Regulations Amending the Special Economic Measures (Russia) Regulations: SOR/2024-172

Canada Gazette, Part II, Volume 158, Number 19

Registration
SOR/2024-172 August 30, 2024

SPECIAL ECONOMIC MEASURES ACT

P.C. 2024-993 August 30, 2024

Whereas the Governor in Council is of the opinion that the actions of the Russian Federation constitute a grave breach of international peace and security that has resulted in a serious international crisis;

Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Foreign Affairs, makes the annexed Regulations Amending the Special Economic Measures (Russia) Regulations under paragraph 4(1)(a)^{footnote a} and subsections 4(1.1)^{footnote b}, (2)^{footnote c} and (3) of the Special Economic Measures Act ^{footnote d}.

Regulations Amending the Special Economic Measures (Russia) Regulations

Amendments

1 Subsection 3.15(1) of the Special Economic Measures (Russia) Regulations ^{footnote 1} is replaced by the following:

Diamonds — import from any country

3.15 (1) It is prohibited for any person in Canada and any Canadian outside Canada to import, purchase or acquire any good referred to in column 1 of Part 1 of Schedule 12, wherever situated, from Russia or from any person in Russia, unless the goods were exported from Russia to a country other than Canada:

• (a) before March 1, 2024, for goods weighing one carat or more;
• (b) before September 1, 2024, for goods weighing half a carat or more, but less than one carat.

2 The portion of items 1 to 3 of Part 1 of Schedule 12 to the Regulations in column 1 is replaced by the following:

Item	Column 1 Goods
1	Unsorted diamonds weighing half a carat or more, whether or not worked, but not mounted or set
2	Non-industrial diamonds weighing half a carat or more, unworked or simply sawn, cleaved or bruted, but not mounted or set
3	Non-industrial diamonds weighing half a carat or more, not mounted or set, other than diamonds that are unworked or simply sawn, cleaved or bruted

3 The portion of items 1 to 3 of Part 2 of Schedule 12 to the Regulations in column 1 is replaced by the following:

Item	Column 1 Goods
1	Unsorted diamonds weighing less than half a carat, whether or not worked, but not mounted or set
2	Non-industrial diamonds weighing less than half a carat, unworked or simply sawn, cleaved or bruted, but not mounted or set
3	Non-industrial diamonds weighing less than half a carat, not mounted or set, other than diamonds that are unworked or simply sawn, cleaved or bruted

Application Before Publication

4 For the purpose of paragraph 11(2)(a) of the Statutory Instruments Act, these Regulations apply according to their terms before they are published in the Canada Gazette.

Coming into Force

5 These Regulations come into force on September 1, 2024, but if they are registered after that day, they come into force on the day on which they are registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

Revenue earned by state-owned Russian industry from exports of Russian diamonds and related jewellery products is a source of financial support to Russia’s invasion of Ukraine. Russia is the world’s largest natural diamond producer and is estimated to have earned over $5 billion in 2023.

Russia continues to earn revenue from diamond exports despite existing sanctions by the international community. Additional amendments to the Special Economic Measures (Russia) Regulations (the Russia Regulations or the Regulations) are needed to further prohibit the purchase, import, or acquisition of an expanded range of natural diamonds mined or produced in Russia that are exported, processed and/or polished in a third country in line with G7 commitments.

Background

Situation in Ukraine

On February 24, 2022, Russian President Putin announced “a special military operation” as Russian forces launched a full-scale invasion of Ukraine from Russian and Belarusian territory. Heavy fighting continues in eastern and southern Ukraine. Russia has recently opened a new front in Ukraine’s northeast. As part of its military strategy, Russia continues to fire missiles and kamikaze drone attacks on essential civilian infrastructure.

Experts, including the Organization for Security and Cooperation in Europe (OSCE) Moscow Mechanism fact-finding missions, the Independent International Commission of Inquiry on Ukraine and the United Nations (UN) Office of the High Commissioner for Human Rights, have concluded that Russia is committing serious human rights violations, war crimes, possible crimes against humanity, and conflict-related sexual violence. As of May 2024, the UN Human Rights Monitoring Mission in Ukraine has confirmed at least 11 126 civilians have been killed and that 21 863 were injured since February 24, 2022. Furthermore, 479 medical facilities and 1 165 educational facilities in Ukraine have been damaged or destroyed by Russia’s military since the invasion. President Putin’s military invasion has been paired with significant malicious cyber operations and disinformation campaigns that falsely portray the West as the aggressor, and claim Ukraine is developing chemical, biological, radiological and/or nuclear weapons with North Atlantic Treaty Organization (NATO) support.

The coalition of countries directly supporting Ukraine includes, but is not limited to, G7 and European countries. This group is working to support Ukraine across several areas, including energy security, nuclear safety, food security, humanitarian assistance, combatting Russian disinformation, sanctions and economic measures, asset seizure and forfeiture, military assistance, accountability, recovery, and reconstruction. As the war continues, G7 members and partners continue to demonstrate resolve in supporting Ukraine through diplomacy with the broader international community to encourage support for Ukraine and to counter false Russian narratives.

Since 2014, in coordination with its partners, Canada has imposed sanctions on more than 3 000 individuals and entities in Russia, Belarus, Ukraine and Moldova through regulations under the Special Economic Measures Act (SEMA). These sanctions impose dealings prohibitions (an effective asset freeze) on listed individuals and entities supporting or enabling Russia’s violation of Ukraine’s sovereignty. In addition, Canada has implemented targeted restrictions against Russia and Belarus in financial, trade (goods and services), energy and transport sectors. Canada is part of the Oil Price Cap Coalition, the G7 diamond import ban and ongoing efforts to use the proceeds from Russian sovereign assets to help Ukraine.

G7 commitment to implement Russian import diamond ban

The G7 countries represent 70% of the world diamond market. Russia is the world’s largest rough diamond producer (almost $5 billion in value in 2023) and a significant global exporter of rough diamonds (over $5 billion in exports in 2023). Its partially state-owned diamond mining conglomerate, Alrosa, accounts for 90% of Russian diamond production and is the number one diamond producer in the world by volume and number two by value. Canada and most other G7 members have already imposed sanctions against Alrosa. The European Union (EU) remains the centre of the global diamond trade, with an estimated 86% of the world’s rough diamonds passing through Belgium and, before the war, 25% of these are estimated to come from Russia.

In February, May and December 2023, G7 leaders affirmed their commitment to implement coordinated sanctions and other economic measures to constrain Russia’s capacity to finance its war of aggression against Ukraine via the diamond industry. Given the significant revenues that Russia extracts from the export of diamonds, leaders agreed to develop economic measures to reduce revenue from the sale of Russian diamonds, including rough and polished ones. Since then, officials have developed a plan to ban both direct and indirect imports of Russian non-industrial diamonds from G7 markets. The direct ban has been in place in all G7 member states since January 1, 2024. As part of the first step of the phased-in indirect ban, the indirect import of non-industrial natural diamonds mined in Russia sized 1.0 carat and larger has been in place since March 1, 2024. As part of the next phase of the indirect ban, G7 members agreed to lower the size threshold of banned diamonds down to 0.5 carats and larger by September 1, 2024. The EU, the United Kingdom (U.K.) and the United States have already passed legislation to make this size change effective as of September 1, 2024.

An unintended consequence of the indirect diamond ban has been the prohibition of diamonds of Russian or unknown origin that were legitimately purchased prior to the different phases of the ban. The diamond industry, including Canadian industry representatives, requested the G7 address this “legacy diamond” issue, as the expectation to identify non-Russian diamond origin is new and there are existing stocks of diamonds. Not allowing an exemption for these diamonds puts a financial burden upon the diamond industry without affecting Russia’s revenues from diamond export. G7 members have agreed to a proposal to introduce a legacy diamond exemption for the indirect diamond ban. The EU and U.K. have already implemented this exemption.

Objective

1. Reduce Russia’s ability to finance its illegal war against Ukraine through the diamond sector, in alignment with the G7 commitment on Russian diamonds.
2. Ensure that Russian diamonds exported, processed or polished in a third country are not imported into Canada.
3. Underscore continued unity with G7 partners in responding to Russia’s ongoing actions in Ukraine.
4. Establish legacy diamond provisions for diamonds of Russian or unknown origin that were outside of Russia prior to the different phases of the G7’s Russian diamond sanctions.

Description

In accordance with the G7 commitment, the amendments prohibit the purchase, import, or acquisition of certain diamonds mined or produced in Russia that are exported, processed and/or polished in a third country. In particular, the prohibition applies with respect to natural diamonds whose weight is greater than or equal to 0.5 carats, in the following World Customs Organization Harmonized Commodity Description and Coding System (HS) codes:

• HS 7102.10 — Unsorted diamonds, whether or not worked, but not mounted or set;
• HS 7102.31 — Non-industrial diamonds, unworked or simply sawn, cleaved or bruted, but not mounted or set;
• HS 7102.39 — Non-industrial diamonds, not mounted or set, other than diamonds that are unworked or simply sawn, cleaved or bruted.

The prohibition applies to any person (individual or entity) in Canada as well as Canadians outside of Canada.

The prohibitions do not apply to personal effects that are carried by an individual entering Canada and that are solely intended for the use of the individual or the individual’s immediate family.

The prohibitions also do not apply to the import of these diamonds, if they were outside of Russia before the entry into force of the different stages of the G7 ban (legacy diamonds). Legacy diamond goods entering Canada may include

• diamonds of Russian or unknown origin of 1.0 carat weight or higher imported into a third country, excluding Russia, before March 1, 2024; and
• diamonds of Russian or unknown origin of 0.5 carat weight or higher imported into a third country, excluding Russia, before September 1, 2024.

Regulatory development

Consultation

Global Affairs Canada (GAC) regularly engages with relevant stakeholders, including civil society organizations, cultural communities, and other like-minded governments, regarding Canada’s approach to sanctions implementation. The G7 commitment to ban the importation of Russian diamonds was publicly announced in February, May, and December 2023. Natural Resources Canada (NRCan) and GAC have engaged in outreach to the Canadian diamond industry to solicit feedback and assist them in meeting the new requirements. GAC and NRCan are in regular contact with provinces and territories where diamond mines are located.

Consultations with industry took place in November 2023, January, March, April and June 2024 and included a formal invitation to provide written feedback, virtual briefings and a webinar. During these sessions, GAC and NRCan briefed industry on the implementation of the Russian diamond sanctions, answered questions on planned next steps, including on plans to deal with existing diamond stocks. Industry provided feedback on the types of documentation that could be used to attest to non-Russian origin of diamonds. Some stakeholders called for consistency across the G7 jurisdictions on the rules and processes for implementing sanctions, including on how existing diamond stocks are treated. This feedback helped Canada contribute to the coordination of sanctions implementation across the G7. Additionally, the legacy diamonds exemption aims to address some of the industry’s feedback.

Modern treaty obligations and Indigenous engagement and consultation

An initial assessment of the geographical scope of the Russia Regulations was conducted and did not identify any modern treaty obligations, as the Regulations do not take effect in a modern treaty area.

Instrument choice

Regulations are the sole method to enact sanctions in Canada. No other instrument could be considered.

Regulatory analysis

Benefits and costs

The second phase of the G7 indirect ban will complement the G7 direct and indirect bans that have been implemented by G7 member states and the EU as of January 1, 2024, and March 1, 2024, respectively. These amendments will ensure that Canada acts alongside G7 partners to restrict a key source of revenue for Russia’s war in Ukraine. Taking action demonstrates G7 determination to follow through on their public commitments to impose costs on Russia and reduce its revenue streams, sending another clear signal of unity and support to Ukraine.

The amendment for legacy diamonds will address unintended consequences of the indirect ban on existing diamond stocks. The exemption will allow operators within the Canadian diamond industry to import Russian or unknown origin diamonds if they were already outside of Russia when the indirect import bans came into effect. The amendment eliminates an unintended financial burden on the diamond industry, without affecting Russian revenues. Harmonizing regulatory requirements with G7 members also provides regulatory certainty for industry.

The Regulations currently prohibit some import and export of diamonds and diamond-related products to and from Russia. Canadian imports of products currently subject to the direct diamond ban from Russia totalled $4.1 million in 2021. Following Russia’s full-scale invasion of Ukraine in 2022, Canada sanctioned Russia’s state-owned enterprise, diamond conglomerate Alrosa. Canada also removed the Most Favoured Nation status (which effectively imposed a 35% tariff on all imports to Canada). This led to a drastic decrease of all imports, including imports of products subject to the direct ban, amounting to $327,224 in 2022 and $20,941 in 2023. For the products currently subject to the indirect ban (i.e. HS 7102.10, HS 7102.31, HS 7102.39), total Canadian imports from all countries and all sizes was $373 million in 2023; there were no imports directly from Russia.^{footnote 2}

The introduction of the second phase of the G7 indirect ban, and the amendments for legacy diamonds, will impose additional costs on importers to Canada; they will be asked to provide information or documentation to prove the origin of these diamonds, or to prove that the diamonds were located outside of Russia before the bans were in place. This will now be required if the diamonds are equal to or greater than 0.5 carats, whereas before it was only needed for diamonds equal to or greater than 1.0 carat. Additional information or documentation will be requested at the discretion of a border services officer upon importation.

HS codes 7102.31 and 7102.10 are currently regulated under the Export and Import of Rough Diamonds Act, which requires that imports are accompanied by a valid Kimberley Process Certificate (KPC) issued by the Kimberley Process authority in the exporting country. The KPC includes information on carat weight and country of origin. The Canada Border Services Agency (CBSA) verifies the KPC, stamps it with the CBSA Integrated Stamp and returns it to the importer, who is to forward the KPC to NRCan within seven days after import. KPCs may be included as part of documentary evidence for these proposed requirements. Therefore, no incremental costs on importers are anticipated in association with these HS codes, given this is an existing requirement.

The CBSA would incur minor costs related to implementation, communication and outreach activities needed as a result of the amendments (e.g. updating departmental memoranda and work instruments, as well as responding to functional guidance requests and updating web content on the CBSA web page). The Regulations are not expected to result in increased compliance, enforcement and verification costs to the CBSA. Post-import verifications are currently conducted and would continue to be conducted as part of broader compliance verification activities.

Small business lens

Analysis under the small business lens concluded that the Regulations will impact Canadian small businesses. Importers will be required to complete an attestation as to the origin of the diamonds being imported, or the location of the diamonds on the date the import bans were introduced (e.g. legacy diamond). This is considered to be an administrative burden under the definition in the Policy on Limiting Regulatory Burden on Business. No additional flexibility is being provided to smaller importers since this document is a critical element of the verification process and would not represent a significant burden on importers. The amendments could also create indirect impacts for small businesses if they are required to obtain imports from other sources or seek the necessary documents that would authorize them to carry out specified activities or transactions that are otherwise prohibited.

One-for-one rule

The one-for-one rule does not apply, as there is no incremental change in administrative burden on businesses and no regulatory titles are repealed or introduced. Since February 29, 2024, and in line with the first phase of the G7 indirect diamond ban, importers of worked diamonds under import code 7102.39 have needed to possess available evidence on the country of origin for their diamond imports if their products were equal to or greater than 1.0 carat. They may be asked by a border services officer upon importation to provide supporting documentation confirming the diamonds were not mined in Russia, or that the diamonds were outside of Russia on the date the import bans were introduced (e.g. legacy diamond). It is anticipated that no additional businesses will be affected by these amendments, as the impact of the first phase of the indirect ban was calculated irrespective of carat size for code 7102.39.

The permitting process for businesses to seek approval to import diamonds of Russian origin also meets the definition of “administrative burden” in the Red Tape Reduction Act; however, while permits can be granted under the Regulations, they are granted at the Minister’s discretion and on an exceptional basis. As a result, no associated administrative costs are stated here.

Regulatory cooperation and alignment

While the amendments are not related to a work plan or commitment under a formal regulatory cooperation forum, they are being made to implement commitments made by the Prime Minister in the context of Canada’s membership in the G7 and are reflective of close and ongoing cooperation with other G7 members pursuing similar measures.

Strategic environmental assessment

The amendments are unlikely to result in important environmental effects. In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus (GBA+)

The subject of economic sanctions has previously been assessed for effects on gender and diversity. Although intended to facilitate a change in behaviour through economic pressure on individuals and entities in foreign states, sanctions under the Special Economic Measures Act can nevertheless have an unintended impact on certain vulnerable groups and individuals. Rather than affecting Russia as a whole, these targeted sanctions impact Russia’s ability to export diamonds and ensure that revenue cannot be generated from Canada that could support Russia’s war efforts. Therefore, these sanctions are unlikely to have a significant impact on vulnerable groups as compared to traditional broad-based economic sanctions directed toward a state.

The regulatory amendments will largely affect businesses, which are legal entities, rather than individuals. While not the target of the measures, it is possible that there may be some limited incidental impacts on artisanal and small-scale mining as well as local beneficiation activities, which disproportionately involve women and Indigenous communities. All efforts will be made to ensure that implementation of these measures minimize any differential impacts on these communities.

Implementation, compliance and enforcement, and service standards

In alignment with the G7 commitment, the amendments come into force on September 1, 2024.

GAC collaborates with the CBSA for effective enforcement, activating a border lookout when a new prohibition is implemented and providing assessments on whether sanctions are engaged, as requested. The CBSA possesses the essential on-the-ground presence, expertise and authorities for enforcement.

In line with the first phase of the indirect ban, once the amendments come into force, importers may be asked by CBSA officials to provide supporting documentation confirming that their products are not of Russian origin. Importers are encouraged to fill out the already available diamond origin attestation form to help expedite border clearance. Additionally, importers may opt to import via the G7 import node in Antwerp, Belgium, by shipping the diamonds through this node. Since March 1, 2024, non-Russian diamonds travelling through this node have received a G7 certificate, effectively confirming that they are not of Russian origin.

These amendments also include an exemption for legacy diamonds. Therefore, importers may be asked by CBSA officials to provide supporting documentation confirming that their Russian-origin goods were already outside of Russia when the indirect bans came into effect.

Additional information or documentation may be requested at the discretion of a CBSA officer upon importation. This could include documentation relating to the origin, purchase, and transportation of all materials from suppliers involved in the mining, manufacturing, or production of the diamond. Examples of documentary evidence to help facilitate border clearance could include the following:

• mining origin (country where the diamond was originally mined);
• names of buyer and seller;
• HS codes and description;
• number of parcels in a shipment;
• weight in carat of the diamond(s) if at least one diamond (if multiple diamonds are shipped in a parcel) is of 0.5 carat or above;
• value of the diamonds;
• place of importation, exportation, and route of transportation;
• evidence from traceability systems;
• laboratory grading report;
• Kimberley Process Certificate;
• proof of inheritance; and
• G7 certificate.

In order to be taken into consideration, the information will need to be submitted in one of Canada’s official languages (English or French). Where applicable, both original and translated copies are to be provided.

The Department’s Trade Commissioner Service (TCS) abroad and in Canada continues to assist clients in understanding Canadian sanctions regulations, and notably the impact of the regulations on any activities in which Canadians may be engaged. The Department is also increasing outreach efforts across Canada — including engaging with businesses, universities, and provincial/territorial governments — to enhance national awareness of and compliance with Canadian sanctions.

Royal Canadian Mounted Police and CBSA officers have the power to enforce sanctions violations through their respective authorities, as defined under the Customs Act, the SEMA and the Criminal Code. In accordance with section 8 of the SEMA, every person who knowingly contravenes or fails to comply with the Russia Regulations is liable, upon summary conviction, to a fine of not more than $25,000 or to imprisonment for a term of not more than one year, or to both; or, upon conviction on indictment, to imprisonment for a term of not more than five years.

Contact

Global Affairs Canada
Sanctions Bureau (PSD)
125 Sussex Drive
Ottawa, Ontario
K1A 0G2
Telephone (toll-free): 833‑352‑0769
Telephone (local): 343‑203‑3975
Fax: 613‑995‑9085
Email: sanctions@international.gc.ca