Summary of Updates
- The Minister has increased powers to name individuals and companies as “designated persons” and has named additional individuals and companies (including several Russian corporates and banks) as designated persons. It is prohibited to deal with these persons, to deal with their assets, or to facilitate any trade or dealing with these persons. The persons are also subject to travel bans.
- The trade sanctions that have been in effect in relation to Crimea and Sevastopol have not substantially changed, but have now been extended to the regions of Donetsk and Luhansk.
When doing business with Russian or Ukrainian individuals or entities, you should:
The Autonomous Sanctions Act 2011 (Cth) (“Sanctions Act”) enables the Minister of the Department of Foreign Affairs and Trade (“the Minister”) to issue a legislative instrument to:
- specify broader circumstances that will constitute a sanctioned act; or
- specify an entity as a sanctioned ‘designated Commonwealth entity’.
Before issuing a legislative instrument under the Autonomous Sanctions Regulations 2011 (Cth) (“Regulations”), the Minister must satisfy the Governor-General that the proposed regulation will:
- facilitate the conduct of Australia’s relations with other countries or persons outside Australia; or
- otherwise deal with matters, things or relationships outside Australia.
Alternatively, the Sanctions Act enables the Minister to issue sanctions under the Charter of the United Nations Act 1945 (“Charter”) to give effect to resolutions passed by the UN Security Council. It is not common for instruments to be issued under the Charter.
Australian companies and Australian citizens (“Australians”) will commit an offence if it engages in conduct (an act or omission) and the conduct contravenes a sanctions law under the Sanctions Act or the Charter. However, a defence is available for many of the offences under Australian sanctions laws, if the Australian can show that it took reasonable precautions, and exercised due diligence, to avoid the contravention.
The sanctions regime as it relates to Russia and Ukraine is comprised of two main components:
- Trade Sanctions - restrictions on the import, export, transport, purchase, sale of and provision of related services (including financial assistance and services) of certain goods in connection with specific countries and regions. Some trade sanctions also only relate to certain entities which are listed in the Autonomous Sanctions (Russia, Crimea and Sevastopol) Specification 2015 (this is a separate list from the Consolidated List or the Autonomous Sanctions (Designated Persons and Entities and Declared Persons – Russia and Ukraine) List 2014.)
- Restrictions on Designated Persons - Persons and entities listed in the Autonomous Sanctions (Designated Persons and Entities and Declared Persons – Russia and Ukraine) List 2014 are subject to individual restrictions.
Sanctions on the Russian Federation
Expansion of Minister’s ability to name “designated persons”
The Autonomous Sanctions Amendment (Russia) Regulations 2022 enables the Minister to designate persons and entities for target financial sanctions and/or travel bans where:
- the Minister is satisfied that the person or entity is or has been engaging in an activity or performing a function that is of economic or strategic significance to Russia;
- the person is a current or former Minister or senior official of the Russian Government; or
- the person is an immediate family member of a person mentioned in paragraph (1) or (2).
There are two consequences for “designated persons”:
- it is prohibited to directly or indirectly make an asset available to, or for the benefit of, a designated person or entity, other than as authorised by a permit granted by the Foreign Minister
- any person who holds an asset owned or controlled by a designated person must freeze that asset and may not use or deal that asset or allow the asset to be used or dealt with, or facilitate the use or dealing with the asset, other than authorised by a permit granted by the Foreign Minister.
Trade sanctions (effective from 31 March 2015)
The minister has declared further goods related to oil and other energy products as sanctioned imports and various aluminium products as sanctioned exports. We note that the below table is a summary of the provisions only – the legislation is more specific and contains some specific exemptions not listed here. The full provisions are set out in the Autonomous Sanctions Regulations 2011 (Cth) and the Autonomous Sanctions (Russia, Crimea and Sevastopol) Specification 2015.
A financial service refers to an investment service, a service providing financial advice, a brokering service, insurance, reinsurance or financial derivatives.
Specified Entities are listed in the Autonomous Sanctions (Russia, Crimea and Sevastopol) Specification 2015
Sanctions on Ukraine (including Crimea & Sevastopol)
Extension of Trade Sanctions to new regions
As of the 28 March 2022, the regime which previously applied to the Crimea & Sevastopol regions (effective from 31 March 2015) will be extended to the Luhansk and Donetsk regions (and any other region which come under Russian control and are added by the Minister).
Specified Ukraine Regions means each of Crimea, Donetsk, Luhansk, Sevastopol or any additional regions of Ukraine specified by the Minister.
The trade sanctions now applicable to all Specified Ukraine Regions are set out below:
Existing sanctions on designated persons
The Minister may designate a person or entity that the Minister is satisfied is responsible for, or complicit in the threat to the sovereignty and territorial integrity of Ukraine, as a designated person. The restrictions relating to designated persons are outlined above.
How to minimise the risk
For many of the offences arising from a breach of the sanctions legislation, there is a defence if you can show you took reasonable precautions and exercised due diligence to avoid the breach.
What should you be doing to rely on this defence?
1. Establish a Sanctions Policy
If you have not already, you should establish a framework for identifying sanctions laws, determining their application to the company and for ensuring compliance with Australian sanctions laws. We would typically expect a Sanctions Policy to include:
- a list of Australian sanctions laws relevant to the company’s business, and a process for identifying changes to those laws from time to time;
- minimum due diligence requirements for each type of transaction the company might engage in (see 2 below);
- a process for review of contracts with counterparties, to ensure these include appropriate warranties in respect of sanctions laws;
- details of training to be provided to employees, and minimum screening requirements for employees (and third parties where appropriate);
- a framework for escalating Australian sanctions law risks and concerns to senior management, and procedures for adequately responding to any risks or concerns identified;
- systems for auditing compliance with the Sanctions Policy at regular intervals; and
- procedures for maintaining adequate records of compliance.
2. Take “reasonable” steps in respect of each transaction
What is reasonable may vary depending on the nature and size of your business. At a minimum companies may be required to screen parties against the Consolidated List, however DFAT has indicated that additional steps may be required. This is because an entity may breach Australian sanctions laws where transacting with a person who is not on the Consolidated list but is connected with someone on that list, or because some offences relate to matters unconnected with the List (e.g. exporting certain products to a particular country).
Such additional steps may include due diligence to understand who the parties are owned by, controlled by or acting at the direction of, considering whether a transaction has any connection with a country in respect of which Australian sanctions laws apply (e.g. Iran, Crimea, Syria, Russia, DPRK), or an industry in respect of which Australian sanctions laws apply (for example, in respect of Russia, arms or related matériel) and/or obtaining contractual representations and warranties in respect of their compliance with sanctions laws.
When drafting your transaction documents or template sanctions language to be inserted, you should also consider what sanctions provisions apply, when they can be exercised and what actions you can take, even where the action (or in-action) is not required by law in Australia. For example, do the illegality provisions give you discretion to decide what would put you in breach of sanctions law, or is it solely a “breach of law” clause. You should also consider the impact on counterparties and service providers when the counterparty’s compliance with sanctions laws would put it in breach of its contractual obligations or undertakings. For example, the use of Force Majeure clauses may assist in preventing a breach of contract.
You should be mindful of your obligations under anti-discrimination laws where there is no breach of sanctions laws.
3. Monitor changes to Australian sanctions laws to ensure framework and due diligence procedures remain current
The Australian Government has made statements indicating that further sanctions may be imposed or the existing regime expanded into additional areas. Companies should continually monitor these changes and re-assess their position as required.
Written by Hayley Johnson.