Regulations Amending the Special Economic Measures (Russia) Regulations: SOR/2022-261

Canada Gazette, Part II, Volume 156, Number 26

Registration
SOR/2022-261 December 7, 2022

SPECIAL ECONOMIC MEASURES ACT

P.C. 2022-1301 December 7, 2022

Whereas the Governor in Council is of the opinion that the actions of the Russian Federation constitute a grave breach of international peace and security that has resulted in a serious international crisis;

Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Foreign Affairs, makes the annexed Regulations Amending the Special Economic Measures (Russia) Regulations under subsections 4(1)footnote a, (1.1)footnote b, (2)footnote c and (3) of the Special Economic Measures Act footnote d.

Regulations Amending the Special Economic Measures (Russia) Regulations

Amendments

1 The Special Economic Measures (Russia) Regulations footnote 1 are amended by adding the following after section 3.11:

Services — marine transportation of crude oil

3.12 (1) It is prohibited for any person in Canada and any Canadian outside Canada to provide to or for the benefit of Russia or any person in Russia a service referred to in Schedule 10 in relation to marine transportation, including ship-to-ship transfers, of goods referred to in item 1 of Schedule 5 if

Non-application — goods on ship

(2) Subsection (1) does not apply in respect of services provided in relation to goods that were loaded onto a ship before the day on which this section comes into force and unloaded at the port of destination within 45 days after that day.

Non-application — emergency situation

(3) Subsection (1) does not apply in respect of services provided in response to an emergency situation and that are necessary to ensure navigational safety or to minimize danger to human life or damage to the environment.

Non-application — EU member states

(4) Subsection (1) does not apply in respect of goods imported into the Republic of Bulgaria, the Republic of Croatia or a landlocked European Union member state if the importation is permitted under Council Regulation (EU) 2022/879 of June 3, 2022 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine.

2 The portion of subsection 3.12(1) of the Regulations before paragraph (a) is replaced by the following:

Services — marine transportation of crude oil and petroleum products

3.12 (1) It is prohibited for any person in Canada and any Canadian outside Canada to provide to or for the benefit of Russia or any person in Russia a service referred to in Schedule 10 in relation to marine transportation, including ship-to-ship transfers, of goods referred to in item 1 or 2 of Schedule 5 if

3 Section 5 of the Regulations is replaced by the following:

Assisting in prohibited activities

5 It is prohibited for any person in Canada and any Canadian outside Canada to knowingly do anything that causes, facilitates or assists in, or is intended to cause, facilitate or assist in, any activity prohibited by sections 3 to 3.12.

4 Schedule 5 to the Regulations is amended by replacing the reference after the heading “SCHEDULE 5” with the following:

(Subsections 3.5(1) and 3.12(1))

5 The Regulations are amended by adding, after Schedule 9, the Schedule 10 set out in the schedule to these Regulations.

Application Before Publication

6 For the purpose of paragraph 11(2)(a) of the Statutory Instruments Act, these Regulations apply according to their terms before they are published in the Canada Gazette.

Coming into Force

7 (1) Subject to subsection (2), these Regulations come into force on the day on which they are registered.

(2) Section 2 comes into force on February 5, 2023.

SCHEDULE

(Section 5)

SCHEDULE 10

(Subsection 3.12(1))

Services
Item

Column 1

Service
1 Trading and commodities brokering
2 Financing
3 Financial assistance
4 Shipping
5 Insurance and reinsurance
6 Protection and indemnity
7 Flagging
8 Customs brokering

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

Revenues from Russia’s oil industry continue to play a critical role in financing the Russian Federation’s ongoing violation of Ukraine’s sovereignty and territorial integrity.

Background

Canada and its like-minded allies continue to work together to impose severe and extensive sanctions against Russia in response to its ongoing war of aggression against Ukraine. As a primary source of revenue to finance its war, the Russian oil industry continues to be an area of focus for responsive measures.

In an effort to limit Russian revenues while also preserving stability in the global oil market, G7 Leaders agreed at their June 2022 meeting in Elmau, Germany, to “consider a range of approaches, including options for a possible comprehensive prohibition of all services, which enable transportation of Russian seaborne crude oil and petroleum products globally, unless the oil is purchased at or below a price to be agreed in consultation with international partners” (“the price cap”). On September 2, 2022 G7 Finance Ministers confirmed their joint political intention to finalize and implement the price cap.

For the past several months, Canada has worked as part of a formal coalition (“the Coalition”) to develop and collectively implement the price cap measures. The Coalition includes all G7 Members, as well as Australia.

The Coalition has agreed to implement the price cap in two phases: implement the price cap on crude oil as of December 5, 2022 or soon thereafter; and implement the price cap on petroleum products as of February 5, 2023 or soon thereafter.

To meet its obligations as a member of the Coalition, Canada will implement the price cap measures under the Special Economic Measures (Russia) Regulations (“the Regulations”).

Objective

  1. Reduce Russian revenues and Russia’s ability to fund its war of aggression whilst limiting the impact of Russia’s war on global energy prices, particularly for low- and middle-income countries;
  2. Support countries suffering from high energy and food prices, particularly low-income countries, by putting downward pressure on global oil prices, which is anticipated to facilitate an associated decline in food prices due to lower input costs.
  3. Maintain the alignment of Canada’s sanctions with those taken by international partners to underscore continued unity with Canada’s allies and partners in responding to Russia’s ongoing actions in Ukraine.

Description

The Regulations Amending the Special Economic Measures (Russia) Regulations (“the amendments”) impose new measures prohibiting any person in Canada or any Canadian outside Canada from providing the services listed below, to or for the benefit of Russia or any person in Russia, in relation to the maritime transport of Russian crude oil and petroleum products. This prohibition applies unless the oil and/or petroleum products are purchased at or below the price cap, which is collectively determined by the Coalition. The price cap is incorporated by reference into the Regulations, and will be updated, as necessary, based on an agreed-upon consultation process within the Coalition.

The amendments also impose an exception to the service prohibition for transactions involving goods that were loaded onto a vessel at the port of loading prior to the day the amendments were entered into force and unloaded at the port of destination 45 days after the day they were entered into force. This provides a wind-down period of 45 days for contracts that were concluded prior to the prohibition entering into force.

The amendments also impose an exception to the service prohibition for transactions responding to an emergency situation, where implicated services are necessary to ensure navigational safety or to minimize danger to human life or damage to the environment.

The amendments also impose exceptions to the service prohibition related to the importation of crude oil and petroleum products into the Republic of Bulgaria, the Republic of Croatia, and landlocked European Union (EU) Member States. These exceptions were requested by the EU based on specific circumstances of these Member States, and have been universally agreed to by the Coalition.

The services targeted by these new measures are as follows, as listed in a new Schedule in the Regulations:

Regulatory development

Consultation

Global Affairs Canada engages regularly with relevant stakeholders including civil society organizations, cultural communities and other like-minded governments, regarding Canada’s approach to sanctions implementation. The amendments have been developed in close consultation both internationally with G7 and Australian counterparts, and domestically with Finance Canada, Natural Resources Canada, Transport Canada, and Innovation, Science and Economic Development Canada. Consultations with industry stakeholders to-date have not raised notable issues or concerns, as the Canadian industry footprint for the targeted services are minimal. For example, consultations with Canadian insurance stakeholders have not revealed any cases of insuring ships carrying Russian oil, and as such a Canadian prohibition on providing insurance for Russian ships is expected to have a negligible to non-existent impact on the Canadian economy. Stakeholders such as Canadian oil producers and refiners have not raised concerns directly with the Government of Canada regarding the measures outlined in the amendments.

Modern treaty obligations and Indigenous engagement and consultation

An initial assessment of the geographical scope of the amendments was conducted and did not identify any modern treaty obligations, as the amendments do not take effect in a modern treaty area.

Instrument choice

Regulations are the sole method to enact sanctions in Canada. No other instrument could be considered.

Regulatory analysis

Benefits and costs

While the amendments serve Canada’s interest in reducing Russian oil revenue to fund its invasion of Ukraine, Canada will not directly benefit from the downward pressure the measures are expected to have on Russian oil, as Canada has already imposed a full import ban on Russian oil and petroleum products. Instead, the economic benefits of the amendments will largely flow to lower and middle income countries that rely on Russian oil for their energy security. These countries can continue buying Russian oil at a stable price with the best-in class services provided by the Coalition, provided that oil is bought for a price at or below the cap.

The economic impacts of the price cap on Canadian businesses are expected to be limited, as analysis indicates that there are relatively few Canadian service providers involved in the kinds of transactions captured by the amendments. For example, the Canadian maritime insurance market is already limiting the underwriting of Russian-related risk, and is focused largely on smaller domestic ships and would not include tankers capable of carrying oil. It is also unlikely that the Canadian insurance market provides freight insurance for oil carried as cargo on tankers, as this is typically provided through major European or American insurers. Oil tankers involved in the transportation of Russian crude oil are not likely to be owned by Canadian companies, and the likelihood is low that Canadian companies are providing services to ships carrying Russian oil as the industry in Canada is largely focused on smaller and domestic vessels.

For service providers impacted by the prohibitions outlined in the amendments, they may incur some costs to ensure proper compliance with the measures moving forward. The amendments could also create additional costs for businesses seeking permits that would authorize them to carry out specified activities or transactions that are otherwise prohibited.

Small business lens

No significant loss of opportunities or other economic costs for small businesses are expected as a result of this amendment.

One-for-one rule

The permitting process for businesses meets the definition of “administrative burden” in the Red Tape Reduction Act and would need to be calculated and offset within 24 months. However, the amendments address an emergency circumstance and are therefore exempt from the requirement to offset administrative burden and regulatory titles under the one-for-one rule.

Regulatory cooperation and alignment

While the amendments are not related to a work plan or commitment under a formal regulatory cooperation forum, they align with actions taken by Canada’s allies.

Strategic environmental assessment

The amendments are unlikely to result in important environmental effects. In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus (GBA+)

The subject of economic sanctions has previously been assessed for effects on gender and diversity. Although intended to facilitate a change in behaviour through economic pressure on individuals and entities in foreign states, sanctions under the Special Economic Measures Act can nevertheless have an unintended impact on certain vulnerable groups and individuals. Rather than affecting Russia as a whole, these sanctions impact a key economic sector that is generating revenue used by Russia to finance its continued violation of the sovereignty and territorial integrity of Ukraine. Consequently, these sanctions are unlikely to have a significant impact on vulnerable groups.

Rationale

The amendments are in direct response to the Russian invasion of Ukraine that began on February 24, 2022, which continues Russia’s blatant violation of Ukraine’s territorial integrity and sovereignty under international law. In coordination with actions being taken by Canada’s allies, the amendments seek to impose a direct economic cost on Russia and signal Canada’s strong condemnation of Russia’s latest violations of Ukraine’s territorial integrity and sovereignty.

The measures outlined in the amendments provide Canada, and the Coalition more broadly, with the ability to reduce Russian oil revenues while limiting the impact on global energy prices. Because Coalition service providers (primarily in the U.S., U.K., and EU) currently make up the majority of the global market in insurance and are home to many other best-in-class services in the oil trade, a complete maritime services ban could constrain Russian oil exports, which would potentially create upward pressure on global prices of crude oil and refined petroleum products. An exemption to the ban will permit Coalition service providers to transact in Russian seaborne oil and petroleum products sold at or below the price cap to non-Coalition countries, thereby limiting the impact on global oil markets relative to a complete maritime services ban. Successful implementation of the measures outlined in the amendments could prove especially beneficial for vulnerable middle- and low-income countries, as many face particularly acute challenges due to heightened global energy prices.

The amendments fulfill Canada’s obligation as a member of the Coalition to implement these measures, and further demonstrate Canada’s solidarity with like-minded partners.

Implementation, compliance and enforcement, and service standards

The amendments come into force on the day on which they are registered.

Canada’s sanctions regulations are enforced by the Royal Canadian Mounted Police and the Canada Border Services Agency (CBSA). In accordance with section 8 of the Special Economic Measures Act, every person who knowingly contravenes or fails to comply with the Special Economic Measures (Russia) Regulations is liable, upon summary conviction, to a fine of not more than $25,000 or to imprisonment for a term of not more than one year, or to both: or, upon conviction on indictment to imprisonment for a term of not more than five years.

Contact

Andrew Turner
Director
Eastern Europe & Eurasia Relations Division
Global Affairs Canada
125 Sussex Drive
Ottawa, Ontario
K1A 0G2
Telephone: 343‑203‑3603
Email: Andrew.Turner@international.gc.ca