Over the past years, the issue of sanctions globally has come to the forefront of public and government discussion largely due to the ongoing conflict in Ukraine. Many businesses that had never previously encountered the issue were forced to deal with sanctions compliance matters.
Australia has been no exception in this regard and has implemented a wide-ranging sanctions regime in respect of Russia, Belarus, Russian and Belarusian entities and individuals.
Australian sanctions law allows the federal government to implement three types of sanctions – UN sanctions, Autonomous sanctions and Thematic sanctions. The differences between the nature of these different types of sanctions and how they operate has been discussed in a previous article. Additionally, an article published last year discusses the Australian sanctions measures implemented just after the outbreak of the Russia-Ukraine conflict in February 2022.
While not the first time that Australia has made use of Australian sanctions legislation, the recent sanctions imposed against Russia and Belarus are the most extensive and wide-ranging use of Australian sanctions. This has had a significant impact on Australian companies seeking to navigate the complex and often uncertain sanctions regulatory framework.
Australia has imposed an additional customs duty of 35% on all Russian and Belarusian goods imported to Australia until at least 24 October 2023.
Over the past year, the Customs & Trade team at Rigby Cooke Lawyers has acted for a number of clients, including both domestic and overseas businesses, providing them with comprehensive sanctions advice and assisting them in carrying out the necessary due diligence and risk assessment to ensure compliance with Australian sanctions law.
The scope of Australia’s sanctions regime against Russia and Belarus has meant that certain mechanisms within Australia’s sanctions legislation are being put in practice for the first time. Consequently, this has revealed some issues which have resulted in substantial uncertainty and regulatory burdens placed upon businesses.
The Customs & Trade team at Rigby Cooke Lawyers is of the opinion that there is a need for reform of Australian sanctions legislation in certain areas to provide businesses and individuals with more certainty and bring Australian sanctions legislation closer in line with foreign jurisdictions, such as the United States of America (USA) and the United Kingdom (UK).
Review of Australia’s Autonomous Sanctions Framework
The recent announcement of the Australian Department of Foreign Affairs and Trade (DFAT) that it is undertaking a legislative review of the Autonomous Sanctions Act 2011 (Act) and the Autonomous Sanctions Regulations 2011 (Regulations) ahead of their sunsetting on 1 April 2024 has largely been welcomed.
The Review of Australia’s Autonomous Sanctions Framework – Issues Paper (Issues Paper) can be viewed here.
DFAT has invited submissions to be made in response to the Issues Paper, which can be lodged electronically via sanctionsconsultation@dfat.gov.au prior to 26 February 2023.
While the Issues Paper has identified a number of different areas of potential reform to the Regulations, we have provided below commentary on the areas of reform which are most pertinent to our experience in providing sanctions advice to our clients over the past year.
1. Streamlining the legal framework
Those undertaking corporate due diligence to comply with Australian sanctions law face the complexity of navigating not only the Act but also the Regulations and various legislative instruments which are made under the Act.
We welcome the call to simplify and streamline this current three-tiered legislative structure by establishing a two-tiered structure instead.
It would also be of great assistance to corporations undertaking due diligence to have all the relevant provisions unique to a particular country, individual or thematic sanction to be grouped into one instrument.
At present, while DFAT does maintain a Consolidated List of ‘designated’ individuals and entities which are the subject of targeted financial sanctions, it is still necessary at times for those undertaking due diligence to spend time reviewing numerous legislative instruments made under the Act to ensure that no designated individual or entity has been overlooked.
2. Scope of targeted financial sanctions
The Regulations implement targeted financial sanctions by naming certain individuals or entities as ‘designated’. Under the Regulations, it is prohibited to directly or indirectly make an asset available to, or for the benefit of, a designated person or entity, and use or deal with their assets.
Unfortunately, at present there is a lack of a definition in either the Act or the Regulations regarding what type of transactions, corporate structures and shareholding arrangements might lead to inadvertently or indirectly making an asset available to, or for the benefit of, a designated person or entity.
The lack of clarity in Australian sanctions legislation on this issue can be contrasted with other jurisdictions such as the UK or the USA, which have issued more definitive and detailed guidance on this question.
For instance, would engaging in business transactions with a company which is itself not a designated entity, but where a majority of the shares in that company are held by a designated individual, constitute a contravention of the Australian sanctions regime?
Or, even more difficult to navigate would be a scenario where funds were transferred to a company which was not itself a designated entity, but was controlled informally by a designated individual, or was owned by a parent company that was in turn controlled or owned by a designated individual.
The Australian sanctions legislation in its present form does not give us a definitive answer to this question. In contrast, the UK sanctions legislation provides a series of specific tests such as the Ownership Test, Board Appointment Test, or Other Forms of Control Test which help determine whether a designated individual exercises sufficient control over an entity, such that dealings with that entity would amount to indirectly making assets available to or for the benefit of a designated person.
3. Sanctions offences and enforcement
Not only are sanctions offences criminal offences which are subject to serious penalties, they are also strict liability offences. This means that lack of intent, or ignorance of the law, will not serve as defences to being prosecuted for violations of the Act or Regulations.
The Issues Paper identifies prosecution is not always the most appropriate option to address non-compliance with sanctions law, particularly in circumstances where it is evident that a corporation or individual has undertaken due diligence and has made efforts to ensure their compliance.
As we have learned from assisting larger transnational corporate clients over the past year, certain designated individuals or entities operate within an elaborate and complex multinational web of corporate structures, spanning across numerous jurisdictions and involving a multitude of subsidiary and related companies. In conjunction with the ambiguity in the Australian sanctions legislation, this makes due diligence a challenge even for larger well-resourced corporations, let alone small business and individual traders.
Accordingly, we would welcome the prospect of introducing a system of civil pecuniary penalties that may be imposed through a court, enabling sanctions contraventions to be assessed by the court on a lower standard of proof.
This may be appropriate in situations where the circumstances do not warrant a criminal conviction.
4. Obtaining rulings from the Australian Sanctions Office
The Australian Sanctions Office (ASO), as Australia’s sanctions regulator, is responsible for monitoring compliance with Australian sanctions law and has the function of providing indicative sanctions assessments, and processing permit applications to mitigate the risk of the public breaching sanctions law.
Since February 2022, due to the scope of the Australian sanctions regime for Russia the ASO may have been inundated with enquiries and businesses have not always been able to obtain a timely sanctions assessment, particularly in situations where the relevant transactions were time sensitive.
In this regard, DFAT may wish to consider providing some sort of indicative timeframe for those making applications to ASO for a sanctions assessment, which would provide some additional certainty to the private sector navigating Australia’s sanctions regime.
We look forward to seeing the outcome of DFAT’s review of Australia’s Autonomous Sanctions Framework.
Contact us
If you are an Australian company or individual requiring advice on any aspect of Australian sanctions law, or would like assistance in preparing submissions to DFAT for its review of the Australian Autonomous Sanctions Framework, please contact our Customs & Trade team.
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