December 5, 2011 | Canadian Standing Senate Committee on National Security and Defence

Protecting Canada From Iranian Attempts to Acquire Dual-Use Technology

Thank you very much, Senator Wallin, and to all of you. Thank you for allowing me to testify before this committee. It is an honour to be back in Ottawa. I am Canadian. I grew up in Toronto and I have been down in Washington for the past eight years, so I hope I can bring some insight both from the American perspective and certainly as a loyal Canadian who still closely follows events here.

I will talk specifically about the benefits of administrative penalties for export control violations, and I will also speak about the application of extraterritorial sanctions and describe a bit about what is done in the United States.

I want to point out that most of my research focuses on Iran sanctions issues; I have spent a lot of time looking at the Iranian energy sector. We do significant work on the oil market impact of various sanctions, including the Central Bank of Iran, which has obviously been of significant focus recently. We look at the involvement of international companies doing business in Iran, as well as the Islamic Revolutionary Guard Corps, IRGC, operations worldwide and in Canada, which my colleague will speak about in detail.

I want to talk about the benefits of administrative penalties for export control violations. The U.S. government contains robust authority to impose administrative penalties on corporations or persons that export from the U.S. to Iran a technology that can be used for a weapon of mass destruction, WMD. The principal laws containing that authority in the United States are the Arms Export Control Act, the Export Administration Regulations and the International Emergency Economic Powers Act, which is known as IEEPA.

What are the benefits of these administrative penalties for export control violations? The U.S. government's export control assistance programs recommend to foreign countries that they enact administrative penalties for export control violations, largely because these administrative penalties are much easier to impose and they are much faster. In order to deter most export control violators who are interested in financial gain, it is important to supplement the slim prospect of a criminal penalty with the significant greater likelihood of an administrative penalty.

Administrative penalties are frequently used in the United States in every type of regulatory regime, including environmental, securities, import and export tax, and communications regulations. They tend to be faster and easier to impose because there is a lower or non-existent intent requirement. Rather than a criminal prosecutor having to prove that the defendant acted knowingly, it may be possible to impose an administrative penalty by showing only that the violator acted recklessly, negligently or even, under strict liability, with no mental state.

Administrative violations have a lower burden of proof, and they have lower procedural requirements. Unlike with criminal prosecutions, they tend to be easier to settle. The Department of State and the Department of Commerce almost always reach negotiated settlements in their administrative cases prior to a formal administrative hearing. They also enable a much more flexible array of mitigating factors. As a result, administrative disposition can encourage voluntary self-disclosure. Administrative settlements often involve a commitment by the violating company to establish a robust compliance program, and this can help prevent future violations.

There has been much discussion in the international community about the application of extraterritorial U.S. law. This is U.S. law punishing non-U.S. persons for violations of U.S. law with respect to Iran sanctions. We have a number of extraterritorial sanctions that have been set up by the U.S. government with respect to WMD. One pertinent piece of legislation is the Iran-Iraq Arms Nonproliferation Act of 1992. Again, this permits the U.S. government to impose penalties on non-U.S. persons outside of the United States that are trading with Iran in banned goods.

You have no doubt heard strenuous objections to U.S. policies that involve these kinds of extraterritorial sanctions, such as the idea that the U.S. is seeking to enforce U.S. law outside of U.S. jurisdiction, but I would contend that a different and we believe more correct approach to understand U.S. policy and how a similar Canadian policy on this issue can be presented is that we want to cooperate with other governments, other countries and other people, but we want to cooperate with those who share certain basic values and policy objectives. I will discuss this more in the question and answer period, if you are interested, but U.S. law has been very effective in using the threat of extraterritorial sanctions to encourage voluntary compliance by non-U.S. persons.