On February 21, 2022, Russia formally recognized the purported independence of two regions in Eastern Ukraine, Donetsk and Luhansk. The next day it ordered Russian troops into the separatist-occupied territories, and the incursion escalated into a multi-pronged invasion of Ukraine on February 24, 2022. Canada swiftly announced new sanctions that target Russia and the occupied Ukrainian regions, as it warned it would do if Russia were to continue its aggressive policies against Ukraine.

Prime Minister Trudeau announced on February 22, 2022 that Canada would, in coordination with like-minded NATO partner states, issue additional sanctions targeting Russia and the separatist-controlled territories of Ukraine. The Prime Minister announced further sanctions on February 24, 2022, and the amending regulations were published the same day. Canada's new sanctions include the following measures:

• 411 individuals and entities have been added to Schedule 1 of Canada's Special Economic Measures (Russia) Regulations and four individuals have been added to the Schedule of the Special Economic Measures (Ukraine) Regulations. Some of these listings are new, while other entities that were previously on Schedules 2 and 3 of the Russia regulations, which impose targeted sectorial sanctions limited to debt and/or equity financing constraints, were shifted to Schedule 1, which prohibits all financial transactions and trade in goods and technology. Entities now on Schedule 1 include VTB Bank, Sberbank, Bank Otkritie, Novikombank, Sovcombank, Promsvyazbank PJSC, VEB Bank, the Russian Direct Investment Fund, Gazprom, Gazprombank and Gazpromneft, Rostelecom, Rostec, Wagner paramilitary group, Transneft, and United Aircraft Corporation among others, as well as individual members of the Russian Federal Assembly, Russian Security Council, and other Russian oligarchs and businesspeople. A consolidated list summarizing the newly added names can be found in this Global Affairs Canada backgrounder.
• Effective immediately, Canada has cancelled all Canadian export permits for goods listed on Canada's Export Control List to Russia, effectively banning the export of all controlled goods and technology including dual-use (civilian) items. Canada also announced that no further permits will be issued barring exceptional circumstances involving medical/ humanitarian need. See Notice to Exporters No. 1071.
• Canada has banned new transactions in Russian sovereign debt, specifically, any direct or indirect dealings in debt (of any maturity) that involve the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation or any of their property or interests in property. See Regulations Amending the Special Economic Measures (Russia) Regulations.
• Canada has banned all investments and related financial transactions, trade in goods, tourism and related financial transactions, and the provision of technical assistance to the regions of Ukraine controlled by the self-declared Donetsk People's Republic and Luhansk People's Republic. Technical assistance is defined as "any form of assistance, such as providing instruction, training, consulting services or technical advice or transferring know-how or technical data." See Regulations Amending the Special Economic Measures (Ukraine) Regulations.

The restrictions are subject to grandfathering clauses, which authorize payments by a listed person to a non-listed person owed under a contract that was entered into before the person was listed (in the case of Russian Schedule 1 and Ukraine Schedule sanctions), or the performance of contracts entered into before the sanctions came into force (in the case of the Donetsk and Luhansk geographic sanctions). However, no new transactions or business is permitted with these individuals, entities or regions.

Canada acted in coordination with like-minded security partners to develop these sanctions. The European Union, United Kingdom, United States, Japan, South Korea, and Australia also announced sanctions this week that are largely aligned with Canada's, although there are notable differences. For example, Germany halted certification of the Nord Stream 2 pipeline project and the United Kingdom has banned the Russian airline Aeroflot from landing in the United Kingdom.

One non-Canadian measure that has implications for Canadian businesses is the United States' imposition of two new "foreign direct product rules" to supplies or transfers of goods and technology to Russia and to Russian military end users or end uses. This prohibits, under U.S. law, the supply of goods or technology made outside of the United States that were produced using specified categories of U.S. origin software or technology, such as testing or production equipment, or in a plant or "major component" of a plant located outside the United States that is itself a direct product of specified categories of U.S. origin software or technology. In certain circumstances and depending on available license exemptions, U.S. foreign direct product rules can have the effect of making a broader range of items manufactured wholly outside the United States subject to U.S. export control laws when being exported to Russia and imposing significant U.S. export license requirements when these items are exported from third countries (such as Canada) to Russia. The U.S. Department of Commerce has granted Canada a license exemption in connection with the Russia-related foreign direct product rules because Canada has committed to implementing substantially similar export controls in connection with supplies of export controlled goods and technology to Russia. Exporters should confirm their eligibility for this license exemption with U.S. trade counsel to ensure that it applies in their particular circumstances.

As these sanctions imposed by Canada and other countries have the potential to affect the operations of Canadian businesses that trade with, provide services to or engage in financial transactions with Russia or Ukraine, businesses should evaluate their current exposure in these regions and monitor developments closely. Canada and its allies have indicated that they could further expand the sanctions if the crisis escalates.