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Lifting of Canada’s Economic Sanctions Against Iran Represents Meaningful Trade Opportunities for Canadian Business

Author(s): Jaime Auron, Peter Glossop, Riyaz Dattu

Feb 10, 2016

On February 5, 2016, Stéphane Dion, Minister of Foreign Affairs, and Chrystia Freeland, Minister of International Trade, announced significant changes to Canada’s economic sanctions against Iran under the Special Economic Measures Act (SEMA) and the United Nations Act (UN Act). The impetus for these changes was not only the lifting of the United Nations Security Council (UNSC) sanctions due to the nuclear-related agreement reached with the Government of Iran, but also the perception that Canadian companies were being severely disadvantaged relative to their European Union-based competitors who in some cases had already finalized contracts with Iranian counterparties in anticipation of a nuclear agreement. As noted in the Canadian government’s news release, “Canadian companies will now be better positioned to compete with other companies globally.”

In summary, the most broad and restrictive elements of these sanctions have now been removed, providing Canadian businesses with an opportunity to explore participation in the Iranian market. However, certain prohibitions remain in place under a complex legislative and regulatory framework, requiring Canadian companies’ management teams to exercise caution and conduct appropriate due diligence to ensure their activities do not contravene any of the remaining Canadian economic sanctions. In addition, Canadian companies – and in some cases their officers and directors who are U.S. nationals – as well as those companies that are owned by U.S. parent companies, will need to navigate not only through the remaining Canadian sanctions regulations but also the complex U.S. economic sanctions. The relaxation of the U.S. sanctions against Iran is taking place at a slower pace at this time and is focused on nuclear-related measures.

The complexity of the applicable rules is reflected also in the Canadian government’s background materials setting out the changes to the sanctions against Iran, which recommend that “Canadian companies will need to approach the Iranian market cautiously and guided by the advice of their legal counsel.”


Since 2006, the UNSC has imposed various sanctions on Iran in response to concerns about Iran’s nuclear program. These measures were implemented in Canada under the UN Act. UNSC sanctions have been supplemented by additional sanctions from a number of countries, including Canada. Canada’s sanctions were imposed in concert with its major trading partners including the United States and the E.U. pursuant to SEMA. The SEMA sanctions were progressively expanded in subsequent years to cover trade, investment and the provision of financial and other services, as well as to freeze the assets of designated Iranian entities and individuals. The UNSC sanctions ultimately resulted in Iran’s agreement in July 2015 to the terms of the Joint Comprehensive Plan of Action (JCPOA), which was endorsed by UNSC Resolution 2231. The Adoption Date of the JCPOA was October 18, 2015, and it was implemented on January 16, 2016.

Lifted Sanctions

On January 16, 2016, the International Atomic Energy Agency confirmed that Iran had fulfilled its commitments under the JCPOA. In response, the UNSC lifted most of the sanctions it had imposed against Iran. Canada has now amended its UN Act and SEMA sanctions against Iran to allow for controlled economic re-engagement between the countries except in the areas of arms, nuclear materials and certain dual use goods and technologies. Specifically, the amendments remove prohibitions on:

  • imports from Iran and exports to Iran, except with respect to certain goods listed in SEMA’s Iran Regulations (Listed Goods);
  • the transfer, provision or communication of certain technical data to Iran, except as they relate to Listed Goods;
  • providing or acquiring financial or other services to or from Iran;
  • making investments in entities in Iran; and
  • the provision of services to certain Iranian vessels.

The amendments also modify the list of individuals and entities found in SEMA’s Iran Regulations, with whom transactions are prohibited (Listed Entities).

Continuing Sanctions

The UN Act regulations relating to Iran will continue to prohibit exports, technical assistance, financing and other dealings in nuclear-related goods and technologies, and ballistic missile and heavy weapons systems.

Canada will also continue to maintain a schedule for Listed Entities under the SEMA-based Iranian regulations, and will continue to impose searching, freezing, monitoring, disclosure and due diligence obligations on Canadian financial institutions, in an effort to ensure that no financial services are being provided to a Listed Entity.

Specific types of transactions also will remain prohibited by the SEMA Iranian regulations, including:

  • any transaction involving property with a Listed Entity that is subject to asset freezes under SEMA;
  • the export, sale, supply or shipment to Iran or any person in Iran of any Listed Good; and
  • the transfer, provision or disclosure to Iran or any person in Iran of technical data related to any Listed Good.

Canada also continues to restrict the export to Iran of a wide range of sensitive products listed in the Export Control List (ECL), under the Export and Import Permits Act. Applications for export permits for all items listed on the ECL will be considered on a case-by-case basis, but there is a presumption of denial for certain sensitive products.

Growing Opportunities and Risk Mitigation

Minister Freeland noted that the reduction of sanctions against Iran will allow Canadian companies to position themselves competitively with companies in other jurisdictions for new trade opportunities, while at the same time allowing the Canadian government to maintain rigorous controls on any dealings that may raise proliferation concerns. Minister Dion highlighted the importance to Canadian companies of gaining access to a market of 80 million people.

The relaxation of sanctions will leave Canadian companies better positioned to compete in Iran. However, it is critical to note that significant sanctions do remain in place with respect to Iran and the framework under which they are administered is complex. The application of U.S. sanctions to goods and technology of U.S. origin, including where Canadian value added activity occurs outside the U.S., can result in the application of U.S. economic sanctions. U.S. economic sanctions can also be applied to U.S. nationals in Canada, including when they are employed by Canadian companies.

Canadian businesses should undertake careful due diligence about prospective business partners, customers or suppliers in Iran or with ties to Iran, to ensure they are not potentially off-side Canadian sanctions and the broad reach of U.S. sanctions. At the same time, the sanctions may capture some proposed activity that does not contravene their true purpose and intent. Depending on the nature of the proposed activity, it may be possible to obtain a Ministerial dispensation by way of an authorization to engage in otherwise sanctioned trade.