Insight,

Responding to the Russia-Ukraine War – Updates to Australia’s autonomous sanctions regime

Summary of Updates

Russia

  • 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.

Ukraine

  • 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.

Key Takeaways

When doing business with Russian or Ukrainian individuals or entities, you should: 

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.