Understanding sanctions law in Australia

Whether it is in-house legal counsel for international businesses, or lawyers advising clients with financial interests in international markets, knowing what sanctions are in place, their conditions, and the consequences of breaching those sanctions is paramount.

On 16 September, the Australian Government announced new targeted financial and travel sanctions against five Iranians involved in the repression of protests in Iran, exactly two years since the detainment and death of young Tehran citizen Mahsa Amini for allegedly not complying with strict hijab laws.

Sanctions frameworks and governance

The World Trade Organisation estimates that 12 per cent of global trade is affected by sanctions, which inevitably leads to an increase in enforcement by financial crime regulators. Legal professionals with expertise in international finance, white collar crime, trade and governance will increasingly be in demand by individuals and companies seeking to avoid future regulatory action or class action exposure through a thorough review and strengthening of their policies, processes and procedures for identifying and addressing sanctions risks.

There are two types of sanctions in Australia: those resulting from UN sanctions and those autonomous to our government. Then there are four subsets: comprehensive, list-based, sectoral, and product-specific.

As a member of the UN, Australia implements the United Nations Security Council (UNSC) sanctions regime under the Charter of the United Nations Act 1945. The Australian autonomous sanctions regime is implemented primarily under the Autonomous Sanctions Act 2011 (Cth) and Autonomous Sanctions Regulations 2011.

In 2021, the Australian Government overhauled Australia’s sanctions framework to enable thematic sanctions against individuals and associated entities for conduct involving serious human rights violations, serious corruption and malicious cyber activity, regardless of where in the world the perpetrators are located.

In September, a Department of Foreign Affairs and Trade (DFAT) spokesperson told SBS News that Australia currently has listed “1,637 individuals and 550 entities for targeted financial sanctions under Australia’s autonomous sanctions frameworks and under Part 4 of the Charter of the United Nations Act 1945”.

Lara Khider, senior lawyer with the Australian Centre for International Justice tells LSJ, “Autonomous sanctions are a foreign policy tool at the disposal of the Australian government. Trade restrictions are a type of sanction that Australia has imposed against a number of countries including Myanmar, Iran and Russia, amongst others.

“There are various sectors that may be impacted over others, including for example military-related industries and oil exploration. Sanctions allow the Australian government to publicly condemn repressive regimes with the objective of seeking to change the behaviour of that foreign state, which inherently come with diplomatic risks.”

Khider adds, “Sanctions against Russia, for example, have been extensive over the years particularly in response to the Russian threat to the sovereignty and territorial integrity of Ukraine.”

Who must comply with sanctions?

The Australian sanctions regime applies to:

• a legal person conducting activities in Australia; or
• an Australian citizen or Australian registered body corporate.

The Minister for Foreign Affairs, Penny Wong, can provide a permit that allows exceptions, which typically requires that the activity is in “the national interest”. As outlined by DFAT, multiple factors are considered in making an assessment of whether the granting of a permit is in the national interest, including:

• The broader objectives of a particular sanctions regime such as the Russia sanctions regime
• Whether the activity is in the interests of or would be advantageous to Australia in regard to economic, security, and other pertinent foreign policy considerations
• Any effect on Australia’s international reputation or standing or external relations.

The Australian Sanctions Office has only granted four general permits to date (each with two-year validity periods). These permits authorise:

• the provision of financial assistance and financial services relating to Russian oil, together with the transport by ship of Russian oil and refined petroleum products, provided that these products are purchased at or below a price cap
• payment of taxes required by Russian laws
• payments to the Russian IP agency for the purpose of obtaining, renewing or maintaining intellectual property rights under Russian law or the Eurasian Patent Convention; and
• dealings with controlled assets for the purpose of obtaining and providing legal advice and representation.

What happens if sanctions are breached?

Failure to comply with the Australian Sanctions Regime has strong consequences.

Individuals face imprisonment for up to 10 years for each breach, and a fine of up to three times the value of the transaction or 2,500 penalty units (presently $782,500).

For each breach, bodies corporate face fines of up to three times the value of the transaction or 10,000 penalty units (presently $3.13 million). Engaging in conduct that contravenes a sanction will be a beach, irrespective of the body corporate having no intention to contravene the sanction. However, for bodies corporate that can prove they took reasonable precautions and exercised due diligence to avoid contravening the relevant law, there is an opportunity for defence.

Under Section 17 of the Act, giving false or misleading information in connection with a sanction is a criminal offence. It can see an individual caught partaking in this behaviour either with a Commonwealth entity or another individual serving up to 10 years prison time and/or being fined $555,000.

Additionally, Section 19 of the Act empowers the CEO of a designated Commonwealth entity to require either information or documents in order to determine whether a sanction law has been broken, and section 21 makes it a crime not to provide this information, which carries up to 12 months inside.

Khider says, “There have been no notable enforcement cases against corporations for breaches of sanctions law in Australia. There have been some major enforcement cases in the United States and the United Kingdom against corporations in those jurisdictions, where fines of tens of millions or more have been imposed.

“The contravention of sanction laws in Australia is a strict liability offence for corporations. This means that the prosecution does not have to prove the ‘fault’ or ‘mental’ element of an offence, for the corporation to be found guilty. The penalty for a corporation is 10,000 penalty units ($3.3 million) or 3 times the value of the transaction (whichever is greater).”

“In addition, there is reputational damage to the corporation, which may impact its business relationships.”

Beefing up a compliance regime prevents breaches

Individuals and corporations are operating in a complex environment, where there are layers of UN and autonomous sanctions, various restrictions and consequences, and an ever-changing landscape of sanctions relating to increased human rights violations and global conflict.

A comprehensive compliance program must be thoroughly documented and communicated to all relevant personnel within a corporation. This includes:

• Assess the risks: identify and assess sanctions risks
• Real-time transaction monitoring: customers need to be screened, along with transactions and third-party service providers. Where there is any lack of clarity on the location or nationality of the customer or service provider, this is a red flag
• Immediate alert and response: where screening identifies a concern, personnel need to be trained, prepared and ready to review a potential transaction or activity, and to pause, investigate, and address the concern appropriately
• Ongoing, mandatory training: ignorance is no excuse for individuals nor corporations where sanctions risks exist. Comprehensive and up-to-date training specific to the corporation and its processes is a necessary investment, as are seminars, newsletters or other interim communications to ensure personnel remain vigilant
• Audit: independent reviews of sanctions compliance programs are wise, and ought to be scheduled regularly or where there are significant changes to the sanctions laws
• Clear governance:  the personnel involved in systems and processes involved in sanctions compliance ought to be clearly delineated, with responsibilities communicated in written and verbal form. There also ought to be a manager who is accountable for ensuring overall compliance with sanctions laws, and this person is answerable to the board for systems compliance and personnel training.

Khider says she hopes the “significant consequences” of breaches sanctions, mean that corporations have been proactive and ensured compliance through scrutiny of their business operations and due diligence.