Six things businesses need to know about Australia’s sanctions regime

Russian steel mogul Alexander Abramov is making waves in Australia, and not from the wake of his $100 million superyacht, Titan. In June, the oligarch launched legal action against the Minister for Foreign Affairs, Penny Wong, after being targeted with Australian sanctions over Russia’s invasion of Ukraine. The pending Federal Court showdown between Mr Abramov and the Australian Government is set to provide an unprecedented insight into how the government decides who makes it onto Australia’s sanctions lists. But even for those who aren’t Russian billionaires, it has never been more important to understand sanctions laws and how to avoid falling afoul of them.

Australia, and its Western partners, responded to the outbreak of the Ukraine war with a barrage of sanctions targeting Putin’s enablers and others responsible for or complicit in the violation of Ukraine’s sovereignty and territorial integrity. Their aim, generally speaking, is to make life sufficiently miserable for the targets and their associates that Russia changes course. For this to work though, Western governments need businesses to cooperate – hence the international latticework of prohibitions on whom firms may do business with, and how, which businesses must navigate today.

Sanctions regimes often reach beyond national borders. The penalties for those who flout them can be severe. Recent developments in Australia evidence an ever-increasing risk of enforcement against businesses and individuals inside Australia and out. Considering the successive volleys of Russia or Ukraine sanctions, the recent expansion of sanctions laws, the establishment of a dedicated sanctions regulator, and recent prosecutions of Australian sanctions-busters, businesses would do well to brush up on Australia’s sanctions regime.

Below, we highlight six things that anyone doing business in or with Australia should know about Australia’s sanctions landscape.

1. Australian sanctions prohibit a broad range of activities with a growing list of individuals and entities

Australia implements United Nations Security Council (UNSC) multilateral sanctions and also imposes its own autonomous sanctions as an instrument of Australia’s independent foreign policy.^[1] Under these two frameworks, Australia’s sanctions measures may include general prohibitions on:

• importing or exporting goods (e.g. arms or related materiel, certain mined products and luxury goods)
• providing services or engaging in commercial activities (e.g. providing loans or credits to sanctioned banks or companies)
• dealing with certain individuals and entities and/or their assets
• entry into or transit through Australia for certain people.

Australia’s Department of Foreign Affairs and Trade (DFAT) maintains a ‘Consolidated List’ of all individuals and entities listed for the purposes of sanctions regimes implemented under Australian sanctions laws. At the time of writing, the list named some 7,241 individuals or entities, about 1,000 of which were added only in the last six months.

2. The legal framework and enforcement capacity for Australian sanctions has been expanding

In 2020, DFAT established a dedicated sanctions regulator, the Australian Sanctions Office (ASO). Among its functions, the ASO supports the Australian Federal Police and Australian Border Force in identifying and assessing possible sanctions law breaches for further investigation and criminal prosecution.

In late 2021, Australia amended its autonomous sanctions laws, expanding the government’s power to impose sanctions against people or entities for particular kinds of conduct wherever it occurs in the world.

Those implicated in proliferation of weapons of mass destruction, ‘significant cyber incidents’, serious corruption or serious violations or abuses of human rights are among those who may be targeted by these ‘thematic’ sanctions. Australia flexed its new powers in March this year, sanctioning 39 Russians who were responsible for the serious corruption exposed by the late Sergei Magnitsky, or involved in his abuse and death.

In short, Australia’s sanctions laws and the government’s capacity to identify and prosecute breaches have never been stronger.

3. Significant penalties apply for breaches of Australia’s sanctions laws

It is a serious criminal offence to breach Australian sanctions laws.

A corporation that contravenes a sanctions law currently faces a maximum fine of AU$2,220,000, or an amount three times the value of any transaction involved in the contravention, whichever is greater. Meanwhile, individuals who offend face fines of up to AU$555,000 (or, if greater, an amount three times the value of any transaction involved in the contravention), and possible imprisonment for up to 10 years.

In recent years, Australian courts have seen a number of prosecutions for breaches of sanctions laws:

• in 2019, the Supreme Court of New South Wales sentenced a husband and wife to two years’ imprisonment for offences relating to UNSC sanctions imposed on Iran.^[2] The offenders had supplied about 90 tonnes of nickel alloys to an Iranian-owned, Dubai-based company, for ultimate transfer to Iran, where it was used in the production of energy
• in 2021, the Supreme Court of New South Wales sentenced another individual to three years and six months’ imprisonment for offences relating to UNSC and autonomous sanctions imposed on North Korea. The offender had provided brokering services to North Korea for its sale of arms, military equipment, coal and pig iron, and for its purchase of refined petroleum products.

We are yet to see a company prosecuted for breaching Australia’s sanctions laws, though it is perhaps only a matter of time (see point two above).

Importantly, corporate conduct that breaches sanctions laws might also violate Australia’s anti-money laundering and counter-terrorism financing laws, customs and migration laws, or otherwise give rise to breaches of directors’ and officers’ duties. With such overlapping regulation, businesses need to be aware that the list of regulators and agencies on the lookout for non-compliance in this area is a long one.

4. Australia’s sanctions laws may prohibit conduct outside Australia

Australia’s sanctions laws regulate not only activities within the country, but also those undertaken overseas by Australian citizens and Australian-registered bodies corporate.

In other words, the conduct of an Australian person or company may constitute an offence under Australia’s sanctions laws wherever that conduct occurs in the world.

Extraterritorial application is not unique to Australia’s sanctions regime. The US is notably expansive, capturing not only American individuals and entities (including non-US entities controlled by Americans), as well as US products, software and technology, but also anyone who causes or is involved in activity within the US.

One Melbourne-based logistics company recently discovered the long reach of sanctions laws the hard way. In April this year, Toll Holdings Limited agreed to pay over US$6 million to settle its potential liability for thousands of apparent violations of US sanctions. Toll had originated or caused to be received nearly 3,000 payments in connection with consignments by Toll, its affiliates or suppliers to, from or through North Korea, Iran or Syria and/or which involved property of individuals the target of US sanctions. The payments were processed through US financial institutions, hence the application of US sanctions laws. While Toll was found to have acted with “reckless disregard” for US sanctions over six years, it had self-disclosed the problematic transactions and then undertaken extensive work to tighten compliance. The maximum applicable civil monetary penalty was over US$800 million.

The US, Australia and other Western countries have generally acted in concert with the sanctions they have imposed in response to Russia’s aggression towards Ukraine. Because of the extraterritorial application of sanctions laws, it is a small world for businesses who are not sufficiently aware of their obligations or wish to evade the consequences.

5. Strict liability applies for violations of Australia’s sanctions laws by companies

Contravening a sanctions law is a strict liability offence for bodies corporate.^[3] This means that proof of fault is not required to establish that the company committed an offence.

In other words, where a company is accused of contravening a sanctions law, the prosecution is not required to prove the company did so intentionally, knowingly, recklessly or even negligently. It is enough to show that the company did, as a matter of fact, breach the law.

However, there is an exception.

6. No offence is committed if the company took reasonable precautions and exercised due diligence

That’s right, if a company can prove that it took reasonable precautions and exercised due diligence to avoid contravening the sanctions law, no offence will have been committed.^[4]

This makes it imperative that businesses take a proactive approach to preventing breaches of Australian sanctions laws, whether unintentional or intentional. There are many things you and your business could start doing today to reduce your risk of prosecution:

• check the ASO’s Consolidated List to ensure that none of your existing commercial partners and customers are named
• assess your existing operations, relationships, supply chain and customer base to identify where your business may be exposed to a risk of breaching Australia’s and other countries’ sanctions
• review and update your existing policies and procedures to ensure these address what sanctions law compliance means for your business and are tailored appropriately to your operations
• incorporate sanctions screening and risk assessments into your usual due diligence processes for new relationships and transactions
• roll out immediate sanctions compliance training for staff and plan regular follow-up training
• subscribe here to receive notifications from DFAT when the ASO updates its consolidated list of all individuals and entities listed under Australian sanctions laws.

Australia’s sanctions regime also enables the grant of sanctions permits, which authorise an activity that would otherwise contravene sanctions laws. This may be an option worth exploring for your business.

Lessons

• Due to world events and local Australian developments, the issue of sanctions compliance has become both more complex and more urgent for businesses since we covered the topic in 2018.
• Australian sanctions laws apply widely and carry heavy fines for contraventions, plus possible prison time for individuals. Companies may be prosecuted even for unintentional breaches.
• With some proactivity, caution and proper due diligence, innocent businesses can avoid falling afoul of Australia’s sanctions laws.

If you have any questions, please contact us below or get in touch with our team here.

Authors: Nathan Cecil & Joshua Clarke

^[1] Charter of the United Nations Act 1945 (Cth); Autonomous Sanctions Act 2011 (Cth).
^[2] Charter of the United Nations Act 1945 (Cth) section 27; Charter of the United Nations (Sanctions – Iran) Regulations 2008 (Cth).
^[3] Charter of the United Nations Act 1945 (Cth) section 27(8); Autonomous Sanctions Act 2011 (Cth) section 16(8).
^[4] Charter of the United Nations Act 1945 (Cth) section 27(7); Autonomous Sanctions Act 2011 (Cth) section 16(7).

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Nathan Cecil

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