Canadian Lawyer InHouse

"What we have found is that while over 2014 sanctions have become more known in the public, there are still a large number of companies or managers who just simply don't appreciate what the nature of the sanctions are, what they mean and how they work," says Vincent DeRose, a partner at Borden Ladner Gervais LLP in Ottawa, where he is also na- tional leader of the firm's defence and secu- rity industry group. "You need to use good judgment and you need to trust your em- ployees and your sales force, and if you have a manager that's in charge of exporting, you have to train them and give them the tools to recognize when they should raise an issue up the management chain." He adds: "There's no-one-size-fits-all, it depends on what you are selling and who you are selling to. But there are a few gen- eral undertakings that companies have to do. When they enter into a contract, they have to develop a screening mechanism to ensure that they are not directly or indirectly doing business with any of the designated persons, the prohibited persons." But just as a weak screening process brings unacceptable short- and medium-term risks, stepping back from the Russian market could also have a lasting impact. "The level of trust that you need to develop with busi- ness in Russia is not something that you can develop in a week or a month or maybe even a year," DeRose says. "There is no doubt that you need a long lead time to develop your relationship and the existence of the sanc- tions can undermine those relationships very quickly. It takes years to build them up, and it doesn't take years to bring them down." Lawyers working in the compliance/sanc- tions sector note that anyone seeking to do business in Russia must weigh the cost and inconvenience of due diligence against the opportunities. And even though the Cana- April 2015 20 INHOUSE dian sanctions are restricted to name indi- viduals, well-described funding methods, and — since December — those clearly de- fined aspects of energy sector development and equipment, Paul Drager, a senior partner at Norton Rose Fulbright in Calgary has also seen self-sanctioning. "What we're seeing in a sense is also a lot of self-sanctioning by companies and certainly by the financial industry, which because of the way sanctions are enforced, it makes it much easier for them to say 'no we are just not go- ing to get involved' rather than figuring out exactly what they could do," says Drager, who has been involved with Moscow since 1985, first as a diplomat and now as a lawyer. He admits the sanctions have been "a very cold shower" for companies seek- ing to develop closer ties with a vast, cold, resource-rich country that has many of the same infrastructure needs as Canada. But he says there are still opportunities for companies who are prepared to follow the rules. "These may be some of the better times to be involved in the Russian market. Because so many companies have pulled back it does open the space for others. It's looking at the glass half full," he says. "They are very spe- cific sanctions. . . . The flip side of that is that there are a substantial number of other areas that are permitted, even in the oil and gas sector. The difficulty here is getting cer- tainty in relationship to what the government is expecting." Another challenge, says Robidoux, is the one that comes with dealing with Russia it- self, where corporate registries may be vague and there is "a great deal of legwork that has to be done." "There is registry information available, but there are other searches that have to be undertaken," she says. "You have to trust but verify. The level of verification really depends on the circumstances of each case. You do not want to do business in a country that is known for some opacity in its corporate registries and be given information that is either vague or opaque or somehow not believable and sim- ply close your eyes to the risk that this might actually be a transaction with a prohibited person or in respect of one of the prohibited activities. That constitutes wilful blindness." Robidoux says the December amendments have expanded both the sanctions themselves and the type of due diligence that companies need to do to be sure that they are not break- ing the rules. It means assessing carefully what imports to Russia can be used for, and seeking confirmation that an importer won't use a particular type of equipment, for exam- ple, in one of the proscribed forms of energy exploration. The frequent changes to the rules are also an issue, and because each change takes effect immediately, companies and their advisers often have to scramble to interpret and com- municate each new ruling. "One of the challenges that many com- panies have been finding is just keeping up with the frequent changes," says Riyaz Dat- tu a Toronto-based partner at Osler Hoskin & Harcourt LLP, where he focuses on in- ternational trade and market access. "Many of the changes get announced without much information in advance; they are effective as of that date. And that's caused some clients to be fairly concerned because they need time to implement the sanctions and it puts them at risk. Many of the organizations we deal with are large organizations and the communication internally takes a while, and while that communication is going on the sanctions are in effect as amended. And typically the sanctions are announced on a Friday afternoon, late." The sanctions have also changed the game for the financial sector, with the compliance departments of the banks and other finan- cial institutions very much on the front line. Pension funds, for example, may choose not to expand a capital investment in an emerg- ing market if there's a risk of inappropriate Russian involvement, and a bank may block a financial transaction from a client if it's un- clear who is involved or where the money is going to go. "The Canadian banks are probably at the forefront of understanding what these '' '' What we have found is that while over 2014 sanctions have become more known in the public, there are still a large number of companies or managers who just simply don't appreciate what the nature of the sanctions are, what they mean and how they work. ViNCENT DErOSE, Borden ladner Gervais llp

• Cover