Heightened focus on Australian sanctions

What you need to know

• Sanctions compliance has received heightened regulatory attention in Australia and globally following Russia's invasion of Ukraine.
• It is important that companies are aware of their obligations under Australian sanctions laws and have strong and effective systems in place to ensure compliance. We anticipate further changes and increased regulatory scrutiny in this area in coming years (including possible enforcement action).
• This update provides a high-level guide to the Australian sanctions framework, including key features of Australian sanctions laws, who needs to comply with Australian sanctions, the different types of Australian sanctions regimes, and the types of conduct that is typically prohibited. We also provide some practical suggestions regarding points to consider when reviewing your sanctions compliance systems.
• Contraventions of Australian sanctions laws are strict liability offences for corporations and carry serious penalties. However, it is a defence to a contravention if the corporation proves that it took reasonable precautions, and exercised due diligence, to avoid a contravention. Having strong and effective compliance systems is likely to significantly assist companies in defending a prosecution in the event of a contravention.
• Detailed obligations under Australian sanctions regimes change frequently and sometimes at short notice.

What you need to do

• Companies should review their existing sanctions compliance systems in light of recent developments to ensure that they remain "fit for purpose".
• It is important that your sanctions compliance systems include a process for rapidly identifying and responding to changes to your company's obligations under Australian sanctions laws, upfront and ongoing due diligence of all existing and proposed activities for potential sanctions risk (including in relation to customers, suppliers and other third parties involved in the supply chain), and regular audits.

Recent developments – a shifting regulatory landscape

Sanctions compliance has received heightened regulatory attention in Australia and globally following Russia's invasion of Ukraine in February 2022. Regulators are also moving towards greater coordination of sanctions enforcement efforts across jurisdictions. Some notable recent Australian developments include:

• Australia has significantly expanded its sanctions regime in relation to Russia and certain Ukraine regions following the invasion,¹  including by imposing new "thematic sanctions" on a number of Russian citizens under recent amendments to the Autonomous Sanctions Act.²
• On 16 March 2022, Australia's Financial Intelligence Unit (FIU) joined those of Canada, France, Germany, Italy, Japan, the Netherlands, New Zealand, the United Kingdom, and the United States in establishing the Russia-Related Illicit Finance and Sanctions FIU Working Group. The Statement of Intent affirms (amongst other things) the need for Working Group Members to enhance financial intelligence on sanction-related matters and associated financial flows and economic activities, and to expedite and increase intelligence sharing in these areas.
• Reflecting the intersection between sanctions and money laundering concerns, on 27 June 2022 the Australian Transaction Reports and Analysis Centre (AUSTRAC), Australia's money laundering regulator, announced that it had established a dedicated intelligence team to monitor and triage financial reporting about Russian sanctions, which will be used to assist the Australian Sanctions Office (ASO) and Australian Federal Police (AFP) to detect sanctions evasion.

These developments follow similar activity in other jurisdictions to increase regulatory scrutiny and strengthen existing sanctions laws following Russia's invasion of Ukraine. For example, on 2 March 2022 the United States Department of Justice announced the establishment of Task Force KleptoCapture, an interagency taskforce responsible for enforcing sanctions, export restrictions and other economic counter-measures imposed by the United States and its allies. On 15 March 2022 the United Kingdom amended its financial sanctions laws to remove the requirement for the Office of Financial Sanctions Implementation (OFSI) to prove in civil monetary penalty cases that a person had knowledge or reasonable cause to suspect a breach of a financial sanction (effectively making it easier for OFSI to bring monetary penalty cases for breaches of financial sanctions). OFSI's associated guidance is here.  

We anticipate that sanctions compliance is likely to be a particular focus for regulators in Australia and globally in the coming years, including for possible enforcement action. That makes it all the more important that companies are aware of their obligations under Australian sanctions laws and have strong and effective systems in place to ensure compliance. Australian companies (and international companies operating in Australia) should also review their existing sanctions compliance systems in light of recent developments in this area to ensure that they remain "fit for purpose".

Key features of Australian sanctions laws

• Contraventions of Australian sanctions laws are strict liability offences for corporations and carry serious penalties.³ However, it is a defence to a contravention if the corporation proves that it took reasonable precautions, and exercised due diligence, to avoid a contravention.⁴  Having strong and effective compliance systems is likely to significantly assist in establishing a defence to a prosecution in the event of a contravention (not to mention preventing a contravention in the first place).
• Australian citizens and Australian body corporates⁵ are generally required to comply with Australian sanctions laws even when they are conducting activities wholly overseas.⁶  Accordingly, Australian citizens and Australian body corporates need to have regard to Australian sanctions laws at all times, regardless of where they operate.
• Other individuals and entities are generally required to comply with Australian sanctions laws if they engage in conduct wholly or partly in Australia or on board an Australian aircraft or Australian ship.⁷
• Sanctions can now be imposed on individuals and entities who engage in certain types of conduct, regardless of where they are located. Accordingly, there is an increased likelihood of sanctions compliance risk arising in relation to activities in countries that have not historically been subject to an Australian sanctions regime.

Overview of the Australian legislative framework

Australia imposes sanctions under two principal pieces of legislation:

1. Charter of the United Nations Act 1945 (Cth) (UN Act); and
2. Autonomous Sanctions Act 2011 (Cth) (Autonomous Sanctions Act).

In practice, Australia imposes sanctions by making regulations under the UN Act or the Autonomous Sanctions Act.

The UN Act enables the making of regulations to give effect to decisions of the United Nations Security Council (UNSC) that Australia is required to carry out under Article 25 of the Charter of the United Nations.⁸

The Autonomous Sanctions Act enables the making of regulations to impose "autonomous sanctions". Autonomous sanctions are punitive measures not involving the use of armed force which a government imposes as a matter of foreign policy (as opposed to an international obligation under a UNSC decision) in situations of international concern.⁹

What types of sanctions regimes does Australia have?

Australia has three main types of sanctions regimes:

1. Country-specific sanctions regimes: Australia has sanctions regimes that apply to specific countries, as well as individuals and entities with a particular association to that country (for example, individuals or entities that the Minister for Foreign Affairs is satisfied have contributed to Iran's nuclear or missile programs).¹⁰
2. Organisation-specific sanctions regimes: Australia has sanctions regimes that apply to specific organisations (for example, ISIL (Da'esh), Al-Qaida and the Taliban), as well as individuals and entities associated with those organisations.¹¹
3. Thematic sanctions regimes: Australia has sanctions regimes that apply to specific individuals and entities who have been involved in certain conduct outside of Australia (for example, an individual or entity that the Minister is satisfied has been involved in a significant cyber incident, serious violation or abuse of human rights, or act of serious corruption).¹²

Who is subject to an Australian sanctions regime?

Sanctioned countries and organisations

At the time of writing, Australia has sanctions regimes in relation to 19 countries (including Russia and specified Ukraine regions). In addition, Australia has sanctions regimes in relation to the Taliban, ISIL (Da’esh) and Al‑Qaida.

A list of currently implemented Australian sanctions regimes can be accessed here. 

Sanctioned individuals and entities

The ASO (a part of the Department of Foreign Affairs and Trade (DFAT)) maintains a Consolidated List of all persons and entities who are subject to targeted financial sanctions law. The Consolidated List can be accessed here.

At the time of writing, there are approximately 8,000 individuals and entities on the Consolidated List (although this includes alternative names for some individuals and entities already included in the list).

What conduct is typically prohibited under Australian sanctions regimes?

Australian sanctions regimes typically prohibit the following types of conduct:

• Making a "sanctioned supply". A person generally makes a sanctioned supply if they supply, sell or transfer goods to a country that are "export sanctioned goods" for that country.¹³  In some cases, a person also makes a sanctioned supply if the goods are transferred "for use in" or "for the benefit of" that country.¹⁴  The types of goods that are export sanctioned can vary significantly from country to country.
• Making a "sanctioned import". A person generally makes a sanctioned import if they procure goods from a country that are "sanctioned imports" for that country.¹⁵  The types of goods that are import sanctioned can vary significantly from country to country.
• Providing a "sanctioned service". Australian sanctions regimes prohibit the provision of a range of different services to sanctioned countries, individuals and entities.¹⁶  The types of services that are sanctioned can vary significantly between sanctions regimes.
• Dealing with a "designated person or entity". Australian sanctions regimes generally prohibit directly or indirectly making an asset available to, or for the benefit of, a designated person or entity.¹⁷  Under some sanctions regimes, persons and entities are designated by the Minister for Foreign Affairs,¹⁸  whilst under other regimes they are designated by the UNSC or Committee established under the relevant UNSC resolution.¹⁹
• Dealing with a "controlled asset". Australian sanctions regimes generally prohibit a person holding a controlled asset from using or dealing with it, or allowing or facilitating it to be used or dealt with (i.e., an asset freeze).²⁰  A controlled asset is generally an asset owned or controlled by a designated person or entity (and in some cases a person and/or entity acting on their behalf or another entity owned or controlled by the designated person or entity).²¹

Some Australian sanctions regimes also prohibit engaging in "sanctioned commercial activities".²²  Sanctioned commercial activities can vary significantly between sanctions regimes. The relevant activities can include matters such as dealing in certain securities and financial instruments,²³  providing a financial loan or credit,²⁴  and acquiring interests in entities operating in certain industries.²⁵

Australian sanctions regimes may also restrict certain persons (and in some cases their immediate family members) from travelling to, entering or remaining in Australia.²⁶

It is important to confirm in each case which Australian sanctions regime applies to the relevant country, individual or entity and determine precisely what conduct is prohibited under that regime. This is because there can be significant differences between regimes in terms of what conduct is prohibited.

You should also consider whether your company is required to comply with the sanctions regimes of any other jurisdictions, such as the US, UK or EU. In some instances, these regimes purport to have very wide extra-territorial application, and it may be that the sanctions regimes of multiple jurisdictions apply to a single course of conduct.

In addition, you should identify whether your company has agreed to comply with any additional sanctions regimes under the terms of any commercial agreements (eg financing arrangements). A contravention of such laws may result in exposure for breach of contract, even if the contravention is not directly enforceable by relevant government authorities.

Authorised exceptions

The Minister for Foreign Affairs can issue a permit authorising a person to engage in conduct that would otherwise be prohibited under an Australian sanctions regime in certain circumstances.²⁷  Permits may be issued subject to conditions.

The ASO currently processes applications for, and issues, sanctions permits. Applications for sanctions permits are currently lodged online via the Australian Sanctions Portal (known as "PAX"), which can be accessed here. 

Offences

It is an offence to:

• engage in conduct that contravenes an Australian sanctions law;²⁸
• engage in conduct that contravenes a condition of an authorisation under an Australian sanctions law;²⁹ or
• give false or misleading information in connection with the administration of an Australian sanctions law.³⁰

Where the conduct is engaged in by a body corporate, the offence is one of strict liability.³¹  However, a body corporate does not commit an offence if it proves that it took reasonable precautions, and exercised due diligence, to avoid a contravention.³²

The penalty for a contravention of an Australian sanctions law is:

• for a body corporate, the greater of three times the value of the relevant transaction (if the offence involves a transaction) and 10,000 penalty units (currently AU$2,220,000);³³
• for an individual, up to 10 years imprisonment, the greater of three times the relevant transaction (if the offence involves a transaction) and 2,500 penalty units (currently AU$555,000), or both.³⁴

Who is the Australian sanctions regulator?

The ASO is the regulator for Australian sanctions regimes.

ASO works with the Department of Defence, AUSTRAC, the Department of Home Affairs, Australian Border Force (ABF) and the AFP to promote compliance with Australian sanctions laws and respond to possible breaches.³⁵  The ASO may refer breaches of Australian sanctions laws to the AFP and ABF for investigation, which can lead to criminal prosecution.³⁶

The ASO can issue a notice requiring a person to give information (including under oath) and/or produce documents for the purpose of determining whether an Australian sanctions law has been or is being complied with.³⁷  It is an offence to fail to comply with such a notice.³⁸

AUSTRAC and the AFP also have their own powers to issue notices compelling production of information in connection with their own functions. In addition, the AFP and ABF have powers to execute search and seizure warrants.

There is significant scope for cross-over between Australian sanctions laws and other areas such as anti-money laundering and anti-bribery and corruption laws. This is underlined by AUSTRAC's recent establishment of a dedicated team in relation to Russian sanctions.

Practical tips for reviewing your sanctions compliance systems

• Have a process for rapidly identifying and responding to changes to Australian sanctions regimes: Detailed prohibitions under Australian sanctions regimes change frequently and sometimes at short notice. This can include bans on new types of goods, services and commercial activities, and new persons and entities being designated, under existing sanctions regimes. In extreme cases, it can involve the introduction of a new sanction regime (for example, in response to the outbreak of a conflict between nations). It is important that your sanctions compliance systems include a process for rapidly identifying and responding to changes to your company's obligations under Australian sanctions laws.
• Monitor information provided by DFAT and the ASO: DFAT maintains a mailing list for receiving updates on Australian sanctions laws, including updates to the Consolidated List. You can subscribe to the mailing list here.
• Monitor the Russian Sanctions Tracker: Ashurst maintains a high-level summary of the measures imposed by the UK, EU, Japan and Australia following Russia's invasion of Ukraine in February 2022. This can be accessed here.
• Undertake upfront due diligence checks: It is important that companies undertake thorough due diligence checks (including in relation to customers, suppliers and other third parties) to determine whether a proposed transaction, activity or operation has a connection to a country, person or entity that is subject to an Australian sanctions regime. Your due diligence process should include a standard cross-check of parties involved in relation to the proposed transaction, activity or operation against the Consolidated List (and the sanctions lists of other potentially relevant jurisdictions such as the US, UK and EU).
• Undertake ongoing due diligence checks: It is also important that companies undertake ongoing due diligence checks in relation to transactions, activities or operations that they are already conducting. This is because a country, person or entity that was not previously subject to an Australian sanctions regime may become so, and your company may need to cease undertaking the relevant activity. In addition, assets your company holds on behalf of another person or entity may become subject to an "asset freeze" if the person or entity is sanctioned, which may prevent the assets being dealt with (including by you).
• Conduct regular audits: Companies should conduct regular audits of their activities for compliance with Australian sanctions laws. This could also include random audits of different transactions and/or areas of your company's activities or operations.
• Exercise particular caution when undertaking permitted activities in relation to sanctioned countries, persons or entities: Some types of activities may be permitted under an Australian sanctions regime notwithstanding that they involve a sanctioned country, person or entity. For example, certain types of commercial activities in sanctioned countries may not be prohibited. When undertaking these types of activities, it is important that you continuously monitor any changes to the applicable sanctions regime and make sure that you can rapidly respond to any changes (including by ceasing the relevant activity). For example, relevant contracts should include provision for this potential situation.

Authors: Thomas Storer, Partner; Rani John, Partner; and James Clarke, Partner.

Footnotes: 

1. See for example: Autonomous Sanctions (Designated Persons and Entities and Declared Persons—Ukraine) Amendment (No. 4) Instrument 2022; Autonomous Sanctions (Import Sanctioned Goods—Russia) Designation 2022; Autonomous Sanctions (Export Sanctioned Goods—Russia) Designation 2022.

2. See Autonomous Sanctions (Designated Persons and Entities and Declared Persons—Thematic Sanctions) Instrument 2022. For an overview of the recent amendments to the Autonomous Sanctions Act, please see our earlier publication: https://www.ashurst.com/en/news-and-insights/legal-updates/global-magnitsky-movement-gains-pace-parliament-passes-reforms-to-australias-sanction-regime/

3. UN Act, ss 27(5) and (8); Autonomous Sanctions Act, ss 16(5) and (8).

4. UN Act, s 27(7); Autonomous Sanctions Act, s 16(7).

5. That is, body corporates incorporated by or under a law of the Commonwealth or of a State or Territory.

6. See section 15.1 of the Criminal Code (Extended geographical jurisdiction – category A), which applies to many of the offences under the UN Act and Autonomous Sanctions Act.

7. Ibid.

8. UN Act, s 6.

9. Replacement Explanatory Memorandum to the Autonomous Sanctions Bill 2010 (accessed at: https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r4432).

10. See for example: Autonomous Sanctions Act, reg 6(a).

11. See for example: Charter of the United Nations (Sanctions—the Taliban) Regulation 2013; Charter of the United Nations (Sanctions—ISIL (Da’esh) and Al‑Qaida) Regulations 2008.

12. See for example: Autonomous Sanctions Act, reg 6A(2), (4) and (5).

13. See for example: DPRK Sanctions Regulations, regs 6 and 9; Libya Sanctions Regulations, regs 5 and 6; Iran Sanctions Regulations, regs 8 and 10; Autonomous Sanctions Regulations, regs 4 and 12 (which applies to the supply of certain goods to a specified Ukraine region, Iran, Myanmar, Russia, Syria and Zimbabwe).

14. See Autonomous Sanctions Regulations, regs 4(1)(c)(ii) and (iii).

15. See for example: DPRK Sanctions Regulations, regs 7 and 10; Libya Sanctions Regulations, reg 8; Iran Sanctions Regulations, regs 7 and 12; Autonomous Sanctions Regulations, regs 4A and 12A (which applies to all goods for a specified Ukraine region, and certain goods for Russia and Syria).

16. See for example: DPRK Sanctions Regulations, reg 8 and 11; Libya Sanctions Regulations, regs 4 and 9; Iran Sanctions Regulations, regs 9 and 14; Autonomous Sanctions Regulations, regs 5 and 13 (which relates to a specified Ukraine region, Iran, Myanmar, Russia, Syria and Zimbabwe).

17. See for example: DPRK Sanctions Regulations, reg 12; Libya Sanctions Regulations, regs 11; Iran Sanctions Regulations, reg 16; Autonomous Sanctions Regulations, reg 14.

18. See for example: DPRK Sanctions Regulations, reg 4A; Autonomous Sanctions Regulations, regs 6 and 6A.

19. See for example: Libya Sanctions Regulations, reg 3; Iran Sanctions Regulations, reg 5.

20. See for example: DPRK Sanctions Regulations, reg 13; Libya Sanctions Regulations, regs 12; Iran Sanctions Regulations, reg 17; Autonomous Sanctions Regulations, reg 15.

21. See for example: DPRK Sanctions Regulations, reg 4; Libya Sanctions Regulations, reg 3; Iran Sanctions Regulations, reg 5; Autonomous Sanctions Regulations, reg 3.

22. See for example: Autonomous Sanctions Regulations, regs 5A, 5B, 5C and 5CA; DPRK Sanctions Regulations, reg 11B.

23. See for example: Autonomous Sanctions Act, reg 5B(1) (Russia).

24. See for example: Autonomous Sanctions Act, reg 5C(1)(a) (Ukraine).

25. See for example: Autonomous Sanctions Act, reg 5A(1) (Syria) and 5CA(1) (DPRK).

26. See Migration (United Nations Security Council Resolutions) Regulations 2007 (Cth), reg 5; Autonomous Sanctions Act, regs 6 and 6A; Autonomous Sanctions (Designated Persons and Entities and Declared Persons—Thematic Sanctions) Instrument 2022.

27. See for example DPRK Sanctions Regulations, Division 2; Libya Sanctions Regulations, regs 7, 10, 12A, 12B, 12C, 13 and 13A; Libya Sanctions Regulations, regs 11, 13, 15, 18 and 20; Autonomous Sanctions Regulations, Reg 18(1).

28. UN Act, ss 27(1) and (5); Autonomous Sanctions Act, ss 16(1) and (5).

29. UN Act, ss 27(2) and (6); Autonomous Sanctions Act, ss 16(2) and (6).

30. UN Act, ss 28(1) and (2); Autonomous Sanctions Act, ss 17(1) and (2).

31. UN Act, s 27(8); Autonomous Sanctions Act, s 16(8).

32. UN Act, s 27(7); Autonomous Sanctions Act, s 16(7).

33. UN Act, s 27(9); Autonomous Sanctions Act, s 16(9).

34. UN Act, ss 27(3) and (4); Autonomous Sanctions Act, ss 16(3) and (4).

35. Refer to: https://www.dfat.gov.au/international-relations/security/sanctions/who-we-are (accessed on 29 June 2022).

36. Ibid. See UN Act, s 29; Autonomous Sanctions Act, s 18.

37. UN Act, ss 30 and 31; Autonomous Sanctions Act, ss 19 and 20.

38. UN Act, s 32; Autonomous Sanctions Act, s 21.