keeping the political goals and objectives consistent with what firms are logically going to do in the spot, and so on.

A third point about how sanctions have evolved is that we've seen—and this is a positive story, I think—an increase in the sophistication of sanctions regimes over time. There's been significant improvement in the specificity of language. This is particularly with reference now to United Nations sanctions. There were nicknames being used for designations in the 1990s. Today the UN is trying to bring its designations to what they call its OFAC standard, which is based on the U.S. Treasury model and uses biometric identifiers, Arabic script, rather than transliterations and so on in the designations criteria.

There's also been some policy learning that's gone on. I would say that the application of measures of financial asset freezes in advance, basically giving a target a warning two weeks before that they should change their policy or we will impose a financial ban or an asset freeze, obviously gives them enough time to move their assets to other locations. There has been some learning. The UN no longer threatens an asset freeze in advance of its application.

We've also seen standardization of language, routine practices, and standardized language for exemptions that we see across one UN Security Council resolution to another. Quite significantly, Canada, among others, supported this particular position. There have been, in my view, significant improvements in legal protection for individuals and for firms that have been designated with the creation of the office of the ombudsman at the UN. We've seen similar types of developments within the EU, particularly in the actions by the European Court of Justice and the European Court of Human Rights.

The fourth trend or evolution that we've seen over time is an increase in the complexity of sanctions regimes. I mentioned earlier that just in looking at sanctions regimes from 1990 to the present, we've seen 76 different varieties of restrictive measures. When we updated our app for 2016, which has just been released this past week for the DPRK and Iran in particular—Iran now being different from the DPRK.... The latest resolution on North Korea is so complex that we've had to develop an entirely new typology to understand it. Where there were outright sanctions, restrictions, or prohibitions on activities, now there are conditional measures indicating that if a country has reason to suspect a violation of the sanction, then it is legally required to take action. This might then apply to its firms. These are what we call conditional measures. The resolution includes additional measures that states are encouraged to consider. I think this is creating additional complexity, that is even building on some of the comments from the first speaker this afternoon.

If there's time, let me briefly say something about whether or not sanctions work, since that's the most common question we're usually asked about this. We're focused primarily on United Nations sanctions. I'd like to make one or two points about the effectiveness of sanctions.

Yes, sometimes they do work, but we need to understand and remember that sanctions are never applied in isolation. UN sanctions are always applied in combination with other policy instruments and most often with negotiation or mediation. Sometimes we hear in the public discourse an argument that we keep on applying sanctions, but we should negotiate. Most often, or almost always, sanctions are embedded in a negotiating or bargaining framework.

In our own analysis of the effectiveness of measures, we argue that the effectiveness varies according to the purposes of sanctions. We differentiate between three broad purposes of sanctions.

The first is to coerce a change in behaviour. That's typically the goal of many sanctions regimes. We oftentimes will see that's one of the principal objectives. We find, in our research, that coercing a change in behaviour through the application of sanctions is rarely effective not only on its own, but even in combination with other measures. It's very difficult to coerce a target to change behaviour, but if you're trying to constrain a target from engaging in some kind of proscribed activity, we find that the sanctions increase in their effectiveness by almost a factor of three.

We also argue that sanctions are important instruments to send a signal. They're more than just words, because they're words backed by costs self-imposed on the target and costs imposed on the sender. We find that in general we do not have as much effectiveness in coercing changes in behaviour, but oftentimes sanctions can play a significant role in changing the nature of forces on the ground or constraining an actor from undertaking actions that are proscribed by the international community more generally.

As one final point on unilateral versus multilateral sanctions, most research has concluded that multilateral sanctions are more effective than unilateral sanctions, particularly if they're UN sanctions backed by political will. These are the most effective, the most legitimate, and by some standards the only legal sanctions—but I think there are others that are legal—and both the EU and to a lesser extent the U.S. legitimize their individual unilateral sanctions measures in terms of prior United Nations decisions.

We also see that recent experience has shown that coordinated action by like-minded countries can significantly enhance the impacts and effectiveness of sanctions. Consider for example the coordinated actions undertaken that have gone beyond just the UN sanctions, particularly with regard to Iran. I'm happy to elaborate on our analysis of the JCPOA, or a similar report that we just finished for Rasmussen Global group on an analysis of the coordinated sanctions applied against Russia over Ukraine.

I'm happy to provide the committee with additional information and to answer any questions. I'd also like the opportunity to comment on the very interesting presentations of my predecessors at this time.

Thank you.

[The Chair, Liberal, Bob Nault]

Thank you, Mr. Biersteker. That was very good. Thank you for keeping your comments precise.

We have plenty of time for questions. I think we can get into some very good dialogue with our witnesses.

I want to start with Mr. Allison.

[Dean Allison, Conservative, Niagara West, ON]

To our witnesses, thank you very much.

I think, Mr. Chair, we should have had them first, because the information they've given us has been very enlightening—not that bureaucrats don't do a good job, but they do confuse the issue sometimes more than they clarify.

Thank you very much for all your recommendations. I think there are some great recommendations which we should look at, as far as that goes.

In terms of Magnitsky—I know that a couple of you are familiar with that act in the U.S.—we talked about unilateral actions versus looking at doing more across a broad base. Meredith, because I know you're probably familiar with this, in light of our private members' bills that were first proposed by Irwin Cotler and then by Mr. Bezan, what are your thoughts on the effectiveness of the Magnitsky Act and law?

I hear what we're saying, that this act is not to target governments; I realize that it's looking at individuals.

I'm hearing, John, what you said, that if we're going to look at this we need to have resources, and you're talking about some of our companies that go out to these places.

As you look at what was passed in the U.S., do you think it's effective? We just heard Thomas say that we're also sending a message when we talk about sanctions.

Maybe just comment on your perception of what the Magnitsky law in the United States has done to the whole issue around sanctions and corrupt officials.

[Dr. Meredith Lilly]

Sure. Thanks for the question.

There is some scholarly literature on the Magnitsky Act in the U.S. I'm happy to send it on to the clerk of the committee, if that's helpful. There is one particularly accessible article written about this from the U.S.

I think it's safe to say that the U.S. Magnitsky Act was absolutely successful in getting Russia's attention and telling Russia that the United States was displeased. To the previous speaker who spoke about the different reasons that you implement sanctions, from a signalling perspective the signal was, I think, loud and clear. It appears that some assets may actually have been frozen and seized, but I think you would need to seek advice from the Americans about exactly what kind of financial assets they got out of it.

Beyond that, however, since Russia posthumously tried Mr. Magnitsky and then found him guilty of tax evasion, I don't think the act was at all successful at holding those responsible to account for Mr. Magnitsky's death.

Russia also retaliated with a series of measures against the United States, including banning American citizens from adopting Russian orphans. They also developed their own list of Americans who would be subject to Russian sanctions for what Russia said were human rights violations, including U.S. Army officials who ran Guantanamo Bay.

I think that overall Magnitsky had a signalling effect and was effective in that way, but I don't think that it deterred Russia and I don't think it punished those responsible for Mr. Magnitsky's death.

[Dean Allison, Conservative, Niagara West, ON]

I'm not sure it was meant to punish them as much as....

John, the purpose of the sanctions was to target individuals who would then try to move their money offshore and take advantage of their own country so that at the end of the day their kids could go to school in other countries and they could have wealth in other countries. I hear very clearly, John, what you said, that it makes no sense if we don't have any lists consolidated, first of all, and don't have any resources.

Would you talk to that a little bit more? If we were to look at trying to form a mechanism whereby we could put people on lists, I heard you say loud and clear that unless you're going to put resources behind it, it's not going to make a whole lot of sense and it's going to be difficult to impose.

[John Boscariol]

That's a great point. When we add names to these lists, again I hope the committee understands that these lists are individual lists under individual regulations. When a company, especially an SME, addresses that situation, if we have 20 different sanctions regulations, each has its own list, and in theory the company has to go through each of those regulations and check the lists.

The lists get updated all the time. The Canadian government might be updating them. If they're UN lists, the UN is updating them. It's an exercise that occurs when you first on board customers or counterparties, but also in your continuing relationship you should still be scanning those lists, and many sophisticated financial institutions do just that.

The problem is that the sophisticated financial institutions can afford the third party screening services that will do all that work for you. They'll consolidate those lists. They'll put them into huge databases and the financial institutions will use that when they do implement these kinds of asset freezes.

SMEs have to pay a third party service provider to do that and it's expensive. We're asked all the time to make recommendations for third party service providers to do that. It's thousands of dollars. If an SME wants to trade with a country, let's say in the Middle East or North Africa, that isn't even subject to sanctions, because they're dealing in a high-risk area where there are sanction countries, they'd better be screening that list or they'll run into situations where they are doing business with these individuals. The lists don't key off where the individual is located; once an individual is on a list, you can't do business with them anywhere in the world.

I just want the committee to understand that when we do put additional lists in place, when we add names to lists, it's not a simple task for the business community to deal with that if the government isn't making it easier. One way to do that is to have a consolidated list published on their website. The United States does it. Australia does it. Australia sends out an email to their exporters every time their lists are updated. I think that's something we should really consider doing in Canada to make this more of an effective mechanism.

The other issue with the list is the description of the names on those lists. You need more information than simply just the name.

I'll stop there.

[Dean Allison, Conservative, Niagara West, ON]

Okay.

I have a quick question for Thomas.

You had a couple of comments on some of the testimony. Are there any two points that you want to make or refer to on what was said?

[Dr. Thomas Biersteker]

Yes. In fact, I would like to pick up the point about consolidated lists, because I think it's a very good idea. Particularly if Canada begins applying its own unilateral measures, it will be important to consolidate the different individual-centred lists.

The United Nations actually has produced, out of its now 14 different sanctions committees applying sanctions, a consolidated list. There is one location now at the UN level.

As I said, the UN is also trying to bring the amount of information up to the U.S. OFAC standard. That's another move with regard to UN lists.

To make one point, while I think it's a good idea, it won't be sufficient for the small enterprises, because if they operate in multiple international jurisdictions, they're still going to be subject to interpretations of multiple lists. That means wherever they're doing business, they'll have to be current, not only with the UN list or the Canadian list, but if they have significant assets in the U.S., they'll have to be compliant with the U.S. list, and so on.

[Dean Allison, Conservative, Niagara West, ON]

Thank you.

[The Chair, Liberal, Bob Nault]

Thank you, Mr. Allison.

We'll go to Mr. Sidhu, please.

[Jati Sidhu, Liberal, Mission—Matsqui—Fraser Canyon, BC]

Thank you to all three witnesses. It's good to hear your words of wisdom.

Mr. Boscariol, you made a comment that we don't have enough guidance from the Canadian government, so the question is, what role should sanctions play as a tool of Canadian foreign policy?

If anybody else wants to jump in, please be my guest.

[John Boscariol]

Thank you for that question.

As I was alluding to in my remarks, I'm not disputing that sanctions can be an effective policy tool particularly on the signalling side. I'm not here to say that we should never use sanctions. They're a valid tool. But what's interesting, I always find, about sanctions is that their use relies heavily on private business implementing and following those laws.

One of the earlier speakers talked about immigration bans and banning entry into Canada. That's something Immigration Canada and CBSA can handle on the front lines. When you impose sanction measures such as asset freezes and trade prohibitions or investment bans, you're putting it in the lap of Canadian companies, financial institutions in particular. I'm not saying that's a bad thing. It's a necessary thing, a part of the nature of sanctions. However, let's recognize it, and if we're going to do it, let's make sure the proper resources are in place to enable these businesses to comply with those measures.

[Jati Sidhu, Liberal, Mission—Matsqui—Fraser Canyon, BC]

Does anybody else want to jump in?

Lilly?

[Dr. Meredith Lilly]

Sure.

I agree wholeheartedly that travel bans place the responsibility on the federal government of Canada to implement them and to absorb the associated costs. I would just make the general comment that sanctions gained popularity as an alternative to war. I think we should bear in mind that sanctions are a serious instrument. They're quite a big stick, frankly, and they should be used sparingly. That's part of the reason I suggest that economic sanctions should be done multilaterally, not unilaterally.

When we want to use them for signalling purposes, there are a variety of non-sanctions instruments that we can also use that have less of a cost on business, that are very straightforward for Canada to implement, but at the same time don't necessarily have the same kind of impact. Travel bans require the use of the IRPA legislation. All kinds of diplomatic things can be done, including boycotting events and participation in sporting games. All these kinds of things are part of the bigger foreign policy tool kit that can be used.

I think it's important to highlight that economic sanctions largely require Canadian business and banks to co-operate. That's a good point.

[The Chair, Liberal, Bob Nault]

Mr. Biersteker.

[Dr. Thomas Biersteker]

Canada is not alone in this issue and problem. A few years ago we organized a meeting between the panel of experts for the Lybia sanctions committee here in Geneva and private sector individuals, because as the first speaker has pointed out, individual financial firms are themselves the main sources of the implementation of these measures.

The comments we heard from the private sector—from financial institutions, from insurance companies, from shipping companies—were about the inadequate information they were receiving from their governments. Particularly, I must say—this seemed to be disproportionately from the U.K.—there were complaints about Brussels. I'm not going to make a Brexit comment at this point, but it's a common problem that the private sector has difficulty getting the information it needs in a timely manner. This is not a uniquely Canadian problem. It's a problem for the private sector implementing sanctions globally.

I made reference in my comments to the challenge of keeping targeted sanctions targeted. This is keeping them consistent with the careful design of the measures, when they are actually being crafted in New York, Brussels, or Ottawa. I think the problem of keeping them targeted is a problem of what we call the dual translation problem. There are two translations that are under way: first, the translation from, in the case of the EU, a council decision, or in the case of the UN, a Security Council resolution, into national legislation; and second, the communication of that national legislation to the private sector.

At both of these points, the translation—from a council decision to government legislation, and to the interpretation of that legislation, the way it's communicated to firms and the way firms then through compliance implement the measures—can lead to a significant distortion. It could mean a narrowing, but most often it means a widening or broadening of the sanctions and particularly over Iran in the past few years, the phenomenon of widespread derisking because firms were simply concerned that if they didn't divest virtually all activities with regard to Iran, they could be in trouble with their own governments, and with other governments as well in terms of fines and penalties.

[Jati Sidhu, Liberal, Mission—Matsqui—Fraser Canyon, BC]

Am I done?

[The Chair, Liberal, Bob Nault]

You have a couple more minutes, Mr. Sidhu.

[Jati Sidhu, Liberal, Mission—Matsqui—Fraser Canyon, BC]

Okay.

On the same topic, I'd like to hear some comparison of how sanctions policy and legislation have been designed and implemented by the other countries and organizations around the world. How do you compare our policies to their policies?

Mr. Boscariol, would you like to start?

[John Boscariol]

Yes.

I have just a couple of points on that. One is Canada has a made-in-Canada policy in many of these cases and when you compare just the sanctions policy with respect to Russia, Iran, Cuba, Burma, and these other countries, they're not identical. A Canadian company has to pay attention to these made-in-Canada policies, as they do these sanctions policies from other countries.

Canadian companies in the past have often made the assumption that the U.S. is the high-water mark, so they'll just follow U.S. sanctions. They're the most aggressive, so that's got to be the safe process to follow. Frankly, that's gotten a lot of Canadian companies in trouble when they realize there are some elements of these sanctions that are more aggressive in Canada than in the United States.

The second comment I would make on that is, in the administration of these sanctions, there are significant differences and I understand the point our speaker from Geneva is making. There are complaints from companies around the world about dealing with these sanctions measures, and I get that, but I think we are unique here in Canada. To give you some anecdotal evidence on this, I deal in commercial transactions that involve trying to determine the application of Canadian sanctions. I work with sanctions counsel in the United States, Australia, and Europe, and uniformly we have situations where the Americans and the Europeans are able to get guidance on these issues and they're stunned that here in Canada we're unable to pick up the phone and at least call someone in Global Affairs and ask them how they might interpret something. That's unheard of here in Canada. While they're able to do that to some extent in the United States and the European Union, in the United States OFAC—although it's often the subject of complaints—publishes FAQs on these issues. They publish opinions on these issues. There are phone numbers you can call to speak to them about these issues. We don't have that here in Canada right now, unfortunately.