The CFO of a Canadian dual-listed company calls you in a panic because it has recently come to his attention that, to his great surprise, the majority of his shareholders are not in fact Canadian, but American! He recalls hearing snippets of advice from a US securities lawyer that this could be problematic for his “FPI” status. Could it mean he is now treated as a domestic company under U.S. Securities Laws? Before you dash off a frantic email to your U.S. attorney, let’s quickly review what the panic is all about. What is FPI status, how is it determined and why is it important? Continue Reading
The use of limited liability companies in the United States has expanded dramatically over recent years. A limited liability company (LLC) offers its owners protection from liability like a corporation, but with the advantage of pass through tax treatment under US tax laws. However in Canada, LLCs don’t enjoy the same pass through tax treatment and the ownership of an LLC by a Canadian taxpayer can result in material adverse tax consequences. LLCs have nevertheless become more frequent participants in cross-border transactions, typically in the role of a subsidiary of another US entity.
As US finance lawyers working on cross-border financing transactions, we have noticed that Canadian lawyers do not always understand US LLCs, sometimes shoe-horning LLCs into vocabulary, documents and legal principles intended for corporations. This blog explains some of the basics of LLCs for the Canadian finance lawyer.
Q: What are the key “constating” or organizational documents of LLCs?
A: An LLC is formed by filing a certificate of formation (Delaware nomenclature), articles of organization (New York nomenclature) or equivalent formation document in the state of organization. The members (equivalent to shareholders) of the LLC enter into a limited liability company agreement (Delaware nomenclature) or operating agreement (New York nomenclature) setting their agreement with respect to the operation of the LLC (we’ll use the term “operating agreement”). Copies of these organizational documents should be obtained and certified by an appropriate representative of the LLC as part of a finance transaction
Q: What is the management structure of an LLC?
A: An LLC can be “member-managed” or “manager-managed”. The operating agreement (and sometimes the articles of organization or equivalent formation document) will indicate the selected option, and also set forth how any managers are appointed, and the authority of the members and any managers. Sometimes the operating agreement will allow for the appointment of officers. We often see officers where the organizers want to mimic the management structure of related corporations. The key thing to remember: there is no standard model. You can’t understand the management of an LLC unless you review the operating agreement. Continue Reading
The CEO of an emerging technology company Acme Corp. calls you on a proposed Regulation D offering. Like many companies in this space, Acme is long on brains but short on capital. The CEO just knows that there must be a deep-pocketed, farsighted investor that will launch Acme into the tech stratosphere alongside Alphabet and Facebook. The CEO has recently met Mr. X at a trade conference. Mr. X touts an impressive rolodex that seems chock-full of eager investors on the lookout for hidden gems. In return, Mr. X demands a “finder’s fee” equal to 1.5% of the total amount invested in Acme by his contacts. The CEO thinks this seems like a win-win on paper, but what are the legal implications of such an arrangement?
What does the law say?
Section 15(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires that all persons engaged in “broker” or “dealer” activity must register with the SEC unless an exemption is available. In general, a “broker” is any person “engaged in the business of effecting transactions in securities for the account of others” and a “dealer” is any person “engaged in the business of buying and selling securities for such person’s own account.” Based on established SEC staff guidance, activities that (alone or in combination) may be deemed to confer “broker” status include: Continue Reading
If you are U.S. citizen residing in Canada who is considering renouncing U.S. citizenship, in all likelihood you will have to wait well into calendar year 2017 to be given the opportunity to do so.
In 2015, a record 4,279 individuals renounced their U.S. citizenship or long-term residence, according to data released by the Treasury Department. Last year was the third year in a row for record renunciations. The growing number of renunciations by citizens and long-term holders of green cards is related to an enforcement campaign by U.S. officials against undeclared offshore accounts and an increased IRS focus on international tax compliance. The complexity and cost of preparing a US income tax return for a US citizen living in Canada grows each year as a result. These costs can be substantial even if no US income tax is owed on the return. For other US citizens, differences in the US and Canadian tax systems, including the manner in which Canadian private companies and the sale of a principal residences are taxed, can result in substantial US income tax exposure.
In an effort to try to make the renunciation process more efficient and reduce the wait time at certain consulates (like Toronto) these procedures were consolidated across Canada in recent months and are now coordinated through the Vancouver consulate. When making an appointment, a US citizen can now indicate a preference for a specific location or generally advise that he or she is willing to travel to any of the seven consulates in Canada in order to obtain the earliest available appointment.
We understand that all 2016 expatriation appointments in consulates throughout Canada have now been filled and some consulates, like Toronto, are now booking appointments for the summer of 2017. The current wait time in Canada has caused some of our clients to consider making appointments at US consulates in other foreign jurisdictions.
Supply in this situation is certainly not able to meet up with the current demand of U.S. citizens living in Canada who wish to give up their U.S. citizenship. State Department procedures require that renunciation of U.S. citizenship must (1) be taken in the presence of a diplomatic or consular officer; (2) be taken outside the United States; and (3) be in the precise form prescribed by the Secretary of State.
Also, the procedures now require that prior to being given a renunciation appointment, various State Department forms have to be completed online and certain information must be gathered in support of the application. While we often assist clients in properly completing these forms, attorneys are not permitted to accompany an applicant to the Consulate for the appointment.
Those US citizens considering expatriation should also be aware that a USD $2,350 (or Canadian dollar equivalent) processing fee is charged at the time of the ultimate appointment. There can also be severe US exit tax consequences to renouncing US citizenship that should be considered. There have been earlier posts on this blog describing those provisions.
On June 16, 2016, the U.S. Securities and Exchange Commission proposed a set of comprehensive mining disclosure rules with the stated intent of “aligning such rules with current industry and global regulatory practices and standards.” The proposal extensively references the Canadian rules in National Instrument 43-101 (“NI 43-101”) as one of the global standards in comparable mining disclosure regimes. Let’s take a closer look at the proposed changes and some potential effects on US-listed Canadian companies. For the comprehensive SEC proposing release, see this link.
The Commission’s proposed rules would update Item 102 of Regulation S-K under the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”) and replace the related guidance in Industry Guide 7 (“Guide 7”). This set of disclosure rules govern a registrant’s principal mines that are materially important to it—and have not been updated in 30 years. Some of the salient proposals are as follows:
- Provide one standard requiring registrants to disclose mining operations that are material to the company’s business or financial condition;
- Require a registrant to disclose mineral resources and material exploration results in addition to its mineral reserves; *
- Permit disclosure of mineral reserves to be based on a preliminary feasibility study or a final feasibility study;
- Provide updated definitions of mineral reserves and mineral resources;
- Require, in tabular format, summary disclosure for a registrant’s mining operations as a whole as well as more detailed disclosure for material individual properties;
- Require that every disclosure of mineral resources, mineral reserves and material exploration results reported in a registrant’s filed registration statements and reports be based on, and accurately reflect information and supporting documentation prepared by a “qualified person”;
- Require a registrant to obtain a technical report summary from the qualified person, which identifies and summarizes for each material property the information reviewed and conclusions reached by the qualified person about the registrant’s exploration results, mineral resources or mineral reserves.
Public comments on the proposed rules will be open for a period of 60 days after publication in the Federal Register and final rules will be promulgated by the commission after taking the feedback into account.
What is particularly noteworthy from a cross-border perspective is the emphasis placed by the SEC on the parallel Canadian rules in NI 43-101. Indeed, NI 43-101 is referenced throughout the proposing release as a model for the present proposal. For example, the contents of the technical report summary (which are intended to elicit the scientific and technical information necessary to support the determination and disclosure of mineral resources, mineral reserves and material exploration results) are intended to be similar in most respects to the items of information required for the summary report under NI 43-101.
As currently proposed, the rules would apply equally to foreign private issuers and domestic registrants. Specifically, various amendments to Form 20-F (the annual report filed by most foreign private issuers) are proposed, including an instruction to the exhibits section of Form 20-F stating that a registrant that is required to file a technical report summary may do so as an exhibit to its Form 20-F.
If these proposed revisions to Form 20-F are adopted, foreign private issuers that use Form 20-F will have to comply with the new mining disclosure requirements. This would include Canadian registrants that report pursuant to Form 20-F and that are currently permitted to provide mining disclosure under NI 43-101 pursuant to the “foreign or state law” exception under current Reg. S-K Item 102 and Guide 7 (see footnote 1). The SEC notes that the proposed disclosure requirements would be similar to Canada’s NI 43-101, but the proposed rules would eliminate the “foreign or state law” exception. Following adoption of the revised disclosure rules, the sole group of Canadian registrants permitted to continue reporting under the Canadian disclosure requirements are those using the Multijurisdictional Disclosure System (“MJDS”). The right of MJDS registrants to use their Canadian disclosure documents for purposes of their Exchange Act and Securities Act filings would be based on their eligibility to file under the MJDS, and not on the “foreign or state law” exception.
As a large number of the proposed revisions bring US disclosure requirements closer to those in NI 43-101, the SEC feels that Canadian registrants that are currently providing disclosure pursuant to NI 43-101 should not incur particularly onerous compliance costs. Conversely, because Canadian registrants are able to disclose mineral resources in SEC filings under the “foreign or state law exception”, the SEC is actually aiming to eliminate any potential competitive advantage enjoyed by Canadian registrants over companies that are not currently allowed to disclose mineral resources in their SEC filings.
* Under existing rules, a registrant may not disclose estimates for non-reserve deposits, such as mineral resources, unless such information is required to be disclosed by foreign or state law.
Are you part of a women-led, high-potential startup? If so, Communitech’s Fierce Founders Accelerator may be the program you’re looking for.
The Fierce Founders Accelerator is a six-month startup accelerator with structured programming to help women-led startups prepare for early customers and build a scalable business strategy for fast growth. Selected startups will receive, among other benefits:
- Up to $30,000 in matched funding, with no equity taken
- Business training by Communitech’s Executives-in-Residence
- Six months of furnished office space at the Communitech Hub, in the heart of the Waterloo Region tech community
- Up to $100,000 in Google Cloud Platform credits for one year (including an architecture review)
- A UX review of your product by Google Experts
In order to qualify, your startup must have:
- At least one female founder or C-suite executive
- Proof of funds up to $30,000
- A validated problem-solution fit and an in-progress minimum viable product
- The ability to relocate your entire team to the Communitech Hub for the six-month program
The deadline to apply for this cohort is Midnight on July 29, 2016. The registration form can be found here: https://communitech.blitzen.com/form/fierce-founders-accelerator-application
Twenty-four years ago, the U.S. Supreme Court announced in Quill v. North Dakota, 504 U.S. 298 (1992), that in order for a U.S. state to require an out-of-state business to collect and remit sales and use taxes on its sales to in-state customers, the business must have a physical presence—such as a store, office, or employees—in the state. This ruling permitted “remote” businesses, such as those engaged in mail-order or on-line sales, to avoid sales tax collection and remittance requirements. Since then states have struggled mightily to pare back the Quill holding and stem the sales tax revenue lost to remote sales.
Two months ago, South Dakota lawmakers passed a law that sets dollar and transaction thresholds for determining whether remote, out-of-state retailers must collect taxes on sales to South Dakota customers. The law requires no physical presence in the state and therefore is a blatant violation of Quill. With the passage of the new law South Dakota is suddenly at the forefront of the national conversation on physical presence nexus and state taxation.
The South Dakota law, SB 106, provides that every out-of-state remote seller must collect sales tax if their annual sales into the state exceed $100,000 or if the remote seller conducts at least 200 separate transactions with South Dakota customers in a year, regardless of any physical presence in the state. This rule violates the physical presence test announced by the U.S. Supreme Court in Quill and greatly expands current sales tax nexus rules. Moreover, SB 106, which has 11 specific finding as to why Quill should be overturned, was clearly written with a court challenge in mind. South Dakota likely believes the timing is right for such a challenge. It was, after all, only in March of last year that U.S. Supreme Court Justice Anthony Kennedy seemed to invite a new challenge to Quill, announcing in a concurring opinion that “[i]t is unwise to delay any longer a reconsideration of the court’s holding in Quill.” And adding, “A case questionable even when decided, Quill now harms states to a degree far greater than could have been anticipated earlier.” Admittedly, the views of one judge, even a Supreme Court Justice, are not enough to change existing law, but South Dakota is not alone in its pursuit to test the limits of taxing out-of-state retailers.
Nearly half of the U.S. states now have “click-through” nexus, or “affiliate” nexus, laws (also known as “Amazon laws”) on their books. These laws generally provide that a connection (or nexus) between the state and a remote retailer is created through a seller’s ties to in-state affiliates that link their websites to the online retailer. Accordingly, these remote affiliated retailers are required to collect sales and use taxes in states with Amazon laws. And earlier this month, the Supreme Court of Ohio heard oral argument in a case involving the Ohio Commercial Activity Tax (“CAT”)—which provides that taxpayers have nexus with Ohio and are subject to the CAT if they have at least $500,000 of annual sales to Ohio. The CAT is not a pure sales and use tax. Specifically, the tax is not imposed on the purchaser at the time of a sales transaction, but instead is based on the seller’s gross receipts. Ohio, therefore, argues that the CAT is not subject to Quill’s physical presence standard and that its “bright line” nexus threshold is constitutional. Moreover, several other states, including New York (http://www.hodgsonruss.com/newsroom-publications-new-york-nexus-widens.html), have adopted economic nexus standards that subject out-of-state corporations to state-level corporate income and franchise taxes based solely on in-state receipts (New York now imposes a corporate franchise tax filing obligation on out-of-state corporations that derive more than $1 million in receipts from New York State, whether or not the corporation has a physical presence in the state).
Proponents of these expanded nexus laws, especially in the context of sales and use taxes, argue that local brick and mortar stores are harmed by existing laws that artificially distinguish between retailers with physical stores inside a state’s borders and those outside of the state. According to supporters, the modern, digital economy means that retailers can be present everywhere and there’s no reason that large, digital retailers shouldn’t have to comply with the same rules as local “Mom and Pop” vendors. Opponents, however, claim that states such as South Dakota are blatantly violating Supreme Court precedent and impermissibly imposing unconstitutional tax compliance requirements on out-of-state vendors. Online retailers also complain about the compliance costs of expanded tax nexus rules, noting the administrative headache of calculating and paying taxes in 50 different states.
Regardless of your personal views, however, online retailers, especially those with significant sales into a specific U.S. state, must now consider whether these sales trigger tax collection, reporting and/or payment requirements, regardless of the fact that the retailer may have no physical presence in the state.
In a letter dated March 4, 2016, the American Chamber of Commerce in Canada (“AmCham Canada”) requested that the United States Department of the Treasury (“Treasury”) provide various forms of tax relief to U.S. and Canadian citizens who have contributed to and maintain various cross-border deferred and tax-exempt savings accounts. If acted upon, this could be welcome relief to U.S. citizens living in Canada with RESP and TFSA accounts.
Both the U.S. and Canada maintain tax provisions allowing individuals to establish tax-deferred and/or tax-exempt savings accounts. Article XVIII of The United States-Canada Income Tax Convention and associated protocols (the “Treaty”) provides bilateral deferral of tax or inclusion in income for various qualified or registered pension or retirement plans. However, the Treaty does not provide any relief from double taxation or current inclusion in income for other plans and accounts such as:
- Education savings plans such as Registered Education Savings Plans (RESP) in Canada and Qualified Tuition Program (529) Plans in the United States.
- Disability savings plans such as Registered Disability Savings Plans (RDSP) in Canada and Qualified ABLE (Achieve a Better Life Experience) Plans in the United States.
- Generally tax-exempt savings accounts such as Tax Free Savings Accounts (TFSA) in Canada and Roth IRAs (individual retirement accounts) in the United States (under certain circumstances).
It is estimated that over one million Americans live in Canada and a similar number of Canadians live in the U.S. The lack of tax relief from double taxation or current inclusion in income provided under the Treaty for these plans and accounts has adverse tax consequences for:
- Americans living in Canada.
- Canadians living in the United States.
- Americans living in the United States who contributed to one of the Canadian plans while living in Canada.
- Canadians living in Canada who contributed to one of the United States plans while living in the United States.
In its proposal, AmCham Canada recommended that Treasury implement the following measures in order to reduce the tax and reporting burdens associated with various cross-border deferred and tax-exempt savings accounts:
- Provide U.S. citizens and residents tax-deferred or tax-exempt treatment, comparable to that offered by Canada to its residents, for their contributions, income and withdrawals from properly established Canadian RESP, RDSP and TFSA.
- Exempt properly established Canadian RESP, RDSP and TFSA from classification as grantor trusts. In addition, exempt U.S. citizens and residents from various onerous statutory filing requirements for foreign trusts and PFICs which can currently exist for these plans.
- Work with their Canadian counterparts at Finance Canada to provide similar relief from taxation and burdensome reporting requirements for Canadian residents who hold and contribute to properly established 529 Plans, qualified ABLE accounts and Roth IRAs in the United States.
Under current law, if a U.S. person establishes an RESP for a child, the RESP is potentially considered a foreign grantor trust of the subscriber (not the child) for U.S. tax purposes, since the subscriber can reclaim his contribution to the plan, if the funds are not used for education purposes. As a result, the income earned by the RESP is subject to double taxation. The U.S. person who contributes to the account is taxed by the U.S. on the income as it is earned within the plan. Additionally, the Canadian beneficiary is taxed by Canada when the income is distributed by the plan to cover qualified educational expenses.
Furthermore, if an RESP is considered a foreign trust for U.S. tax reporting purposes, the U.S. subscriber must file Forms 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, and 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner. In addition, a U.S. beneficiary must file Form 3520 upon receipt of distribution. The regulations relating to foreign trusts and their reporting requirements are complex and often unclear to unsophisticated taxpayers. Correctly preparing the forms usually requires the services of a professional tax return preparer. Inadvertent and unintentional failure to follow the regulations often results in the assessment of substantial penalties for failing to file these forms timely.
Specifically, AmCham Canada requests that Treasury implement the following measures with regard to RESPs:
- Exempt RESPs from the grantor trust rules (making the beneficiary the person subject to tax on the income) and allow tax deferral of plan income until it is distributed to beneficiaries; this treatment is comparable to the Canadian tax provisions.
- Tax the beneficiary (if a U.S. person) on the distribution when it is received
- Exempt a U.S. subscriber or beneficiary of an RESP from the complex foreign trust information reporting rules if the RESP is considered a foreign trust for U.S. tax purposes. This relief might require modifying Article XVIII of the Treaty to specifically include RESP in the definition of pensions.
AmCham Canada also recommended that Treasury implement similar measures with respect to TFSAs.
At the end of last year, I received bulletins from Ontario law firms alerting that the amendments to the Ontario Personal Property Security Act (“PPSA”) changing the definition of the “location” of the debtor in the PPSA choice of law rules had been proclaimed and would take effect on December 31, 2015 (the “PPSA Amendments”).
The PPSA Amendments on their face appear to better harmonize the PPSA choice of law rules applicable to perfection by registering a financing statement with the choice of law rules of the Uniform Commercial Code (“UCC”). Under the PPSA Amendments, the debtor’s “location”, if the debtor is, for example, a corporation organized under the law of a province of Canada or one of the states of the United States, will now be based, not on the debtor’s chief executive office location, as was previously the case, but on its jurisdiction of incorporation, as is the case for a “registered organization” under the UCC. But despite this apparent closing of the gap between the PPSA and the UCC, harmony is a long, long way away.
A significant lack of harmony results from the PPSA and UCC choice of law rules not being consistent with respect to perfection of a security interest in tangible property. Under the PPSA, there are differing choice of law rules for tangible and intangible property. When dealing with most classes of tangible property, the location of the property, not the debtor, continues to control where to register a financing statement. The “location” of the debtor only determines where to register a financing statement in intangibles, mobile goods, goods held for lease and non-possessory security interests in instruments, documents and chattel paper and mobile goods (collectively, for our purposes, “intangible property”). The PPSA Amendments create a more bright line test for determining the debtor’s location (place of incorporation instead of chief executive office), but do not eliminate this dichotomy under the PPSA for tangible and intangible property. That same dichotomy used to exist under the UCC but was eliminated under revised Article 9 of the UCC. The physical location of the debtor’s tangible assets generally has become irrelevant under the UCC for determining where to file. Instead, the local law of the state of the debtor’s “location” determines where to file to perfect a security interest in the debtor’s assets for nearly all types of assets.
There is also an additional inconsistency that results from the UCC choice of law rules not being in sync with the PPSA Amendments. The UCC “location” definition doesn’t treat Canadian entities as “registered organizations”. Under the UCC, the location of an Ontario corporation (because it is not a registered organization for UCC purposes) continues to be where its chief executive office is located — the same as the rule under the PPSA before the PPSA Amendments. (For a more complete discussion of the UCC choice of law rules, see my earlier blog entry, For the Canadian Cross-Border Finance Lawyer or Lender, A UCC Financing Statement Hypothetical with FAQs.) By way of contrast, the PPSA Amendments and the UCC would now both treat a New York corporation as a “registered organization”. As a result, a New York corporation is “located” in New York under both the PPSA Amendments and the UCC, even if its chief executive office is in Ontario. The chart below outlines both this new inconsistency and consistency.
|Filing under the PPSA Amendments and UCC – Intangibles Only|
|Jurisdiction of Formation||Chief Executive Office||Before/ After PPSA Amendments||Under PPSA file where?||Under UCC file where?||Consistent?|
|Ontario Corporation||New York||Before||New York||New York||YES|
|New York Corporation||Ontario||Before||Ontario||New York||NO|
|After||New York||New York||YES|
There are other differences in approach between the UCC and the PPSA that practitioners will need to keep in mind. For example, the location of a general partnership under the UCC is generally its chief executive office. Under the PPSA Amendments, a general partnership is located in the jurisdiction of the law stated to govern in its partnership agreement (and its chief executive office only if no law governs such partnership agreement).
These inconsistencies between the UCC and the PPSA would be diminished in one way if the UCC were also amended to bring Canadian entities into the definition of a “registered organization” under the UCC. However, correcting this one inconsistency would not resolve the more significant lack of harmony between the UCC and the PPSA choice of law rules relating to perfection of security interests in tangible property. In any event, I would not hold my breath for any harmonizing changes to the UCC (or, I imagine, the PPSA) any time soon!
Canadian companies with U.S. operations must keep alert to developments in U.S. sanctions laws. Such sanctions apply to any entity organized under the laws of a U.S. jurisdiction (regardless of foreign ownership of such entity) and any person physically present in the U.S. Certain sanctions can even have extraterritorial reach – potentially impacting non-U.S. individuals and entities doing business with prohibited parties. In a recent development, the United States lifted certain sanctions applicable largely to non-U.S. persons against the Islamic Republic of Iran, but retained the general prohibition on export by U.S. persons to Iran. Specifically, on January 16, 2016 (commonly known as “Implementation Day”) the United States lifted certain limited sanctions against Iran pursuant to the terms of a Joint Comprehensive Plan of Action (the “JCPOA”) agreed to by the P5+1 (the United States, China, Russia, the United Kingdom, France, and Germany), the European Union and Iran. On Implementation Day, the U.S. Secretary of State verified that the International Atomic Energy Agency confirmed Iran’s compliance with certain nuclear-related measures in the JCPOA, leading the United States to lift particular sanctions relating largely to non-U.S. persons. Specifically, the United States undertook the following measures:
- Lifting of sanctions against non-U.S. persons relating to finance and banking, underwriting and insurance, energy, shipping and shipbuilding, automotive goods and services, gold and other metals, coal, and software and services in support of the foregoing (however the general prohibitions against U.S. persons engaging in these activities in, or in connection with, Iran remain in place);
- The removal of over 400 individuals and entities from the U.S. Department of the Treasury’s Office of Foreign Asset Control (“OFAC”) Specially Designated Nationals and Block Persons List (the “SDN List”), Foreign Sanctions Evaders Lift, and the Non-SDN Iran Sanctions Act List;
- The issuance of a policy statement whereby OFAC will grant, on a case-by-case basis, specific licenses related to the export, re-export, sale, lease, or transfer to Iran of commercial passenger aircraft and related parts and services; and
- Revisions to certain existing regulations to permit the import of Iranian-origin carpets and certain foodstuffs.
The Government of Canada has also recently announced a repeal of certain of its most restrictive economic sanctions against Iran. However, following this repeal, the Canadian sanctions that remain will be far more permissive in scope than those that remain in the U.S. Canadian companies must bear in mind that the measures announced by the U.S. above are merely new exceptions to the overall general prohibition on the export, re-export, sale, or supply (directly or indirectly) from the United States or by a U.S. person (wherever located) of goods, services, or technology to Iran. Contrary to popular belief, the general prohibition remains in place, and U.S. persons cannot, directly or indirectly, export to Iran absent a specific regulatory exception or authorization from OFAC. Additionally, over 200 Iranian and Iranian related individuals and entities remain on the SDN List, thereby prohibiting U.S. persons and non-U.S. persons from dealing with such parties. Sanctions also continue to prohibit dealings with certain individuals and entities in Iran found to be supporting terrorism, the proliferation of weapons of mass destruction, or human rights abuses.
In considering future opportunities with Iran, Canadian companies with U.S. operations must be cognizant of both the Canadian and U.S. sanctions that remain in place and continually adjust its risk mitigation strategy going forward. Best practice is to ensure that any activities involving Iran will not involve any U.S. persons, require U.S. persons to approve of or otherwise facilitate transactions involving Iran, or involve U.S. dollar payments. It may want to ensure that any subsidiaries, offices or employees in the United States are kept separate from any activities related to Iran. In addition to monetary penalties, violations of U.S. sanctions laws may trigger defaults under loan agreements with U.S. banks, or possibly criminal liability.
Canadian companies should also bear in mind that the JCPOA permits nuclear-related sanctions to “snap back” into place if Iran violates its commitments. Consequently, such companies must remain alert to the possible re-imposing of these recently lifted sanctions.