The strange case of a Canadian firm with a special exemption to avoid Russian sanctions

Despite tough talk and far-reaching sanctions meant to punish Russia after the 2014 annexation of Crimea, the Liberal government is allowing at least one Canadian company to skirt sanctions and do business with Russians listed on the Canadian sanctions list, government documents show.

The documents, obtained using access to information laws, include a permit signed by Foreign Affairs Minister Chrystia Freeland allowing a Canadian company to engage in activities that are acknowledged to be banned by sanctions.

The documents raise questions about whether Canadian sanctions are really helping to bite Russia's bottom line if they are being set aside when there is an opportunity for a Canadian business to make money.

“This permit does not authorize any transactions or dealings that are prohibited by the Special Economic Measures (Russia) Regulations, other than those listed,” the document reads.

The Special Economic Measures (Russia) Regulations are the laws that govern most Canadian sanctions against Russia. They came into effect in March 2014. The laws allow the Minister of Foreign Affairs to issue exemption permits on an “exceptional basis.”

'SURPRISING DECISION'

The permit, dated June 13, 2017, also authorizes the unnamed company to do business with at least one Russian who appears on Canada's list of sanctioned individuals.

The document specifies that it does not “authorize any transactions or dealings with any other person listed [on Russian sanctions lists] other than those described above.”

Trade lawyers who follow Canada’s sanctions regime told VICE News the exemption was “surprising.” The names of the Canadian company and the sanctioned Russian individual are both redacted. Global Affairs Canada refused to say to whom the permit was issued.

“We cannot provide information about specific permit applications for confidentiality reasons,” Global Affairs Canada spokesperson Brianne Maxwell said in a statement to VICE News. “Information provided to the Department in the context of a permit application is done so in confidence.”

The department declined to explain why it was issued, saying only that permit decisions are made on a case-by-case basis. The department also refused to answer direct questions about the identity of the sanctioned Russian individual with whom the permit authorizes business dealings.

Global Affairs Canada’s website lists 93 sanctioned Russian individuals and 65 Russian entities.

VICE News asked how many exemption permits had been given out related since sanctions came into force against Russia in 2014, but Global Affairs would only respond that a search of their records revealed that 4 had been given out since 2016. That leaves most of 2014 and all of 2015 unaccounted for.

'POLITICAL, NOT LEGAL'

Under Stephen Harper’s Conservative government, Canada brought in some of the world’s toughest sanctions after Russia took control of Crimea in 2014 in what Canada considers an illegal annexation of Ukrainian territory. Canada has publically tied the easing of sanctions to Russia’s full implementation of the Minsk agreements, a peace plan for the simmering conflict in Ukraine that calls on Moscow to use its influence with Russia-backed rebels in eastern Ukraine to cede control of Ukraine’s border with Russia back to the Ukrainian government.

While lawyers who represent Canadian clients doing business in Russia say permits are rare, they are not unheard of.

“We’ve got them a few times,” said John Boscariol, an international trade lawyer at the Toronto firm McCarthy Tétrault who has testified before a Parliamentary committee about the effectiveness of Canadian sanctions regimes.

“It’s a political decision, not a legal one,” Boscariol told VICE News, referring to the Minister of Foreign Affairs’ decision-making in handing out permits. He did not elaborate on what could lead a politician to make such a decision.

Another lawyer, Vincent DeRose, who regularly represents clients navigating Canadian sanctions against Russia, said he had never received a permit for one of his clients to deal with a sanctioned individual, and had never heard one one being handed out to any company.

“I’m surprised they redacted the name of the company, though,” said DeRose, who has testified before a Parliamentary committee on sanctions issues.

The permit itself indicates that the company who obtained it is involved in engineering-related activities. It specifically allows the company to “exchange technical data, technical assistance and related engineering and project support, including the provision or transfer of goods and the provision or transfer of financial services.”

BUSINESS INTERESTS

Sanctions against Russia ban Canadian companies from exporting specific machinery and parts to Russia’s energy sector, including parts used for offshore oil, shale oil and Arctic oil exploration and production. The permit appears to allow the export of banned goods, but it is unclear what kind.

Many Canadian companies, including engineering firms, are known to do business in Russia. One of Canada’s biggest, SNC Lavalin, declined to answer questions related to sanctions permits and their operations in Russia.

“As per company policies, we do not comment when it’s related to politics,” company spokesman Nicolas Ryan told VICE News.

Kinross Gold, a large Canadian company with significant mining interests in Russia, would not answer questions about whether the firm has applied for or received permits.

“Our Russia mines continue to operate according to plan,” manager of corporate communications Samantha Sheffield told VICE News.

“We monitor sanctions legislation in Canada, the US and the European Union to ensure that Kinross and its subsidiaries continue to be in full compliance,” she added.

Bombardier, a large Canadian aerospace and transportation company known to do business in Russia in the past, declined to comment for this story. The company has previously said that sanctions have affected their business in Russia, including a $3.4 billion project put on hold after they came into effect in 2014.

“I can confirm to you that we do serve customers in Russia,” Pratt and Whitney Canada spokesperson Paula Pedersen said. “However I am not able to comment on specific aspects of our global business.”

Pratt and Whitney Canada is a large Canadian manufacturer of aircraft engines and has had business dealings in Russia in the past.

CANADIANS ON THE SIDELINES

But for other Canadian businesses and their lawyers the permit documents also raise questions about how Canadian sanctions against Russia, along with related government actions, may be backfiring and hurting Canada.

At around the time Canada’s sanctions came into force, the Canadian government ordered Export Development Canada, Canada’s export credit agency, to stop supporting Canadian businesses in Russia. The organization extends financing and insurance to Canadian companies doing business in foreign countries. Its European Union and U.S. counterparts, however, continued operating.

“And there was no expectation that Americans would do the same,” said Gilles Breton, National Chair of the Canada-Eurasia Business Association and former Deputy Head of Canada’s Diplomatic Mission in Moscow.

“The Europeans never followed suit. They never left (the) Russian market,” Breton told VICE News.

This means the U.S. and European governments are still helping their companies do business while Canadians sit on the sidelines, he added.

Critics also say that sanctions legislation has been imposed in a piecemeal fashion that creates confusion and adds expenses for Canadian businesses trying to operate lawfully in Russia.

According to Global Affairs Canada’s website, sanctions against Russia first came into place on March 17, 2014 but have been amended at least thirteen times since then.

“Every couple of weeks they’d come up with more names” to add to sanctions lists, said Andrea Charron, director of the Centre for Defence and Security Studies at the University of Manitoba.

“While we may think it’s helpful to ratchet up sanctions, maybe what we’re doing is causing more pain for Canadian banks and businesses,” she told VICE News.

'UNINTENDED CONSEQUENCES'

Sanctions imposed by the United States, the European Union, Canada and other allies are widely thought to be having a negative impact on the Russian economy. But even Canadian cabinet ministers have questioned whether Canada’s stronger stance than other countries is productive.

Canada “must stop being essentially the only one practising an empty chair policy with Russia, because by doing so, we are only punishing ourselves,” then-Minister of Foreign Affairs Stéphane Dion said in a speech in March 2016

While Global Affairs Canada acknowledged to VICE News that Canadian sanctions have sometimes had “unintended consequences not related to the purpose of sanctions regulations,” there has been no indication that any changes are forthcoming under current Foreign Affairs Minister Chrystia Freeland.

Charron, the University of Manitoba professor, says they should seriously reconsider.

“I often liken Canada’s use of sanctions to trying to trying to change the tires of a car while it’s still running. We need to stop for a moment, have a hard look at our sanctions legislation and see what makes sense,” she said.