Written By Jessica Horwitz and Sabrina A. Bandali

On March 22, 2021, Canada imposed new economic sanctions against four officials and one entity under the new Special Economic Measures (People’s Republic of China) Regulations, based on Canada's assessment of their participation in gross and systematic human rights violations in the Xinjiang Uyghur Autonomous Region (XUAR) affecting Uyghurs and other Muslim ethnic minorities.

Implemented in coordination and solidarity with sanctions imposed by Canada's allies, the United States, the United Kingdom and the European Union, these new sanctions follow expressions of concern in January 2021 by Canada (and other international partners) in response to reports and evidence of repressive surveillance, mass arbitrary detention, torture and mistreatment, and the use of forced labour in Xinjiang.

Here is a look at the details of the new sanctions and what they mean for Canadian businesses with dealings in China.

New Canadian Sanctions Against Chinese Officials

Effective immediately, Canada has imposed a dealings prohibition and an asset freeze on the listed persons under the Special Economic Measures Act and the Special Economic Measures (People’s Republic of China) Regulations. Any person in Canada, (including individuals and corporate entities), and any Canadian outside of Canada (including Canadian citizens and Canadian corporations or businesses with activities abroad), is prohibited from directly or indirectly participating, causing, facilitating, or assisting in the following activities:

• dealing in property, wherever situated, that is owned, held or controlled by listed persons or a person acting on behalf of a listed person;
• entering into or facilitating any transaction related to a prohibited dealing;
• providing any financial or related services in respect of a prohibited dealing;
• making available any goods, wherever situated, to a listed person or a person acting on behalf of a listed person; and
• providing any financial or other related services to or for the benefit of a listed person.

A number of exceptions to the above prohibitions are listed in section 4 of the regulations. Canadians may, for example, receive payments from a listed person that are due under a contract entered into before the person was listed, or obtain financial services that enable a listed person to obtain legal services in Canada with respect to the application of any of the sanctions prohibitions. Canadians may also continue to have dealings with a listed person for the purposes of loan repayments and enforcement and realization of security of loan repayments, where the loan was entered into before the person was listed or where the loan recipient is not a listed person.

The four newly-sanctioned Chinese individuals, who are also inadmissible to enter Canada under section 35(1)(d) of the Immigration and Refugee Protection Act, and the one entity, are as follows:

Individuals:

• Zhu Hailun, Former Secretary of the Political and Legal Affairs Committee of the XUAR, former Deputy Secretary of the Party Committee of the XUAR and former Deputy Head of the 13th People’s Congress of the XUAR 
• Wang Junzheng, Party Secretary and Political Commissar of the Xinjiang Production and Construction Corps and Deputy Secretary of the Party Committee of the XUAR 
• Wang Mingshan, Member of the Standing Committee of the Party Committee of the XUAR and Secretary of the Political and Legal Affairs Committee of the XUAR, former Director and Deputy Party Secretary of the Xinjiang Public Security Bureau
• Chen Mingguo, Director of the Xinjiang Public Security Bureau and Vice-Chairman of the XUAR People’s Government

Entity:

• Xinjiang Production and Construction Corps Public Security Bureau

It is also notable that Canada chose to use the Special Economic Measures Act (SEMA) which imposes sanctions on a country basis, for the new economic sanctions against China rather than the Justice for Victims of Corrupt Foreign Officials Act (Magnitsky Act). In contrast, the previous U.S. sanctions related to Xinjiang and additional sanctions against Chinese officials announced on March 22, 2021, were imposed under the U.S. Magnitsky legislation. Canada's choice of the nationally-focused and more flexible SEMA as the legal mechanism for these sanctions sends a political message to the Government of China and raises the possibility that the scope of Canadian sanctions against China could be expanded in the future, including to address issues of concern broader than the human rights situation in Xinjiang.

Broader Canadian Supply Chain Integrity Initiatives

As noted, on January 18, 2021, the Government of Canada announced several measures to respond to its concern about reports and evidence of human rights violations, including the use of forced labour in Xinjiang. For example, Global Affairs Canada issued a business advisory related to Xinjiang that urged businesses to, among other things, conduct due diligence and examine their supply chains to ensure that their activities do not support human rights abuses, whether they be the use of forced labour to produce products imported into Canada, or the sale of technology or services by Canadian businesses that may be used to commit human rights abuses. Canadian companies that source directly or indirectly from Xinjiang are now also required to sign an Integrity Declaration when engaging with the Trade Commissioner Service.

That said, the measures announced in January were relatively limited and largely in line with existing government policies (e.g., reiterating the prohibition on importing goods produced with forced labour into Canada, and advising that companies applying for permits to export certain technology or services to Xinjiang that could be used to facilitate government surveillance, repression, arbitrary detention or forced labour will face "particular scrutiny"). Accordingly, the introduction of targeted economic sanctions is a notable step that heightens the legal and business risk faced by companies with supply chains and business relationships in Xinjiang.

What Does This Mean for Business?

These new economic sanctions could signal the possibility of broadened Canadian restrictions against China in the future. Businesses with dealings in China should:

• examine their due diligence practices for business transactions involving China, and ensure that adequate information is collected about the counterparties to enable a proper risk assessment before making any commitments;
• make sure to conduct appropriate restricted-party screening on Chinese counterparties; and
• review contracts to ensure they contain appropriate certifications and warranties and allow for hassle-free termination of the contract if sanctions-compliance risks are identified at a later date.

More broadly, companies with supply chains and business relationships in Xinjiang should be assessing their risk and ensuring that they have adequate information, including through the exercise of audit rights and contractual clauses, to mitigate risk and conduct all business activities in compliance with their obligations under Canadian law.

If you have any questions about Canada's new economic sanctions against China or supply chain risks, please contact Bennett Jones' International Trade & Investment group.

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