Time to assess your compliance policies and procedures 8 min read
Last week, long-awaited amendments to Australia's autonomous sanctions framework were passed by the Federal Parliament. The amendments could result in the proliferation of Australian sanctions and more dispersed sanctions compliance risk for Australian businesses.
- The Autonomous Sanctions Amendment (Magnitsky-style and Other Thematic Sanctions) Bill 2021 (the Bill) amends the Autonomous Sanction Act 2001 (Cth) (the Act) to allow for the adoption of thematic sanctions regimes targeting a range of situations of international concern, including serious human rights violations, serious corruption and malicious cyber activity.
- The reform will enable greater sanctions policy coordination between Australia and key allies, particularly the United States.
- The reform will also increase the sanctions compliance burden for Australian companies, as sanctions compliance risks will be more likely to arise in relation to countries that are not themselves sanctions targets.
- Consequently, it is an opportune time to assess the strength of your business's sanctions compliance policies and procedures.
Sanctions are economic, financial and trade restrictions that international organisations and states impose against other international actors in situations of international concern. Australia has in place two sanctions regimes: a 'United Nations sanctions regime' that implements Security Council resolutions; and an 'autonomous sanctions regime' that imposes additional restrictions as a matter of foreign policy (for more information, see our overview of Australia's sanctions laws.)
Conventionally, sanctions programs imposed by Australia and other jurisdictions have been country-focused. However, over the past decade, leading sanctions jurisdictions like the European Union, United Kingdom and United States have extended their sanctions laws to allow for issue-focused sanctions programs, in recognition of the fact that in a globalised world many foreign policy issues are transnational.
As we reported in December 2020, last year the Senate Joint Standing Committee on Foreign Affairs and Trade (the Joint Standing Committee) recommended that Australia establish a human rights sanctions regime providing for the imposition of targeted financial sanctions and travel bans against serious human rights abusers, irrespective of where in the world their conduct occurs (often called 'Magnitsky sanctions'). In August 2021, the Government responded to the Committee's recommendation by committing to introduce amendments to the Act by the end of 2021 to allow for the adoption of thematic sanctions programs targeting transnational issues.
The passage of the Bill represents the fulfillment of that commitment.
Under Australia's autonomous sanctions framework:
- the Act provides that the Government may make sanctions regulations to 'facilitate the conduct of Australia’s relations with other countries or with entities or persons outside Australia'; and
- the Autonomous Sanctions Regulations 2011 (Cth) (Regulations) establish Australia's autonomous sanctions programs and, among other things, define the circumstances in which the Minister for Foreign Affairs and Trade can impose targeted financial sanctions and asset freezes against individuals and entities.
The Bill extends the objects of the Act by providing that, in addition to addressing country-specific issues, Australia's autonomous sanctions programs may also address a number transnational 'thematic issues'. Those thematic issues are:
- serious violations or serious abuses of human rights;
- serious corruption;
- serious violations of international humanitarian law;
- malicious cyber activity;
- the proliferation of weapons of mass destruction; and
- other threats to international peace and security.
The Department of Foreign Affairs and Trade has released an Exposure Draft of the Autonomous Sanctions Amendment (Thematic Sanctions) Regulations 2021, which sets out the criteria pursuant to which the Minister for Foreign Affairs and Trade will be able to designate individuals and entities as sanctions targets under Australia's new human rights, corruption, cyber activity and weapons of mass destructions sanctions programs (the Exposure Draft does not set out equivalent criteria for Australia's 'international humanitarian law' and 'international peace and security programs.) The types of activities in relation to which the Minister may target individuals or entities are as follows.
- Human rights - Acts that constitute a serious violation of a person's:
- right to life;
- right not to be subjected to torture or to cruel, inhuman or degrading treatment or punishment;
- right not to be held in slavery or servitude; or
- right not to be required to perform forced or compulsory labour.
The Explanatory Memorandum to the Exposure Draft comments that 'the application of sanctions will be reserved for the most egregious violations and abuses of human rights' and that 'violations and abuses are more likely to be considered egregious and be captured under the regime where, for example, they involve sexual violence, violence against minors or are perpetrated due to the victim’s membership of a particular group (including minorities)'.
- Corruption - the promising, offering, giving, solicitation or acceptance of public-sector bribes, or the misappropriation or other diversion of state property, where such conduct is 'serious' having regard to the status or position of the persons or entities involved, the nature, extent and impact of the conduct, and the circumstances in which the conduct occurred.1 The Explanatory Memorandum identifies as examples of sanctions conduct 'serious corruption which results in a country’s population being deprived of vital public resources' and 'the misappropriation of state property of significant value as part of a systemic fraudulent scheme'.
- Cyber activity - actual or attempted incidents that destroy, degrade or impair essential services or critical infrastructure; cause, or risk causing, loss of life; theft of intellectual property, trade secrets or confidential information; and/or interfere with political or governmental processes, the exercise of a political rights or duties or the functions or operations of an Australian parliament. The Explanatory Memorandum indicates that 'actions that may constitute a serious threat to Australia’s or another country’s security, stability and prosperity' are a focus of this program.
- Weapons of mass destruction - contribution to the proliferation of weapons of mass destruction.
Notably, the Exposure Draft provides that, in addition to designating persons who are directly involved in such activities, the Minister may designate the immediate family members and financial beneficiaries of such persons.
As reported in August 2021, while the Joint Standing Committee recommended that novel procedural safeguards be adopted as part of the reform (including an independent advisory body to receive and consider nominations for sanctions targets and a right of reply for nominated sanctions targets), the Government has not accepted this recommendation. The Bill provides that the Minister for Foreign Affairs and Trade must consult with the Attorney-General (and any other Minister she considers appropriate) before imposing sanctions against individuals and entities pursuant to Australia's thematic sanctions programs. However, it remains the case that there is little recourse for an individual or entity to challenge an Australian sanctions designation, beyond applying to the Minister to have their designation revoked or seeking an administrative law remedy. In addition, it remains the case that Australia does not have in place a 'general licence' process, as does the United States Department of the Treasury's Office of Foreign Assets Control, to allow companies time to update their compliance programs following the imposition of particularly burdensome sanctions or sanctions designations.
The Bill provides that the Joint Standing Committee must conduct a review into the operation of the reforms and provide a written report within three years.
The impact of the reform for Australian business will depend on the extent to which the Government makes use of its new power to impose thematic sanctions programs. However, there are reasons to think the Government will make extensive use of this power. They include that:
- comparable jurisdictions are beginning to impose thematic sanctions against a significant volume of individuals and entities in a wide range of countries. For instance, the United States currently targets almost 400 individuals and entities pursuant to its corruption and human rights programs, almost 200 pursuant to its cyber program and almost 700 pursuant to its transnational crime programs, some of whom are significant economic actors. Targets of United States anti-corruption and human rights sanctions reside in a wide range of countries, including major economies like China, India, Mexico, Saudi Arabia and South Africa; and
- in a recent comprehensive review of the United States' sanctions policy, the Department of the Treasury signalled an intention to promote closer alignment between its sanctions policy and the sanctions policies of key allies. In a context where Australia and the United States are deepening their broader military and intelligence ties, the reform could facilitate the further alignment of Australia's sanctions programs with those of the United States.
If the Government does make extensive use of its new power to impose thematic sanctions programs, sanctions compliance risk for Australian businesses will become more dispersed. That is because it will be more likely to arise in relation to operations and activities in countries that themselves are not sanctions targets. As a result, businesses that have not adopted sanctions compliance systems on the basis that they do not operate in sanctioned jurisdictions should now consider doing so, and organisations that only screen counterparties and transactions with connections to sanctioned jurisdictions should consider applying screening measures in a broader set of circumstances.
- Navigating a complex regime: we can advise you on, and assist with, the design and implementation of a robust sanctions compliance framework that is tailored to you and the risks your business faces. This can include us advising on the application of sanctions laws, conducting risk assessments, preparing a sanctions compliance program, conducting training and providing 'on-tap' external legal advice on complex issues.
- Responding to incidents: we have deep experience assisting clients with all aspects of an investigation in response to a potential incident, engaging with regulators and providing advice on compliance measures to address the incident, and preventing further incidents occurring in the future.
Notably, the definition of 'bribery' contained in the Exposure Draft reflects that of the United Nations Convention Against Corruption, rather than that contained in Part 70.2 of the Criminal Code (Cth).