U.S. should mind its own business: Merrill's rules
on sanctions have no place in Canada
By Diane Francis
National Post, Canada
There is an additional, unfortunate "know your client" rule
at U.S.-owned Merrill Lynch Canada Inc., according to a company memo leaked
to me recently.
It was a reminder to all employees of Merrill Lynch that they must comply
with the U.S. Foreign Corrupt Practices Act. This means that they must
report to their legal department any transactions involving countries
that are the subject of U.S. economic sanctions.
The U.S. government has imposed various types of sanctions against Cuba,
Angola, Burma, Iran , Iraq, Libya, North Korea, Sudan, Syria and Yugoslavia.
"Attached is an important compliance reminder which was sent to
all Merrill Lynch employees in June 1998. Please note that further information
regarding economic sanctions can be found on the Web site of the Office
of the General Council under 'Policies and Procedures'," writes Merrill
Lynch Canada's legal counsel, Bradley Doney, in an April 28 memorandum
to Canadian managers.
The June 1998, memo, addressed to all employees worldwide, is contained
on the Web site of Merrill Lynch & Co. Inc. and highlights include:
Recently, you were sent a reminder about complying with the Foreign
Corrupt Practices Act. There are other important laws concerning U.S.
economic sanctions and international boycotts that affect Merrill Lynch's
worldwide business relationships. Merrill Lynch has established policies
to enable the company and its employees to comply with these laws, and
to ensure that we 'know our customers'. "
"If at any time you have questions concerning economic sanctions
imposed by the U.S. or by other countries, or if you become aware of or
receive a boycott-related request, you should immediately contact your
business unit counsel or corporate law," it said.
"Some economic sanctions enforced by the United States prohibit
transactions with the sanctioned government only. Others prohibit Merrill
Lynch from dealing with a sanctioned country's assets, citizens, residents,
companies or anyone physically located within a sanctioned nation, regardless
of nationality. In some instances, U.S. economic sanctions extend to certain
nationals or entities in third countries who have extensive ties with sanctioned
To ensure compliance with these laws and Merrill Lynch policy, it is
incumbent upon you to 'know your customer,' which requires inquiry into
a customer's residency, nationality, ownership and business activity,"
In Italics, the memo then states: "You must report all boycott-related
requests immediately to Merrill Lynch corporate law or your manager. It
is not enough to merely refuse such requests."
In not doing so, it warns, a registered representative could be subject
to criminal or civil penalties, depending upon the nature of the transaction,
or even for "the failure to report the receipt of a request to participate
in, co-operate with, or furnish information in furtherance of a boycott."
Merrill is also subject to penalties for non-compliance.
Then it mentions Canada.
"Some countries, including Canada, Mexico and those in the European
Union, prohibit branches, affiliates and subsidiaries of U.S. firms located
in such countries from complying with certain of the U.
S. sanctions. Therefore, these issues must be analyzed by Merrill Lynch
counsel on a case-by-case basis." Which brings us to the point of
Canadian law forbids branch plant operations from adhering to sanctions
unless there are also sanctions here. This puts companies like Merrill
Lynch Canada right in the middle, so I interviewed its personable president,
Bob Schultz, recently on the issue.
"We will comply with Canadian law but, to the extent there are
conflicts, our legal counsel analyzes these individually," he said.
Only a handful of clients or transactions have been referred in the
past year, perhaps five or six, and no one was refused an account because
of where they came from or what their citizenship was, another spokesman
said on behalf of the legal department.
Schultz came to Merrill as head of Midland Walwyn Capital, acquired
last year. Ironically, Midland was the co-lead underwriter for Sherritt
Gordon, controlled by Ian Delaney, who has run afoul of U.S. sanctions
for doing business in Cuba. Delaney cannot enter the United States because
he's on a sanctions hit list. Schultz and Delaney are also neighbours
Would Merrill raise money for him again?
"He's not looking for money at the moment but if he was we would
be a participant," he said. "I'd have no problem but would have
to defer to counsel."
Interestingly, he pointed out that this complication exists for many
other Canadian companies, not just for U.S.-owned ones operating here.
"Other Canadian financial institutions [banks and their brokers]
did not participate [in the Sherritt underwriting] because they had operations
in the U.S.," he said. "Canadian companies with external operations
outside Canada are caught in the same dilemma."
So the U.S. branch operations of Canada's biggest banks or other companies
that comply with U.S. sanctions would be non-compliant with Canadian requirements
to ignore U.S. sanctions. Is this enforced? I doubt it.
How about individuals with Iranian or Burmese or Yugoslavian citizenship
who wish to open accounts at Merrill?
"Personally, if a person from one of these countries was resident
in Canada and passed all of the checks we do with clients, I'd have no
problem dealing with them. But we'd have to refer this to counsel."
It's obvious that the Americans have no business imposing any rules
on the Canadian operations of their corporations here, and they also have
no business imposing rules on the branch plant operations of Canadian
firms operating in the U.S.
But they do and they will.
This memo was leaked to me by an employee who sees this as a sovereignty
issue. I don't agree. But it's certainly a thorny matter for businesses