While it’s true that Sanction Law focuses primarily on U.S. economic sanctions, on occasion other nations’ enforcement of sanctions and export controls piques our interest. Which brings us to an interesting case out of Canada, where two directors of a Montreal-based company selling train parts are under arrest for shipping almost $10 million worth of rail equipment to Iran in contravention of Canadian export control law. According to the Royal Canadian Mounted Police (“RCMP”), between 2007 and 2012 Michael Allen and Hugo Dreckmann of Romic Marc Rail Inc. are accused of exporting U.S.-origin equipment to Iran between 2007 and 2012.

The big reason their Iran-related sales landed these two before a Canadian judge is that they tried to pass off their U.S.-origin rail parts as products of Canada. Prior to the expansion of Canadian economic sanctions on Iran in 2013, the export of Canadian-origin rail equipment, even items technically considered “dual-use” under Group 1 of the Canadian Export Control List, manufactured in Canada would have been allowed with a permit. This is likely the reason the pair not charged with sanctions violations under Canada’s Special Economic Measures Act, despite a RCMP spokesperson’s attempt to link the activity to Canada’s Iran sanctions.

Canadian law also authorizes the export of certain U.S.-origin goods abroad without a license. Under General Export Permit 12, the export of U.S.-origin goods and technology described in item 5400 of Group 5 of the Export Control List, which covers non-controlled goods and is equivalent to EAR 99, is generally authorized. The caveat, and in this case it’s a big one, is that this authorization does not cover exports to Iran. Even if the goods did not require a license b/c they were non-controlled, shipping directly to Iran would be prohibited without separate authorization. So in order to facilitate prohibited sales to Iran, Messrs. Allen and Dreckmann falsified certificates of origin for the equipment and lied to Canadian authorities about the ultimate destination of the goods.

Whether or not the rail equipment at issue is technically dual-use, it’s safe to say it would not fall in the same category as the export of nuclear detonators. Unlike in the United States, where simply violating a known legal duty to comply with sanctions may result in a criminal prosecution, in Canada, as in the European Union, the vast majority of export control and sanctions prosecutions involve goods with direct military or proliferation-related uses. However, in this case, it’s a good bet that the impetus behind the prosecution was the defendants’ attempts to deceive Canadian authorities.

The most confusing, part of the story from a rationality perspective is that in 2010 the Canadian Border Services Agency seized some of their attempted exports. Yet the offense conduct continued for another two years. It never ceases to amaze that investigation subjects will continue their illicit activities even after there is a reasonable cause to believe that they are being watched. For anyone reading this blog that is currently engaged in sanctions or export control violations a bit of advice: First, stop and file a voluntary self-disclosure. Second, if you have items seized at the border, stop and file a voluntary self-disclosure. Even if you won’t get full penalty mitigation for it, there’s a good bet someone will be watching you going forward and by continuing to violate the rules, you’re only digging yourself a deeper hole.