The ripple effect of transnational issues 5 min read
Since February 2022, the Australian Government, together with its Western allies, has introduced a wave of new trade and financial sanctions measures against Russia (Russian Sanctions) in response to the situation in Ukraine. This is the first time in living memory that a major economy has been subject to such wide-ranging sanctions, with implications for a range of industries and commercial activities.
A component of the Russian Sanctions was Australia imposing the first set of 'Magnitsky-style' sanction designations, under the recent provisions passed last year. These provisions empower the Minister of Foreign Affairs to impose 'thematic' sanctions to address transnational issues of concern wherever they may occur in the world (see our update on the new Australian Magnitsky regime here).
- Step 1: Understand which sanctions laws apply. Australia’s and most other jurisdictions’ sanctions regimes are extraterritorial – meaning more than one may apply to an organisation's operations. While most sanctions regimes are consistent in their policy intent, there are important practical differences in how they operate. It is essential that organisations understand which laws apply to their business and what each applicable law prohibits and permits.
- Step 2: Conduct or refresh your sanctions risk assessment. Sanctions measures have traditionally focused on pariah states that were isolated from the international community. Many Australian businesses had few, if any, touchpoints with these jurisdictions. Whether directly or indirectly, the Russian Sanctions (which target a range of Russian private enterprises as well as state actors) impact most Australian organisations with international operations. Organisations should dynamically assess their exposure to sanctions risk based on the jurisdictions and industries they operate in, as well as the third parties they deal with.
- Step 3: Adopt or amend controls to address sanctions risk. Once an organisation understands its sanctions risk level, controls should be adopted that are proportionate to the risk faced. Common controls include due diligence and screening, training and contractual clauses.
Taking these steps will help minimise the risk of breaching applicable sanctions and maximise an organisation’s ability to establish a defence should an inadvertent breach occur.
The Russian Sanctions imposed by Australia include:
- individual sanctions – targeted financial sanctions against large numbers of new 'designated' persons and entities, including almost every Russian state bank, sovereign wealth funds, a number of Russian oligarchs and their family members, and members of the Russian Government;
- regional sanctions for the Donetsk and Luhansk regions – extending pre-existing regional sanctions in place since 2014 against Crimea and Sevastopol to now also include the Donetsk and Luhansk regions; and
- import and export sanctions – expanding the list of 'import sanctioned goods' to include oil and other hydrocarbon products and 'export sanctioned goods' to include alumina (and related products) and luxury goods.
As part of the targeted attempt to exert pressure on individuals and corporations within Russian President Vladimir Putin's sphere of influence, Australia has 'designated' hundreds of new persons and entities. By virtue of this designation, it is an offence for Australian citizens and corporations acting anywhere in the world to:
- directly or indirectly make an asset available to, or for the benefit of, a designated person or entity; or
- deal with an asset that is owned or controlled by a designated person or entity.
Some of the individuals and entities recently 'designated' by Australia include:
- senior members of the Russian Government, including President Putin and Foreign Minister Sergei Lavrov, and 339 members of the State Duma of the Federal Assembly of the Russian Federation;
- major financial institutions responsible for issuing and managing Russia's sovereign debt, including the National Wealth Fund of the Russian Federation and the Ministry of Finance of the Russian Federation;
- numerous Russian 'oligarchs', including a number who play key roles in state-owned or controlled entities including banks, natural resources and transportation enterprises, and investment conglomerates that are alleged to support the Russian Government; and
- Russia's freight sector and ports, including Gazprom, Gazprom Neft, Novorossiysk Commercial Sea Port (Russia's largest port operator), Sovcomflot (Russia's largest shipping company), Russian Railways and United Shipbuilding Corporation (major shipbuilder).
As part of the 2014/2015 sanctions against Crimea and Sevastopol, specific measures were imposed which prohibit:
- the export or supply of certain goods;
- the import, purchase or transport of certain goods;
- certain commercial activities; and
- the provision of certain services,
as they concern the transport, telecommunications and energy sectors and the exploitation of oil, gas and mineral reserves in Crimea and Sevastopol. The new tranche of sanctions imposed by Australia extend these regional sanctions, in the same terms, to the Donetsk and Luhansk regions of Ukraine.
Australia has now also expanded the existing list of 'import sanctioned goods' and 'export sanctioned goods'. It is now an offence for any Australian citizen or corporation to be involved in the export of certain goods to Russia, including:
- aluminium ores (eg bauxite), aluminium oxide (eg alumina), and aluminium hydroxide; and
- luxury goods such as purebred horses, caviar, crustaceans, truffles, wine, tobacco, pearls, and artworks (all caught irrespective of their value), while a host of other goods including jewellery, perfumes, furs, luxury vehicles, and musical instruments are caught if they exceed certain value thresholds.
Additionally, a ban on the import of specific energy-related goods from Russia came into effect on 25 April 2022.The Australian Sanctions Office's view is that this ban should be read as capturing the import, transport and purchase of goods destined for third countries as well as Australia. The goods captured by this ban include:
- coal, briquettes, ovoids, and similar solid fuels manufactured from coal; and
- oil and gas.
Further, Australia now applies an additional tariff of 35% to all imports from Russia and Belarus, withdrawing the 'Most-Favoured Nation' treatment previously in place.
In addition to the above measures, Australia also announced in March the first set of Magnitsky-style sanctions (sanctions which target various situations of international concern, including serious human rights violations, serious corruption, and malicious cyber activity).
The first tranche of these 'thematic' targeted sanctions applies to 14 Russian individuals involved in the serious corruption uncovered by Sergei Magnitsky (after whom the laws are named) and a further 25 Russian individuals identified as perpetrators and accomplices in his abuse and death.
The Australian Government has foreshadowed further ongoing sanctions to be imposed using the Magnitsky-style reforms passed in December 2021, making sanctions risk increasingly dispersed for companies.