Regulations Amending the Special Economic Measures (Russia) Regulations: SOR/2024-39

Canada Gazette, Part II, Volume 158, Number 6

Registration
SOR/2024-39 February 29, 2024

SPECIAL ECONOMIC MEASURES ACT

P.C. 2024-168 February 29, 2024

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 paragraph 4(1)(a)footnote a and subsections 4(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 3.14:

Diamonds — Import from any country

3.15 (1) It is prohibited for any person in Canada and any Canadian outside Canada to import, purchase or acquire any good referred to in column 1 of Part 1 of Schedule 12, wherever situated, from Russia or from any person in Russia.

Diamonds — import from Russia

(2) It is prohibited for any person in Canada and any Canadian outside Canada to import, purchase or acquire any good referred to in column 1 of Part 2 of Schedule 12 from Russia or from any person in Russia.

Non-application

(3) Subsections (1) and (2) do not apply to personal effects that are carried by an individual entering Canada and that are solely for the use of the individual or the individual’s immediate family.

2 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 3.15.

3 Items 26 to 35 of Part 2 of Schedule 6 to the Regulations are repealed.

4 The Regulations are amended by adding, after Schedule 11, the Schedule 12 set out in the schedule to these Regulations.

Application Before Publication

5 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

6 These Regulations come into force on March 1, 2024, but if they are registered after that day, they come into force on the day on which they are registered.

SCHEDULE

(Section 4)

SCHEDULE 12

(Subsections 3.15(1) and (2))

PART 1

Diamonds — Import from any country
Item

Column 1

Goods

Column 2

Harmonized Commodity Description and Coding System Code table 1 note a

1 Unsorted diamonds weighing one carat or more, whether or not worked, but not mounted or set 710210
2 Non-industrial diamonds weighing one carat or more, unworked or simply sawn, cleaved or bruted, but not mounted or set 710231
3 Non-industrial diamonds weighing one carat or more, not mounted or set, other than diamonds that are unworked or simply sawn, cleaved or bruted 710239

Table 1 note(s)

Table 1 note a

The Harmonized Commodity Description and Coding System codes (published by the World Customs Organization) set out in column 2 are provided for reference purposes only.

Return to table 1 note a referrer

PART 2

Diamonds — Import from Russia
Item

Column 1

Goods

Column 2

Harmonized Commodity Description and Coding System Code table 2 note a

1 Unsorted diamonds weighing less than one carat, whether or not worked, but not mounted or set 710210
2 Non-industrial diamonds weighing less than one carat, unworked or simply sawn, cleaved or bruted, but not mounted or set 710231
3 Non-industrial diamonds weighing less than one carat, not mounted or set, other than diamonds that are unworked or simply sawn, cleaved or bruted 710239
4 Synthetic or reconstructed diamonds, unworked or simply sawn or roughly shaped 710421
5 Synthetic or reconstructed diamonds, other than diamonds that are unworked or simply sawn or roughly shaped 710491
6 Articles of jewellery and parts of such articles, of precious metal or of metal clad with precious metal, incorporating diamonds 7113
7 Articles of goldsmiths’ or silversmiths’ wares and parts of such articles, of precious metal or of metal clad with precious metal, incorporating diamonds 7114
8 Articles of precious metal or of metal clad with precious metal, incorporating diamonds, not elsewhere specified in this table, other than platinum catalysts in the form of wire cloth or grill 711590
9 Articles of precious or semi-precious stones (natural, synthetic or reconstructed), incorporating diamonds 711620
10 Wristwatches, pocket-watches and other watches, including stopwatches, with cases of precious metal or of metal clad with precious metal, incorporating diamonds 9101

Table 2 note(s)

Table 2 note a

The Harmonized Commodity Description and Coding System codes (published by the World Customs Organization) set out in column 2 are provided for reference purposes only.

Return to table 2 note a referrer

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

Revenue earned by state-owned Russian industry from exports of Russian diamonds and related jewellery products is a source of financial support to Russia’s invasion of Ukraine. Russia is the world’s largest natural diamond producer by volume and is estimated to have earned over $4 billion in 2022.

Background

Following Russia’s illegal occupation and attempted annexation of Crimea in March 2014, the Government of Canada, in tandem with partners and allies, enacted sanctions through the Special Economic Measures (Russia) Regulations (the Regulations) under the Special Economic Measures Act (SEMA). These sanctions impose dealings prohibitions (an effective asset freeze) on listed individuals and entities supporting or enabling Russia’s violation of Ukraine’s sovereignty. Any person in Canada and Canadians outside Canada are prohibited from dealing in the property of, entering into transactions with, providing services to, or otherwise making goods available to persons listed under Schedules 1, 2 or 3 of the Regulations.

On February 24, 2022, Russian President Putin announced “a special military operation” as Russian forces launched a full-scale invasion of Ukraine from Russian and Belarusian territory. Heavy fighting continues in eastern and southern Ukraine. As part of its military strategy, Russia continues to fire missiles and kamikaze drone attacks on essential civilian infrastructure. Experts, including the Organization for Security and Cooperation in Europe Moscow Mechanism fact-finding missions, the Independent International Commission of Inquiry on Ukraine and the United Nations (UN) Office of the High Commissioner for Human Rights, have concluded that Russia is committing serious human rights violations, war crimes, possible crimes against humanity, and conflict-related sexual violence. These studies have linked Russian external aggression with systematic repression and human rights abuses domestically. According to Ukraine’s State Emergency Department, 30% of Ukrainian territory (approximately the size of Austria) has been mined by Russia, which has led to calls for greater restrictions on exports of explosives. As of December 2023, the UN Human Rights Monitoring Mission in Ukraine has confirmed 10 000 civilians have been killed and 19 000 injured since February 24, 2022. Furthermore, 56 medical facilities and 223 educational facilities in Ukraine have been destroyed by Russia’s military since the invasion.

President Putin’s military invasion has been paired with significant malicious cyber operations and disinformation campaigns that falsely portray the West as the aggressor, and claim Ukraine is developing chemical, biological, radiological and/or nuclear weapons with North Atlantic Treaty Organization (NATO) support.

Continuing the unprecedented sanctions regime imposed by Canada and its partners against Russia is necessary given Russia’s continued invasion of Ukraine and its efforts to circumvent these sanctions. In 2023, various reports emerged of Iranian and Russian officials discussing establishing alternative routes (such as the International North-South Transport Corridor) for the shipment of goods, including oil, as a way to evade sanctions. Both Russian and Iranian officials have openly stated their intention to evade sanctions using new transport corridors, including through the Caspian Sea. The officials have also taken concrete steps in that direction. On December 5, 2023, Russia’s Foreign Minister Sergey Lavrov and his Iranian counterpart Hossein Amir-Abdollahian met in Moscow and signed an agreement to counter “unilateral sanctions.”

International response

As the war continues, G7 members and their partners continue to demonstrate resolve in supporting Ukraine through diplomacy with the broader international community to encourage support for Ukraine and to counter false Russian narratives. President Zelensky’s 10-Point Peace Formula has attracted interest and participation from over 80 countries, which have met three times in 2023, and once in 2024. Key votes in multilateral forums, such as the United Nations General Assembly and the United Nations Security Council (UNSC), have effectively isolated Russia. However, Russia consistently uses its position as a permanent member of the UNSC to block action on its war in Ukraine. Some countries have refrained from openly criticizing Russia or imposing penalties due to geopolitical considerations, commercial incentives, or simply fear of retaliation, with some also arguing the conflict is less of a priority for their regions.

The coalition of countries directly supporting Ukraine includes, but is not limited to, G7 and European countries. This group is working to support Ukraine across several areas, including energy security, nuclear safety, food security, humanitarian assistance, combatting Russian disinformation, sanctions and economic measures, asset seizure and forfeiture, military assistance, accountability, recovery, and reconstruction. During the NATO Leaders’ Summit in Vilnius in July 2023, NATO affirmed that Ukraine would be able to join the Alliance when conditions allow, and NATO members agree. NATO members also agreed to an upgraded Comprehensive Assistance Package (CAP) for Ukraine and established the NATO-Ukraine Council (NUC). The G7 Multi-Agency Donor Coordination Platform was established in 2022. In 2023, G7 Leaders committed to implementing a complete ban (direct and indirect) on imports of Russian diamonds. The direct ban has been in place in all G7 member states since January 1, 2024.

Canada’s response

In response to Russia’s full-scale invasion, Canada has committed over $9.7 billion in financial, military, humanitarian, development, security and stabilization and immigration assistance. Canada remains committed to supporting Ukraine’s stability, security, and sovereignty as it resists Russia’s war of aggression. Canada supports the made-in-Ukraine 10-Point Peace Formula, a formula that respects Ukraine’s sovereignty and territorial integrity, the UN Charter, and international law.

Since 2014, in coordination with its allies and partners, Canada has imposed sanctions on more than 2 900 individuals and entities in Russia, Belarus, Ukraine and Moldova who are complicit in the violation of Ukraine’s sovereignty and territorial integrity. The duration of sanctions by Canada and like-minded partners has been explicitly linked to the peaceful resolution of the conflict, and the respect for Ukraine’s sovereignty and territorial integrity, within its internationally recognized borders, including Crimea, as well as Ukraine’s territorial sea. In addition, Canada has implemented targeted restrictions against Russia and Belarus in financial, trade (goods and services), energy and transport sectors. Canada is also part of the Oil Price Cap Coalition, which limits the provision of maritime services to Russian crude oil and petroleum products above a price set by the coalition.

G7 commitment to implement Russian import diamond ban

The G7 countries represent 70% of the world diamond market. Russia is the world’s largest rough diamond producer by value (over USD 3.5 billion in 2022) and a significant global exporter of rough diamonds (greater than USD 3.8 billion in exports in 2022). Its partially state-owned diamond mining conglomerate, Alrosa, accounts for 95% of Russian diamond production and is the number one diamond producer in the world by volume and number two by value. Canada and most other G7 members have already imposed sanctions against Alrosa. The European Union (EU) remains the centre of the global diamond trade, with an estimated 86% of the world’s rough diamonds passing through Belgium and 25% of these estimated to come from Russia.

In February, May and December 2023, G7 Leaders affirmed their commitment to implement coordinated sanctions and other economic measures to counter Russia’s capacity to finance its war of aggression against Ukraine through the targeting of Russia’s diamond industry. Given the significant revenues that Russia extracts from the export of diamonds, leaders agreed to develop economic measures to reduce revenue from the sale of Russian diamonds, including rough and polished ones. Since then, officials have developed a plan to ban both direct and indirect imports of Russian non-industrial diamonds from G7 markets. The direct ban has been in place in all G7 member states since January 1, 2024. Through phased-in implementation, the indirect ban of Russian diamonds from G7 markets is expected to begin on March 1, 2024, with the banning of non-industrial natural diamonds mined in Russia sized 1.0 carat and larger. The G7 is targeting September 1, 2024, to extend the indirect ban to all non-industrial natural diamonds mined in Russia sized 0.5 carat and larger.

The G7 indirect ban will complement the G7 direct ban on Russian diamond imports (direct flows of non-industrial diamond goods exported directly from Russia to a G7 country) that has been implemented by G7 member states. The Regulations currently prohibit some import and export of diamonds and diamond-related products to and from Russia.

Objective

  1. Impose further costs on Russia for its unprovoked attack and aggression against Ukraine by banning the indirect import of Russian diamonds that are one carat or larger into Canada, in line with all other G7 members.
  2. Underscore continued unity with G7 members in responding to Russia’s ongoing actions in Ukraine.
  3. Ensure that Russian diamonds banned in other markets are not diverted to Canada.

Description

In accordance with the G7 commitment, the amendments prohibit the purchase, import, or acquisition of certain diamonds mined or produced in Russia that are exported, processed and/or polished in a third country. In particular, the prohibition applies with respect to natural diamonds whose weight is greater than or equal to 1.0 carat, in the following World Customs Organization Harmonized Commodity Description and Coding System (HS) codes:

The prohibition applies to any person (individual or entity) in Canada, as well as Canadians outside of Canada.

The amendments also include necessary changes to the existing luxury import ban (Part 2 of Schedule 6) in the Regulations to ensure consistency and clarity with the existing import ban on diamonds and diamond-related products. The direct diamond ban is now reflected in a stand-alone prohibition with its own schedule (section 3.15(2), Part 2, Schedule 12).

The prohibitions also do not apply to personal effects that are carried by an individual entering Canada and that are solely intended for the use of the individual or the individual’s immediate family.

Regulatory development

Consultation

Global Affairs Canada regularly engages with relevant stakeholders, including civil society organizations, cultural communities, and other like-minded governments, regarding Canada’s approach to sanctions implementation. The G7 commitment to ban the importation of Russian diamonds was publicly announced in February, May, and December 2023. Natural Resources Canada (NRCan) and Global Affairs Canada have engaged in outreach to the Canadian diamond industry to assist them in meeting the new requirements.

During NRcan-targeted engagement in November 2023, the industry provided comments in writing and participated in a call where it provided feedback. In another targeted engagement in January 2024, the industry participated in a call and provided input on the types of documents it could currently provide to attest to non-Russian origin during this period.

Global Affairs Canada has also engaged with diamond-producing countries in Africa that will be impacted by this ban to inform them of the ban and with a view to minimize negative consequences on their diamond industries to the extent possible.

Modern treaty obligations and Indigenous engagement and consultation

An initial assessment of the geographical scope of the Regulations was conducted and did not identify any modern treaty obligations, as the Regulations 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

The G7 indirect ban will complement the G7 direct ban on Russian diamond imports (direct flows of non-industrial diamond goods exported directly from Russia to a G7 country) that has been implemented by G7 member states (including Canada) as of January 1, 2024. These amendments will ensure that Canada acts alongside G7 partners to restrict a key source of revenue for Russia’s war in Ukraine. Taking action demonstrates G7 determination to follow through on their public commitments to impose costs on Russia, sending another clear signal of unity and support to Ukraine.

The Regulations currently prohibit some import and export of diamonds and diamond-related products to and from Russia. Canadian imports of products currently subject to the direct diamond ban from Russia totalled $4.1 million in 2021. Following Russia’s full-scale invasion of Ukraine in 2022, Canada sanctioned Russia’s state-owned enterprise, diamond conglomerate Alrosa, and removed Most Favoured Nation status (which effectively imposed a 35% tariff on all imports to Canada). This led to a drastic decrease of all imports, including imports of products subject to the direct ban, amounting to $327,224 in 2022 and $13,440 for the first eight months of 2023.

For the products that will be subject to the indirect ban (i.e. HS 7102.10, HS 7102.31, HS 7102.39) total Canadian imports from all countries was $373.3 million in 2023; there were no imports directly from Russia. Canada’s top suppliers of diamonds have also significantly reduced their direct imports of diamonds from Russia. As a result, Canada is not expected to import a significant number of diamonds of Russian origin following the implementation of the indirect ban.

The introduction of the G7 indirect ban will impose additional costs on importers to Canada, as they will be asked to provide additional information or documentation to prove the origin of their diamonds. Additional information or documentation will be requested at the discretion of a Border Services Officer upon importation.

HS codes 7102.31 and 7102.10 are currently regulated under the Export and Import of Rough Diamonds Act, which requires that imports are accompanied by a valid Kimberley Process Certificate (KPC) issued by the Kimberley Process authority in the exporting country. The KPC includes information on carat weight and country of origin. The Canada Border Services Agency (CBSA) verifies the KPC, stamps the KPC with the CBSA Integrated Stamp and returns it to the importer, who is to forward the KPC, within seven days after import, to NRCan. As such, no incremental cost is anticipated in association with importing these HS codes.

The CBSA would incur minor costs related to implementation, communication and outreach activities needed as a result of the amendments (e.g. updating departmental memoranda and work instruments, as well as responding to functional guidance requests and updating web content on the CBSA webpage). No incremental staff will need to be hired. The Regulations are not expected to result in increased compliance, enforcement, and verification costs to CBSA. Post-importation verifications are currently conducted and would continue to be conducted as part of broader compliance verification activities. Once the ban is implemented, it will be necessary that G7 demand (70% of global diamond sales) is filled by non-Russian producers. This will involve a market adjustment that would result in a change in value for non-Russian diamonds which are mainly from sub-Saharan Africa and Canada. Canada is a significant exporter of rough diamonds to the world (including to G7 and EU partners) with exports of $2.7 billion to the world and almost $1.3 billion to G7 and EU partners in 2022. This would result in importers incurring higher costs to purchase non-Russian diamonds.

Small business lens

Analysis under the small business lens concluded that the Regulations will impact Canadian small businesses. Importers will be required to complete an attestation as to the origin of diamonds being imported, which is considered to be an administrative burden under the definition in the Policy on Limiting Regulatory Burden on Business. No additional flexibility is being provided to smaller importers since this document is a critical element of the verification process and would not represent a significant burden on importers. The amendments could also create indirect impacts for small business if they are required to obtain imports from other sources or seek the necessary documents that would authorize them to carry out specified activities or transactions that are otherwise prohibited.

One-for-one rule

The one-for-one rule applies since there is an incremental increase in administrative burden on business, and the Regulations are considered burden “in” under the rule; no regulatory titles are repealed or introduced. Importers of worked diamonds under import code 7102.39 will need to have evidence available on the country of origin for their diamond imports, as they may be asked by a Border Services Officer upon importation to provide supporting documentation confirming the diamonds were not mined in Russia. The annual estimated cost of administrative burden associated with this requirement is $14,781, expressed in 2012 dollars and discounted to 2012 using a 7% discount rate, as required by the Red Tape Reduction Regulations.

The permitting process for businesses to seek approval to import diamonds of Russian origin also meets the definition of “administrative burden” in the Red Tape Reduction Act; however, while permits can be granted under the Regulations, they are granted at the Minister’s discretion and on an exceptional basis. As a result, no associated administrative costs are stated here.

Regulatory cooperation and alignment

While the amendments are not related to a work plan or commitment under a formal regulatory cooperation forum, these amendments are being made to implement commitments made by the Prime Minister in the context of Canada’s membership in the G7 and are reflective of close and ongoing cooperation with other G7 members pursuing similar measures.

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 targeted sanctions impact Russia’s ability to export diamonds and ensure that revenue cannot be generated from Canada that could support Russia’s war efforts. Therefore, these sanctions are unlikely to have a significant impact on vulnerable groups, as compared to traditional broad-based economic sanctions directed toward a state.

The Regulations would largely affect businesses, which are legal entities, rather than individuals. While not the target of the measures, it is possible that there may be some limited incidental impacts on artisanal and small-scale mining, as well as local beneficiation activities, which disproportionately involve women and Indigenous communities. All efforts will be made to ensure that implementation of these measures minimize any differential impacts on these communities.

Implementation, compliance and enforcement, and service standards

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

Global Affairs Canada collaborates with CBSA for effective enforcement, activating a border lookout when a new prohibition is implemented and providing assessments on whether sanctions are engaged, as requested. CBSA possesses essential on-the-ground presence, expertise and authorities for enforcement.

Once the amendments come into force, importers may be asked by CBSA officials to provide supporting documentation confirming that their products are not of Russian origin. Importers are encouraged to fill out a diamond origin attestation form to help expedite border clearance. This attestation form will be posted online via a Customs Notice when the amendments come into force. Additionally, importers may opt to import via the G7 import node in Antwerp, Belgium, by shipping the diamonds through this node. As of March 1, 2024, non-Russian diamonds travelling through this node will receive a G7 certificate, effectively confirming that they are not of Russian origin.

Additional information or documentation may be requested at the discretion of a CBSA Officer upon importation. This could include documentation relating to the origin, purchase, and transportation of all materials from suppliers involved in the mining, manufacturing, or production of the diamond. Examples of documentary evidence to help facilitate border clearance could include the following:

In order to be taken into consideration, the information will need to be submitted in one of Canada’s official languages (English or French). Where applicable, both original and translated copies are to be provided.

The Department’s Trade Commissioner Service (TCS) abroad and in Canada continues to assist clients in understanding Canadian sanctions regulations, and notably the impact of the regulations on any activities in which Canadians may be engaged. The Department is also increasing outreach efforts across Canada — including to engage with businesses, universities, and provincial/territorial governments — to enhance national awareness of and compliance with Canadian sanctions.

The Royal Canadian Mounted Police and CBSA officers have the power to enforce sanctions violations through their respective authorities, as defined under the Customs Act, the SEMA and the Criminal Code. In accordance with section 8 of the SEMA, every person who knowingly contravenes or fails to comply with the 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

Andreas Weichert
Director
Eastern Europe and Eurasia Relations Division
Global Affairs Canada
125 Sussex Drive
Ottawa, Ontario
K1A 0G2
Telephone: 613‑203‑3603
Email: Andreas.Weichert@international.gc.ca