The Canada Border Services Agency (“CBSA”) may detain any goods that are being exported from Canada if the CBSA is concerned that the goods are being exported contrary to Canada’s export controls and economic sanctions laws. This happens with increasing frequency these days. A number of clients have received notifications from the CBSA that their exports have been detained.
The process usually starts with a notification by the freight forwarded/shipper to the export that the container has been stopped and held for Vehicle and Cargo Inspection System (VACIS) inspection by the CBSA. This inspection has an associated fee. The CBSA undertakes a scan and if the good looks like it may be a controlled good the shipment is stopped.
The CBSA detains a shipment and then asks the Department of Foreign Affairs and International Trade (DFAIT), Export Controls Division if they have issued an export permit for the goods. If there isn’t an export permit, the Export Controls Division contacts the exporter so that they may determine if an export permit is necessary (that is, whether the goods are contained on Canada’s Export Controls List). Usually, the exporter receives an email with the following request from an officer in the Export Controls Division:
The subject Canada Border Services Agency (CBSA) file has been passed to this office for a technical assessment of the subject goods for their applicability under Canada's Export Controls. To facilitate the technical assessment the following information is required:
1) Provide a list of items being exported and confirm country of manufacture for each.
2) Provide the marketing brochure and/or the technical specifications of the goods that adequately describe the technical characteristics / capabilities of the goods.
3) Provide information on the end-item that the goods are being exported to support.
The Export Controls Division also likes to receive a copy of the end-use certificate.
The exporters often fumble in providing this information and get themselves into difficulties because they do not understand what is the role of the Export Controls Division and what do they need to do their job efficiently. Often exporters provide minimal information about the goods and the Export Controls Division has to ask a series of follow-up questions. Often exporter treats this as a minor formality rather than the serious exercise that it is. Exporters know their goods so well that they forget that a non-expert would not be able to figure it out based on a single line or a single piece of paper. The Export Controls Division cannot determine if the good requires an export permit without knowing exactly what is the good, for what is it used, how is it used, what are the inputs in the good, and what the very specific technical specifications are. For example, my first case involved a bender and the question on whether an export permit was needed or not turned on the precision of the bending that could be performed with the bender.
The Export Controls Division also wants to know if the good is of U.S. origin because there are export permit rules relating to U.S. made goods. Often goods being exported from Canada need a U.S. export permit. Many exporters who are restricted by U.S. export controls laws bring the goods to Canada and attempt to ship the goods from Canada. DFAIT will trace certificates of origin to see whether the goods really originated in the U.S.
Any information provided to the Export Controls Division will be verified. If information is incorrect in any of the documentation or is determined to by false, the goods may be seized. If goods are seized, the process is more complex and lengthy to appeal such a decision.
Even if the goods are determined by the Export Controls Division to not be on Canada’s Export Control List, the goods may remain detained until after a determination by the Economic Sanctions of DFAIT. The Economic Sanctions group looks at whether the goods are being sent to a “designated person” in Iran, Syria or another country that is subject to Canada’s economic sanctions and trade restrictions laws. This is where the end use certificate is so important and must be properly completed. If the end use certificate provides detailed information about the ultimate recipient (including a telephone number and name and contact person) the CBSA can call, the process moves more quickly. When goods are being sent to a warehouse or an intermediary, the verification process is slower. The CBSA and DFAIT have the ability to get information and assess the risk.
These investigations take time and letters of credit can expire while the goods are being detained by the CBSA. Also, freight forwarders and shippers often charge storage and demurrage charges for the detained goods that are taking up space in their warehouse.
If you require more information, please call Cyndee Todgham Cherniak, a Canadian lawyer with export controls and economic sanctions expertise at 416-389-8999.