Sanctions Crackdown

Company fined $90,000 for Iranian shipment worth $15

By Paul McLaughlin

WHEN LEE Specialties Ltd. of Red Deer, Alberta, was fined $90,000 in April 2014 for having attempted to import 50 synthetic rubber rings, worth only $15, into Iran, it sent a loud and clear message to Canadian companies doing business with countries subject to federal sanctions.

The criminal conviction, under the Special Economic Measures Act (SEMA), was the first ever against a company in the law's 20-year history. “This shows that the courts are going to enforce the legislation fairly strongly,” says Riyaz Dattu, a partner who specializes in international trade and investment at Osler, Hoskin & Harcourt LLP. “I can potentially see higher penalties in subsequent cases.”

One possible reason why criminal charges were laid – in the past, cases were settled out of court – could be pressure from the US and the EU, says Dattu, although he has no direct knowledge of that. “The US enforces these sanctions extremely vigorously with hard penalties.”

The fine may seem harsh, but Lee Specialties accepts the penalty, says Kristine Robidoux, a partner in the Calgary office of Gowling Lafleur Henderson LLP, where she leads its global business integrity practice group. “Judge [Allan] Fradsham made a point of specifying that it was not so much that he was sentencing on the basis of what happened but on the basis of what could have happened,” says Robidoux, who represents the oil-field equipment company.

She says that a shipment intended for Dubai was inadvertently sent to the company's office in Tehran due to a mailroom mix-up. “Lee is not a scofflaw,” she says. The shipment, which was seized by the Canada Border Service Agency, contained inexpensive rubber circles known as Viton O-rings. The rings, which are dual-purpose items, can be used in the nuclear industry and, thus, can't be exported to Iran under SEMA.

Lee Specialties didn't have a vigorous enough compliance program in place at the time to detect the error, says Robidoux, a problem that has since been rectified.

Dattu cautions companies doing business with any of the 20 or so countries that Canada has imposed sanctions on to make sure they have a compliance program that can prevent or reduce any violations of SEMA. This is particularly important for companies exporting to Russia, given the current Ukrainian conflict. “We can anticipate escalation of sanctions by Canada, EU and the US if the crisis in Crimea continues,” Dattu says.

And if companies think they can negotiate their way out of alleged contraventions of SEMA, they should consider the manner in which Lee Specialties learned they were in trouble. “About 30 police officers arrived at their place of business back in February 2013,” says Robidoux. “For a small city like Red Deer, that immediately thrust these guys into the spotlight.”

It's a light that SEMA appears willing to shine in a way that it hasn't done before.