Evidence of meeting #31 for Foreign Affairs and International Development in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cases.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Maya Lester  Queen's Counsel, Brick Court Chambers, As an Individual
Daniel Drezner  Professor, International Politics, Fletcher School of Law and Diplomacy, Tufts University, As an Individual
Thor Halvorssen  President and Chief Executive Officer, Human Rights Foundation, As an Individual

3:45 p.m.

Liberal

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

Colleagues, we're waiting for a couple of members to arrive, because of the Olympians coming into the House. I think we have quorum, so let's do a little bit of House business before we officially go to our agenda on meeting number 31 pursuant to the order of reference.

I want you to look at the subcommittee's eighth report to the committee.

The Subcommittee on Agenda and Procedure of the Standing Committee on Foreign Affairs and International Development has the honour to present its EIGHT REPORT Your Subcommittee met on Tuesday, November 1, 2016, to consider the business of the Committee and agreed to make the following recommendations: 1. That the proposed calendar for November and December 2016 and the suggested witnesses in the document entitled “Additional Witnesses For Committee’s Review of the Special Economic Measures Act and the Freezing Assets of Corrupt Foreign Officials Act” be agreed to. 2. That the Committee give priority to suggested witnesses who can speak on the theme of anti-corruption with regard to the review of the Special Economic Measures Act and the Freezing of Assets of Corrupt Foreign Officials Act. 3. That Gary Kasparov be invited to appear before the Committee on Wednesday, December 7, 2016 in relation to the review of the Special Economic Measures Act and the Freezing of Assets of Corrupt Foreign Officials Act. 4. That a letter be sent to the Department of Justice with specific questions related to the Committee’s review of the Special Economic Measures Act and the Freezing of Assets of Corrupt Foreign Officials Act.

As I mentioned at the committee, we will be sending you a copy of that letter in draft to get your input before we send it to the Department of Justice.

Last:

5. That when the Committee invites officials from Government departments to appear before it that the Deputy Minister or the appropriate Assistant Deputy Minister of the Department be the officials who appear.

That's respectfully submitted by your chair.

I'd like to move that report on behalf of your subcommittee.

(Motion agreed to)

I think we'll stop there, colleagues, and go right to our witnesses.

I want to start by apologizing to our witnesses for our late start. Parliament went a little over time today.

Colleagues, as a reminder, there will be votes at 6 o'clock, so we'll try to stick to the agenda as best as possible, to be completed around 5:30 p.m.

Before us this afternoon, pursuant to our terms of reference and section 20 of the Freezing Assets of Corrupt Foreign Officials Act and our statutory review of the act, are Maya Lester, Queen's Counsel, Brick Court Chambers, and Daniel Drezner, professor of international politics, Fletcher School of Law and Diplomacy at Tufts University.

Mr. Drezner will be with us by teleconference, so you won't see him, but you'll hear him.

With that, I'll turn it over to Ms. Lester to make her presentation, then we'll go directly to Mr. Drezner. We'll then go into questions by committee members.

Welcome to the committee, Ms. Lester. Thank you very much for being patient with us. We look forward to hearing your remarks.

3:45 p.m.

Maya Lester Queen's Counsel, Brick Court Chambers, As an Individual

Thank you very much, and thank you very much for inviting me. It's a great honour to appear before you.

I should say that I gave evidence to our own Parliament, to the House of Lords EU Justice Sub-Committee about two weeks ago, because they have been inquiring into various aspects of the EU's sanctions regimes. I would be happy to talk to you about that if it would be interesting for you to hear, perhaps in the questions.

I am a barrister; I am a litigator. I specialize in European law and public constitutional law, with a particular expertise and interest in sanctions regimes. I should say I am by no means an expert in Canadian law, so I will confine my remarks to what I know about, which is the European Union sanctions regimes. I know a little also about the United Nations, and of course the U.K.'s own regimes, to the extent that they have them, and I will come back to that.

I have a practice predominantly acting for listed parties, people and entities subject to sanctions, and I've litigated a very large number of cases in the European Court on their behalf, but I also do a lot of advisory work in other litigation related to sanctions for non-sanctioned parties.

What I thought I would do is briefly outline—and I hope it's not too basic—the EU system for imposing sanctions, and then I'll explain what I think are some of the challenges and problems in the European Union's system, which has given rise to a large number of court cases that you may be aware of.

The EU imposes sanctions as a group of states, as 28 member states—possibly 27 pretty alarmingly soon—as part of its common foreign and security policy, and decisions to impose sanctions have to be unanimous. That's very much the background to the EU sanctions regime, which is 28 member states trying to agree on what to do. To that extent, Canada has an easier job.

The decision-making body is the council of ministers in the EU, which is really all of the EU foreign ministers acting together. That's the executive body that decides on sanctions.

EU sanctions, like the U.S., the UN, and other sanctions regimes, consist partly of targeted asset freezes and travel bans, which are EU-wide, and partly of less-targeted sanctions, particularly in regimes like Iran, Syria, and, to some extent, Russia. In addition to targeted asset freezes and travel bans, there are broader prohibitions on, for example, certain kinds of business or financial transactions that can be done between the European Union and various states.

How does the court get involved? It's an exception to the general rule that foreign policy measures of the European Union are not subject to judicial review. There is an exception to that rule for individuals and entities that are the subject of targeted asset freezes and travel bans. This is because the EU Court has taken the view that, since these are restrictive measures that have an impact on the fundamental rights of people, whether they're EU citizens or not—and many are not—they should have access to judicial review to be able to challenge their designations. I understand that there is a system of that kind in operation in Canada. This judicial review must take place within two months of a sanctions listing in the General Court of the European Union, which is in Luxembourg. There have been literally hundreds of these cases in Luxembourg, many successful. I think, on average, about half of the cases that go to the European Court have succeeded.

Why? Well, originally when I first started doing these cases in about 2009-10, the practice was not to give reasons why people were designated on sanctions lists. The United Nations also was not giving reasons. So the basic initial challenges were due process challenges, where the European Court said that if you are going to impose restrictive measures on individuals and entities, you, the European Union institutions, have to comply with basic standards of due process. This means giving reasons why you have been designated; some basic evidence if you challenge the factual basis for your listing; some evidential support for what the institutions are saying as a justification for your listing; and some basic judicial review and proportionality analysis by a court.

Now we can come back to all of that, but the basic reason that so many cases were successful was an evidential reason. After these basic standards of due process were set out by the European court, there were then hundreds of cases—mostly Iranian cases, but by no means all; every different regime has brought cases—where, after initial cases that were lost by the institutions because of a lack of reasons, the focus of the court has been much more on whether the European institutions can substantiate with some kind of sufficiently solid factual basis, as they put it, the evidential basis for a sanctions listing. In many cases they haven't been able to do so, and again, we can come into that in more detail, if that would be of interest to the committee.

This basic reasoning and framework has been applied both to EU autonomous sanctions, those imposed by the European Union, and also to European Union implementation of United Nations Security Council sanctions. That has been very controversial. There was a famous case I was involved in called Kadi, in which the European court decided that it could review EU measures, even those that implement UN Security Council resolutions. That case was partly decided because of the lack of due process at the United Nations level, and that case led directly to the creation of the office of the ombudsperson for the UN Al-Qaida Sanctions Committee, the first incumbent of which, Kimberly Prost, I'm sure is well known to you and I think may be giving evidence to your committee.

The result of these cases was that many won. Many were brought. They're tailing off a little now for reasons that I can go into after my opening remarks.

The system has had particular problems, I think, which are reflected in the case law, to some extent. First, there is a real absence, in my view, of a body capable of gathering evidence to a robust and rigorous standard in the European Union. Now the council of ministers is not, in itself, an evidence-gathering agency. It's a group of member states, and so its sanctions capabilities, and the degree to which it can gather robust evidence to support sanctions listings, depend entirely on the evidence that member states are willing to share with each other in the council, and which, then, the council is willing to share with listed people and with the court.

This has led to another very interesting topic that I'd be delighted to speak about, which is rules of procedure that now will permit the institutions to rely on classified material. So far the court has taken the view, unlike the U.S. courts in this area, that all material relied on must be open to all parties. That may be changing in Luxembourg because of the problem of open-source material, but some of the quality of the open-source evidence, in my view, is not robust; it consists of some press articles and Internet printouts, very often.

The second problem, in my view, is that the EU institutions are not responsive to people who are affected by being included in sanctions lists. It takes them a very long time to respond to correspondence, even in real cases of urgency, and there's a real lack of engagement on the substance in the correspondence. Again, I can go into this in more detail, but I think—and I said this to the House of Lords committee—there is a real case for a Kimberly Prost ombudsperson process in the European Union in order to analyze evidence and provide a real responsive system.

Third, the court system has its own difficulties. It's very slow, is expensive, and there have not been injunctions given in cases of urgency, quick hearings, or damages in cases of serious errors in listings. There has also been—if I can call it—a bit of a game of re-listing: almost every entity and person that wins a case in the European court finding him or herself or itself on a sanctions list the next day, with slightly different reasons given for designation. The lawfulness of that process is being litigated in the European courts at the moment.

Finally, and I'll end with this comment, in my view there is a particular concern about the misappropriation regimes, and that may also be of concern to this committee. These are the Tunisia, Egypt, and Ukraine regimes which freeze the assets of people said to have misappropriated state funds. Why are these of concern? Well, in the case of the European Union—and I don't know about Canada—the origin of all of these lists was a request by the then governing bodies in Egypt and Tunisia, post-Arab Spring, to the European Union to please freeze the assets of a list of what they themselves called the enemies of the state who may wish to punish—was the kind of language that was used.

Now, the European Union, without leaving any time for analyzing the basis for any of the evidence that the people on these lists had been responsible for corruption offences of different kinds, immediately imposed an EU-wide asset freeze on them. Of course, the standards of due process by which these people are often standing trial in absentia, or that judicial investigations have been opened and pursued against them in these countries, without standards that Canada or the United Kingdom certainly would regard as complying with the rule of law is, in my view, shocking. The European Union has simply relied on the words of prosecutors in those countries as being sufficient to show that because these people are being investigated for corruption offences, that should be sufficient to keep them on EU sanctions lists. Although they are called temporary precautionary measures, they have now been in place for a very large number of years. I should say, though, that the European court has upheld the legality of these measures.

There are many other topics I could touch on. One, of course, is the potential consequences of the United Kingdom leaving the European Union for sanctions regimes, but I'll leave my remarks there and look forward to answering questions.

4 p.m.

Liberal

The Chair Liberal Bob Nault

Thank you very much, Ms. Lester. I very much appreciate that.

We'll go directly to Mr. Drezner, if he's on the line.

4 p.m.

Prof. Daniel Drezner Professor, International Politics, Fletcher School of Law and Diplomacy, Tufts University, As an Individual

I am indeed.

Thank you very much for the opportunity to testify. I'll give a little bit of background about myself. I'm a professor of international politics at the Fletcher School of Law and Diplomacy outside of Boston. My area of expertise is not legal, but rather in international relations. I've written a book and several articles about the utility of economic statecraft in international affairs. Much of what I will say today is based on a report that I co-authored for the Center for a New American Security in Washington which just came out about recent changes in the way the United States employs economic sanctions, which I will talk about now and which might hopefully be relevant to your Parliament.

In some ways, the interesting evolution in the American approach to economic sanctions has been that, when I started work on this in my dissertation 20 years ago, it was widely thought among policy circles that sanctions did nothing. Economic sanctions were usually thought to be a useless symbolic tool and a demonstration of states doing something without necessarily accomplishing anything. Twenty years later, what is striking is the degree to which the policy consensus in Washington has done a 180° turn. There is an increased amount of enthusiasm for the utility of economic statecraft, the tool in terms of advancing American interest in foreign policy, as well as advancing things like the cause of human rights.

The question is, what happened in those 20 years? Was it just the policy-makers were wrong both times or has there actually been changes in the way in which the United States has employed sanctions? The answer is a little bit of both. I would argue that policy-makers were excessively pessimistic when they were assessing the utility of sanctions back in the late 1990s and they are now excessively optimistic about the utility of economic sanctions for a variety of reasons.

That said, there were changes in the way that sanctions were employed. You can argue that the history of sanctions in the United States basically boils down to three phases. The first was up until about 1990. Then the Iraq sanctions which were placed immediately after the Gulf War were a notion of so-called comprehensive sanctions. That is the idea that any economic sanctions that are employed should be employed against an entire country, should usually be trade-based, and should be designed to maximize the economic punishment that a country faces unless they comply with whatever is asked with respect to sanctions.

It quickly became clear that this process did not work terribly well in terms of its success rate, and more importantly, demonstrated massive negative externalities as the Iraq case demonstrates in the form of humanitarian catastrophes, an increase in corruption, and so forth. Essentially, any employment of economic sanctions is an effort to outlaw what would otherwise be considered ordinary, perfectly fine commercial activity. It therefore creates an incentive for actors to find ways to work around sanctions rules as a way to earn above-average profits and it is therefore a breeding ground for corruption.

It is no coincidence that if you look at the list of countries in terms of corruption according to, let's say, Transparency International's or the World Bank's governance indicators, the countries at the bottom, the most corrupt countries are countries that have usually been under sanctions in one form or another, because once sanctions are imposed, the corruption is often longer lasting.

In response to that, the United States began to embrace the idea of smart sanctions. The idea of smart sanctions was to focus on somewhat more targeted aspects of the country rather than trying to hurt the population writ large. The idea was that certain kinds of sectoral sanctions would be used, things like sanctioning luxury goods, imposing travel bans, imposing arms embargos, various financial sanctions. These sanctions would presumably hurt the elite of the target's population rather than the broad-based populace and therefore would cause pain to presumably the most politically influential members of the target country.

Furthermore, the other idea was to essentially start imposing sanctions on individuals rather than countries writ large, with the idea of making individual policy-makers or wealthy people who were considered close to policy-makers potentially liable for the implications of policy transgressions.

The problem was that most of these smart sanctions also didn't work very well. Indeed, the track record of the UN smart sanctions cases that were imposed in the 1990s and the 2000s show that they actually have a success rate of perhaps 11%, which is much lower than the success rate of ordinary comprehensive sanctions. While it did alleviate some humanitarian suffering, they didn't seem to accomplish that much.

The one exception appeared to be cases in which targeted financial sanctions were employed against the targeted country. In part, this is because when financial sanctions are imposed, the effect on the private sector in some ways actually enhances the effect of the sanctions, as opposed to the case of trade.

Generally, when you impose trade sanctions, you're incentivizing black market activity and corruption. However, as a general rule, when you're imposing financial sanctions, because the U.S. capital market is so central to the international financial system, generally speaking, for banks that have to deal with these kinds of sanctions, access to U.S. capital markets matter much more than any small profits they could gain from sanctions busting. Furthermore, private capital would engage in prudential risk calculation in terms of anticipating the effect of any kind of financial sanctions on a targeted economy. This is often referred to as de-risking.

The degree to which U.S. regulatory officials have fined various banks, such as HSBC, Commerzbank or BNP Paribas, for violating other kinds of sanctions, and these fines have run into the billions of dollars, have caused much of the western financial community to comply very quickly with sanctions edicts that come from the United States. Indeed, by 2015, the use of targeted sanctions was a relatively important component of President Obama's national security strategy.

Generally speaking, the question is, do these actually still work? The evidence suggests that the targeted financial sanctions do, in fact, have a better success rate than previous comprehensive sanctions as well as smart sanctions. Generally speaking, the success rate is along the lines of 40%, which might not sound that great, but again you're dealing with difficult cases. The fact that they work at all is relatively impressive.

Sanctions tend to work much better if they have a well-defined demand—which is a banal point but nonetheless important—if they hurt target elites, and most important, if there are lower expectations of future conflict between the country imposing the sanctions and the country on the receiving end of sanctions, or to put it another way, sanctioning allies, oddly enough, tends to work much better than sanctioning adversaries. Of course, countries are obviously more reluctant to sanction allies, which is why it doesn't happen all that much.

That said, there are still negative externalities that come from sanctions. Sanctions undeniably cause investment to dry up in the targeted economy. You do see massive increases in the assessment of economic and political risk by the private sector when any kind of targeted sanctions are imposed. There is not that much evidence of a “rally around the flag” effect, which is to say the sanctions don't necessarily lead to members of the targeted population deciding to support their leaders that much more.

The logic seems to be with targeted financial sanctions that the imposition of sanctions leads to an elevated perception of political risk among private sector actors, which then causes private sector investment in the targeted economy to expire. The question is whether or not we have reached peak sanctions, for lack of a better way of putting it. One of the reasons you can argue that some of these cases of sanctions have worked, for example, the sanctions that were imposed against Iran prior to the nuclear deal, is that in some ways people did not anticipate that they would actually have the potency that they did. Therefore, the actual imposition of sanctions was a genuine policy surprise not just to the target economy, but I would argue to U.S. policy-makers as well. The interesting question is whether or not going forward you're going to see an increasing amount of countries anticipating the fact that this can actually happen, and therefore, as result, hedging or finding alternative ways to guard against U.S. financial power. Indeed, you're even seeing in some cases countries such as Russia trying to find alternatives to the SWIFT payment system and to excessive reliance on the U.S. dollar as a form of international trade.

The question is whether or not the U.S. government appreciates this. Indeed, there are indications from a speech that Secretary of the Treasury Jacob Lew gave back in the spring that, in fact, U.S. officials are aware of this, and that in some ways while they will have to engage in continued financial intelligence in order to be able to continue to impose successfully targeted sanctions, there is a concern that essentially if the United States continues to become sanctions happy, there will be too much blowback, and that, in turn, could affect the dominance of the U.S. financial system.

I think I will leave my remarks there.

4:10 p.m.

Liberal

The Chair Liberal Bob Nault

Thank you very much, Professor Drezner. That's very helpful.

We're going to go straight to questions, and we'll start with Mr. Allison.

4:10 p.m.

Conservative

Dean Allison Conservative Niagara West, ON

To both our witnesses, thank you very much for two different perspectives on the U.S. and the EU.

Dr. Drezner, we're reviewing our Special Economic Measures Act and our Freezing Assets of Corrupt Foreign Officials Act. We're trying to figure out if maybe there's a spot we're missing. We've heard loudly from a number of witnesses who state that sanctions have unintended consequences and sometimes these things seem to be a challenge. Both of your remarks bear that out today in terms of once again talking about those stats.

I'm assuming, Dr. Drezner, you are familiar with Magnitsky, and that's part of the reason we're talking about this today. You did say that smart sanctions are more effective. We're looking at trying to figure out if we have a gap in some of our legislation that maybe doesn't address this or doesn't give us an opportunity. Do you have any comments on Magnitsky? I've certainly heard your testimony say that smart can make some sense, that targeted makes sense, that it can have an effect.

We're looking at those who have bad behaviour, massive human rights abusers who raid their countries of money and all these things, and then say, “Hey, we're going to park it in western democracies, and then when we're done ripping off our own countries we'll be able to travel there, we'll be able to live there.”

We're hearing a number of different things. Obviously, if you're going to do something you have to have the tools. You have to have the ability. We've heard here in Canada that maybe we need more resources to target some of these things.

We also hear the complications of what happens with banks. You also talked about that in your testimony. We'll go back to Magnitsky. It's pretty early stages in terms of this act in the U.S. We see some of the blowback that happened from Russia in terms of refusing adoptions of babies, etc.

What are your thoughts on that approach? What are some of the things we need to look out for as we review some of our legislation?

4:10 p.m.

Professor, International Politics, Fletcher School of Law and Diplomacy, Tufts University, As an Individual

Prof. Daniel Drezner

Again, I think with Magnitsky the question is always, what do you want to get out of the sanctions? In other words, do you see the sanctions as a tool of punishment for prior bad acts? This, in some way, is what the Magnitsky sanctions did.

Part of the problem in terms of evaluating their success is that essentially they took place in a steadily worsening state of Russian-American relations. As I said, in some ways the expectation of a future conflict between Russia and the United States...the Magnitsky Act was simply one element of it that further increased the conflict between the two countries. Any time you increase the idea that there's going to be conflict, you decrease the likelihood that the target will make any concessions, even if the target is an individual citizen. I have to say I would not define the Magnitsky sanctions as all that much of a success in terms of the effect on Russian officials who have been placed under sanction.

There is one other possibility, however, although this is an extremely nebulous category and it's extremely hard to nail down, which is you can look at the Magnitsky sanctions as an example of potentially sanctioning as a form of deterrent, which is that imposing those sanctions will not necessarily alter the behaviour per se of the individuals under sanction, but it might cause other officials in the same country or other countries to recognize the implications of deciding to engage in similar behaviour. That could lead to one of two effects. It could actually successfully deter them or it could cause them to take countermeasures to make sure that even if those kinds of sanctions are imposed, they, as a result, do not suffer as much.

I cannot stress enough that this is extremely difficult to identify. As a scholar, it's hard for me to say we conclusively can show that this takes place. There is some limited evidence that this has occurred in certain categories of sanctions, that you see other actors responding to it. But I do know from my conversations with state department officials that another thing that's going on is that Russian officials, once being placed under sanction, are trying to figure out ways, obviously, to circumvent them in terms of depositing money or assets with relatives or known friends, and so on and so forth.

As a result, there's a constant arms race in terms of financial intelligence, to be able, if you're going to impose these sanctions, to see not just the effect on the intended target, but also the penumbra of relationships that this intended target possesses.

4:15 p.m.

Conservative

Dean Allison Conservative Niagara West, ON

Thank you.

Ms. Lester, do you have any comments or thoughts on that statement? I certainly heard your comments on how difficult it is even to get people on a list because you need the agreement of 28, now 27 countries.

4:15 p.m.

Queen's Counsel, Brick Court Chambers, As an Individual

Maya Lester

As you probably know, the European Union has not imposed a Magnitsky list—

4:15 p.m.

Conservative

Dean Allison Conservative Niagara West, ON

Correct.

4:15 p.m.

Queen's Counsel, Brick Court Chambers, As an Individual

Maya Lester

—but that's very controversial, and members of the European Parliament have repeatedly called on the EU to do so. Some countries feel very strongly that there should be a list. It has not been possible to reach an agreement on it.

I think that serious human rights violations are perhaps a good example of a use for targeted sanctions. Although I don't disagree with anything that has just been said by Mr. Drezner, when people talk about the efficacy of targeted sanctions, I often wonder exactly what they mean by that. It seems to me to be very rare that targeted sanctions ever actually identify what it is they're trying to achieve and what someone who is targeted by those sanctions has to do if he or she wishes to change behaviours and not be sanctioned anymore.

What one tends to see are very broad formulations like “In view of the situation in Zimbabwe” or “In view of the situation in Russia, we are imposing sanctions,” but there are never achievable, clear goalposts. I wonder whether or not this is intentional. It seems to me in those circumstances to be extremely difficult to say whether targeted sanctions have worked or not because it is just not measurable.

Of course it also depends on who is imposing the sanctions and whether the targets care or not. If the European Union freezes your assets and prevents travel, you're not going to care, other than perhaps by reputation or symbolically, if you don't hold assets in the European Union and you're not going to travel there. The same would be true, of course, in the case of Canada.

As a final example, the EU's Russia program does not include on its list President Putin or his very close allies. This highlights the point that targeted sanctions, like others, are of course highly political. Very often the criticism is made that the real targets of the sanctions tend to be the business classes, the middle classes, and not the real decision-makers who are actually responsible for policy.

Very often you see decisions to include people in lists that are not really based on their conduct, but rather on their association with a regime or their status. There are plenty of studies showing that these have sort of counterproductive effects, because if you freeze out or make life more difficult for those people but not their rulers, the politicians who actually do have control over policy in those entities, then how can you say in any meaningful sense that those sanctions are working?

4:15 p.m.

Liberal

The Chair Liberal Bob Nault

Thank you very much, Mr. Allison.

I'll go to Mr. Sidhu, please.

November 2nd, 2016 / 4:15 p.m.

Liberal

Jati Sidhu Liberal Mission—Matsqui—Fraser Canyon, BC

Thank you both for your testimony today.

Ms. Lester shed a lot of light on the European Union, which leads to my question. Given the complexity and scope of economic sanction programs in the European Union, how difficult and onerous is it for the private sector to comply with the regulations?

If your answer is yes, is there sufficient information, clarity, and guidance for the private sector?

4:20 p.m.

Queen's Counsel, Brick Court Chambers, As an Individual

Maya Lester

If I have understood the question correctly, yes, it's extremely onerous for the private sector to comply with sanctions. There is an incredible industry of compliance, and the main enforcement of sanctions, certainly in the EU, comes from compliance rather than public enforcement.

Is there clear guidance? No. In my view the EU has been very bad, far worse than the OFAC in the United States, at publishing guidance on the meaning of its sanctions measures and how they should be applied. Of course, you could say that's fine because it's intentional. It leads to over-compliance by institutions trying to do the right thing, but I think a lot of people in business—entirely innocent business, if you like, which is not supposed to be subject to sanctions—find themselves turning in somersaults trying to work out how they can lawfully conduct their business. That is a huge externality, if you like, which has just become part of the system.

I think it's fair to say that is not part of the targeted sanctions problem, although to some extent it is. How can you do business without making funds available to a targeted person? I think the problems you've identified are far more with the less targeted parts of sanctions regimes.

4:20 p.m.

Liberal

Jati Sidhu Liberal Mission—Matsqui—Fraser Canyon, BC

Is there any room to improve when it comes down to assistance not currently provided by regulators in the European Union? Would that be beneficial to the private sector as a part of the compliance process?

4:20 p.m.

Queen's Counsel, Brick Court Chambers, As an Individual

Maya Lester

I think the answer from the private sector would be, loudly and clearly, yes, please, they would love more guidance and they would love more clarity.

I think the answer from the EU might be that it's difficult when you have 28 member states to pass these measures, first of all, let alone give detailed guidance on what they mean and how they're going to be applied, not least because, of course, the rules are set by the European Union but the enforcement happens at the member state level. Each member state's national authority has to decide what the penalties will be for breach of sanctions and how it is that they are going to enforce them.

The U.K. treasury gives some degree of guidance, but again, I think the private sector would say that it's all about clarity, and there is just not enough guidance being given.

4:20 p.m.

Liberal

Jati Sidhu Liberal Mission—Matsqui—Fraser Canyon, BC

Mr. Drezner, would you have a different take on the comments made by Ms. Lester?

4:20 p.m.

Professor, International Politics, Fletcher School of Law and Diplomacy, Tufts University, As an Individual

Prof. Daniel Drezner

No. I would pretty much agree with Ms. Lester's testimony with respect to the frustration that I think the European private sector faces with respect to the way the EU sanctions are implemented, as opposed to the way that OFAC handles U.S. sanctions. Indeed, I would suggest that I believe OFAC and treasury officials in the United States occasionally express similar frustrations about the way European Union officials engage in sanctions. Part of the issue, again, is whether or not you're dealing with the EU as one or the EU as 28 members.

In the case of the United States with respect to compliance with the U.S. sanctions, I think there is some degree of frustration within the private sector about the degree to which OFAC occasionally forces them to engage in things like “know your customer” and compliance and so forth, but that said, OFAC also has a longer institutional history and institutional relationship with the banks in the United States. As a result, I think a lot of the kinks in the process have probably been a little more smoothed out in the United States.

4:20 p.m.

Liberal

Jati Sidhu Liberal Mission—Matsqui—Fraser Canyon, BC

Thank you.

4:20 p.m.

Liberal

The Chair Liberal Bob Nault

Thank you, Mr. Sidhu.

In the minute left over by Mr. Sidhu, I want to ask Ms. Lester a question relating to targeted financial sanctions, or travel bans, or areas of sanctions relating to gross human rights violations. How would we gather evidence if we were to put in legislation like that, either in the EU, or in the United Kingdom, or in Canada? From a legal perspective, how would we do that?

4:20 p.m.

Queen's Counsel, Brick Court Chambers, As an Individual

Maya Lester

Canada, like the United Kingdom and the United States and other countries, has agencies that are very used to gathering evidence in a domestic context, both legal enforcement and criminal law agencies, which have very good investigatory powers precisely to gather evidence against people who are alleged to have engaged in various kinds of regulatory, criminal, or other misconduct. In the United Kingdom, there is certainly some joined-up thinking between different pre-existing agencies about who has responsibility for evidence gathering and enforcement when it comes to sanctions and violations.

Obviously, the details of who exactly would undertake the job in Canada is not something I can speak to. I know that the foreign office in the U.K. is actively engaged at the moment in the process of trying to work out how to make particularly the open source evidence gathering they have to engage in more robust.

Of course, there would have to be some interaction, one assumes, with international partners and colleagues. I think Kimberly Prost would be a very good person to talk to about evidence sharing between different nations when it comes to the imposition of sanctions and intelligence sharing.

4:25 p.m.

Liberal

The Chair Liberal Bob Nault

I understand the United Nations has an experts panel that they use to look at sanctions. Does the EU have the same process?

We're not aware of an experts panel in Canada. We are aware of one at the United Nations. When they promote these sanctions and put them in place, they review them through the experts panel.

Do you have anything similar in your regime?

4:25 p.m.

Queen's Counsel, Brick Court Chambers, As an Individual

Maya Lester

To my knowledge we don't. The UN not only has a panel of experts but has, I understand, a separate panel of experts for each different sanctions regime, and that is staffed with people who know very clearly what's actually happening on the ground in that country, who in fact is operating as opposed to who you're being told is operating, who the real movers and shakers are, and so on.

In the European Union, one problem is that the EU's procedures are not very transparent when it comes to sanctions, so we are never told who it is that does this. My guess is that the Council of Ministers, which has responsibility for imposing sanctions, does not have separate teams of experts going out and gathering evidence for each sanctions regime. I think what happens is that they rely on each member state's own domestic evidence-gathering capabilities, and each member state then comes to the EU with a list of people and with reasons supporting why they propose that those particular people should be subject to sanctions. At the EU level itself, though, there is no equivalent to the panel of experts.

4:25 p.m.

Liberal

The Chair Liberal Bob Nault

Thank you very much. I appreciate that.

Mr. Aubin, you have the floor.

4:25 p.m.

NDP

Robert Aubin NDP Trois-Rivières, QC

Thank you, Mr. Chair.

Hello Ms. Lester and Mr. Drezner. Thank you for agreeing to shed light today on the very important subject of economic sanctions.

After having heard, since the start of this study, a certain number of witnesses describe the relative scope of economic sanctions, I want to reverse the process. I would like to know whether you have an analytical grid, in the European Union or United States, that would help assess the impact of sanction regimes on the imposing countries, and not on the targeted countries.

We could start with Ms. Lester.