Baker McKenzie’s Canadian international trade and customs team is publishing a series of articles reviewing 2023 trade and customs compliance developments and looking ahead to 2024’s burgeoning issues. This article focuses on Canada’s export controls regime.
In 2023, we saw enhanced scrutiny at the border, with an uptick in Canada Border Service Agency (CBSA) verifications on the control status of exported goods and legislative developments to bring Canada’s export controls regime up to date with its international commitments and to align with permit application processes.
In 2024, we expect continued scrutiny by the CBSA at the border due to pressure from Canada’s allies (e.g. the United States, the G7, and the Five Eyes) to curb circumvention and perhaps increased enforcement as Canadian persons begin to be implicated in export controls offences. Additionally, we expect the continued use of Canada’s export controls regime to respond to international conflicts and political events. For example, in January 2024, when Turkey agreed to Sweden’s accession in NATO, Canada revoked its presumptive denial policy (in effect since 2019) for permit applications seeking to ship military goods to Turkey.
This article focuses on the following:
- Legislative amendments to Canada’s export controls regime; and
- Coordinated enforcement efforts between Canada and the G7, the Five Eyes, and the United States.
Legislative Amendments
In 2023, the Government amended the Export Permits Regulations to align them with existing permit application processes, which will increase regulatory clarity and certainty. The Export Permits Regulations establish requirements on the information that applicants must provide as part of the export permit application process, and the procedures governing the issuance and use of exports permits for “Strategic and Military Goods and Technology” and “Certain Forest Products” listed on the Export Control List. Businesses can look forward to potential efficiencies brought about by the amendments to the Export Permits Regulations that aligns them with existing permit application processes, increasing regulatory clarity and certainty.
Global Affairs Canada released an updated version of A Guide to Canada’s Export Control List (Guide), which came into effect on July 1, 2023. The Guide lists the specific goods and technologies controlled for export from Canada. The revisions to the Guide brings into force Canada’s commitments under its multilateral export controls and non-proliferation regimes up to January 1, 2023 and includes amendments to controls in Groups 1, 2, 4, 6, and 7. Businesses should review the Guide to ensure ongoing compliance with Canada’s updated export controls and classification systems. For a summary of key revisions, review our blog post here.
In September 2023, Global Affairs Canada amended General Export Permit No. 41 – Dual-use Goods and Technology to Certain Destinations (GEP-41) to include a new category of “unauthorized goods and technology”. Accordingly, it is now prohibited to rely on GEP-41 to export or transfer “goods or technology that are intended for the development, production or use of rocket systems or unmanned aerial vehicles with a range of 300 km or greater”. Exporters relying on GEP-41 must carefully review this amendment to ensure that their goods still qualify for export in reliance on this general permit.
Coordinated Enforcement Efforts
In 2023, Canada and its international security partners, including the G7 and the Five Eyes, worked to coordinate and fortify their export controls enforcement to help curb the flow of sensitive goods and technologies in response to geopolitical and national security concerns. Despite this increased collaboration, Canada’s frontline implementation of its export controls and its enforcement efforts have been under pressure from the United States.
In 2024, exporters can expect increased scrutiny of export permit applications by GAC, especially the listed consignees and end-users with the expectation that exporters undertake post-shipment verifications. For example, GAC requests that exporters report instances where they obtain post-export information if the suggested end-use is not employed. Exporters can also expect the continued use of control verifications by the CBSA prior to export, and perhaps increased enforcement proceedings as Canadians begin to be implicated in the circumvention export controls.
United States’ Bureau of Industry and Security
In early 2023, the CBSA acknowledged that officers from the Bureau of Industry and Security (BIS) are embedded in CBSA’s counter-proliferation unit. The CBSA’s acknowledgement follows comments from Matthew Axelrod, the Assistant Secretary for Export Enforcement of the BIS, in March 2023 that the BIS was looking to deploy a permanent, “dedicated” BIS official in Canada to boost enforcement of Canada’s trade control commitments.
In February 2023, BIS added two Canadian companies to its Entity List “based on information that these companies significantly contribute to Russia’s military and/or defense industrial base and are involved in activities contrary to United States national security and foreign policy interests”. The Entity List is a supplement to the United States Export Administration Regulations that list the foreign persons subject to specific license requirements for the export, reexport and/or transfer of specified items.
Throughout 2024, we expect to see increased scrutiny of Canada’s trade control measures by the United States and we expect increased enforcement, and perhaps collaboration with Canadian enforcement agencies, regarding export control violations by Canadian persons. For example, in October 2023, two Canadians were charged in a money laundering conspiracy related to the export of controlled goods (unmanned ariel vehicles and missile components) to Russia. The charges were laid by the FBI and coordinated through the United States’ Disruptive Technology Strike Force and the Task Force Kleptocapture. In early 2024, one Canadian pled guilty to the charges.
G7
In February 2023, on the one-year anniversary of Russia’s invasion of Ukraine, the G7 announced the creation of a new Enforcement Coordination Mechanism “to bolster compliance and enforcement of [its] measures and deny Russia the benefit of G7 economies”. Following this statement in February, during the G7 May 2023 summit, members committed to “strengthen multilateral efforts to cooperate in the field of export controls to ensure gaps in [their] dual use technology protection ecosystem cannot be exploited” and members recognized each other’s common interest in preventing G7 companies’ “capital, expertise, and knowledge” from advancing the military capabilities of those seeking to undermine peace and security.
Canada is currently facing pressure from its G7 allies, particularly the United States, to increase enforcement of its trade controls. This pressure is resulting in increased scrutiny, and in the future may result in new investigations, charges, and prosecutions of persons in violation of Canadian export controls. We expect that the G7 Enforcement Coordination Mechanism will open up enforcement opportunities through increased coordination and information sharing between members of the G7.
Five Eyes
In June 2023, Canada agreed to formally cooperate on enforcing its export controls measures with the Five Eyes, which in addition to Canada includes the United States, Australia, New Zealand and the United Kingdom. This formal announcement increased the risk that Canadian exports may be subject to a CBSA verification of control status due to increased integration of export compliance methodologies and information sharing on evasion techniques.
In September 2023, the Five Eyes announced joint guidance identifying high priority items critical to Russian weapons systems and urging specific actions to prevent diversion of these items to Russia through third countries.
