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Focus: Managing the risks of Australia's new autonomous sanctions regime

7 June 2011

In brief: Businesses with international operations, customers or suppliers should be aware of new legislation that strengthens and expands Australia's autonomous sanctions regime. Partner Annette Hughes , Senior Associate Peter Haig and Lawyer Michael Gomm report on the implications for business.

How does it affect you?

The new Autonomous Sanctions Act 2011 (Cth) (the Act) will:

  • impose obligations on individuals and companies in, or connected with, Australia;
  • provide for regulations that may restrict or prohibit conduct that is related to specific international issues that are significant to Australia's foreign policy; and
  • impose criminal liability on individuals and bodies corporate that contravene the Act.

The sanctions regime in Australia

Sanctions are coercive or punitive measures imposed by governments as a means of influencing regimes to alter their behaviour. Sanctions impact upon private entities by imposing restrictions on the conduct of a business with designated individuals and entities, with designated products, or in designated locations.

Australian sanctions laws are implemented through two separate but related regimes: autonomous sanctions and United Nations sanctions. Prior to the enactment of the Act on 27 May 2011, autonomous sanctions were implemented through a variety of means, but predominantly through the Banking (Foreign Exchange) Regulations 1959 (Cth).

In Australia, UN sanctions are imposed through the Charter of the United Nations Act 1945 (Cth), which provides a framework for the implementation of Australia's international obligations to comply with sanctions that are imposed by resolutions from the Security Council of the United Nations.

Although the Act provides a legislative framework for the implementation of autonomous sanctions, it also provides that the Act does not limit the operation of other laws that impose autonomous sanctions.1 The Act seeks to strengthen the autonomous sanctions regime by allowing greater flexibility in sanction choice and providing a legislative basis for the implementation of regulations in response to specific situations of concern.2 It has been modelled on the Charter of the United Nations Act and, as such, is intended to simplify administrative costs and reduce the compliance burden by removing distinctions between the scope and extent of autonomous and UN sanctions enforcement laws.3

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Potential criminal liability for breaches of obligations

Sanctions may be applied under the Act through regulations or Ministerial designation of a provision of a law of the Commonwealth as a sanction law. Such sanctions impose obligations on private individuals or entities in, or connected with, Australia relating to:

  • the proscription of persons or entities;
  • the restriction or prevention of uses of, dealings with, and making available of, assets; and
  • the restriction or prevention of the procurement of goods or services.4

In this way, sanctions implemented under the Act may restrict the overseas operations of Australian individuals and businesses and the activities of businesses that are connected to Australia, such as overseas subsidiaries of Australian companies.

A breach of the autonomous sanctions attracts criminal liability for both individuals and bodies corporate. In the case of bodies corporate, the offence is one of strict liability.

An individual who contravenes a sanction law commits an offence that is punishable by:

  • imprisonment for a maximum of 10 years; and/or
  • a fine amounting to the greater of three times the value of the contravening transaction(s) or 2,500 penalty units (currently $275,000).5

If a body corporate contravenes a sanction law, it commits an offence that is punishable by a fine amounting to the greater of three times the value of the contravening transaction(s) or 10,000 penalty units (currently $1.1 million).6 Further, companies found to contravene the Act are likely to face reputational and commercial ramifications.

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The importance of an effective compliance program

Although the offence of contravening a sanction law is one of strict liability for a body corporate, a body corporate does not commit an offence if it is able to prove that it took reasonable precautions, and exercised due diligence, to avoid contravening a sanction law.7 The most effective way to do this is to establish and implement a strong compliance program. Such programs can be very effective risk management tools, and should be established in a targeted and enforceable way. We can help you to develop such a program.

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Next steps for business

The commencement of the Act ushers in a stronger and more flexible autonomous sanctions implementation framework. Business should carefully monitor the autonomous sanctions applied by regulations, which are currently being drafted. They should also consider reviewing their compliance policies, procedures and training to ensure that they are able to prove that they have taken reasonable precautions, and exercised due diligence, with respect to relationships or transactions that may be affected by sanctions laws.

Footnotes
  1. Section 9 of the Act.
  2. Explanatory Memorandum, Autonomous Sanctions Bill 2010, p. 2.
  3. Ibid.
  4. Section 10 of the Act.
  5. Section 16 of the Act.
  6. Ibid.
  7. Ibid.

For further information, please contact:

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