What sanction reform means for your business

A version of this article was first published by The DCN in January 2022.

Andrew Hudson explains what the thematic sanctions reforms passed by the Australian Parliament means for your business.

Many in industry would be aware of the Australian sanctions regime that prohibits dealings (whether in relation to the movement of goods or provision of finance) with certain countries or organisations.

This has an impact on many of those in the private supply chain, including freight forwarders and licensed customs brokers.

However, the nature of our sanctions regime has now been significantly expanded by the adoption of new “thematic” sanctions. The relevant legislation received Royal Assent on 7 December 2021, and the nature of the changes and their effect are described below.

Background

Australia imposes two types of sanctions regimes, including the United Nations Security Council (UNSC) sanctions regimes and the Australian autonomous sanctions regime. As a member of the United Nations (UN), Australia is obliged under the Charter of the United Nations Act 1945 to implement the UNSC sanctions regime, which is established pursuant to Article 41 of the Charter of the UN as follows:

“The Security Council may decide what measures not involving the use of armed force are to be employed to give effect to its decisions, and it may call upon the Members of the United Nations to apply such measures. These may include complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations.”

There are several UNSC sanctions regimes in place which seek to combat an array of international issues such as human rights abuses and counter-terrorism without the use of armed force.

The Australian autonomous sanctions regime follows the same principles as the UNSC sanctions regimes. That is, to combat certain international issues without the use of armed force.

Australia itself imposes the Australian autonomous sanctions regime as a matter of foreign policy through the Autonomous Sanctions Act 2011 (ASA) and the Autonomous Sanctions Regulations 2011. This sets up the terms of the regime and imposes significant penalties if breached.

Section 16 of the ASA sets out that a sanctions related offence can be punishable on conviction by imprisonment up to 10 years, or a fine of up to 2500 penalty units ($454,350 as of December 2021) for individuals and a fine of up to 10,000 penalty units ($1.8 million) for corporations.

Until now, the Australian sanctions regime imposed sanctions primarily through a country-specific regime. Previously, this left inadequacies in Australia’s ability to impose sanctions on certain activities if that activity was not specific to a particular country.

The terms of our sanctions regime as applying to the import and export of goods is also found in our customs prohibited import and export regulations, which identify which imports and exports are prohibited absolutely due to sanctions or which can be conducted with a sanctions permit.

The Australian Sanction Office (ASO) is Australia’s sanctions regulator. It fits within the Legal Division in the International Security, Humanitarian and Consular Group of the Department of Foreign Affairs and Trade (DFAT). The ASO has several roles, including providing guidance on the nature of our sanctions regime, assisting with compliance and supporting the enforcement of the sanctions. Since October 2020, the Australian online portal for seeking information on sanctions and applying for sanctions permits is conducted through Pax.

The amendments

The Autonomous Sanctions Amendment (Magnitsky-style and Other Thematic Sanctions) Bill 2021 (the Act) was passed on 2 December and received Royal Assent on 7 December 2021. The Act amends the ASA to ensure that the Australian autonomous sanctions regimes can be either country-specific or thematic. The Act remedies perceived inadequacies with Australia’s autonomous sanctions regime and makes it clear that the matters that the autonomous sanctions may address is non-exhaustive and includes both country-specific and thematic sanctions of any kind. The Act also sets out the circumstances in which the thematic sanctions can be created and imposed.

Some of the thematic sanctions specifically mentioned in the explanatory memorandum to the Act include:

• the proliferation of weapons of mass destruction;
• threats to international peace and security;
• malicious cyber-activity;
• serious violations or serious abuses of human rights;
• undermining good governance or the rule of law, including serious corruption; and
• serious violations of international humanitarian law.

These reforms came about as a result of the report by the Human Rights Sub-committee of the Joint Standing Committee on Foreign Affairs, Defence and Trade’s titled Criminality, corruption and impunity: Should Australia join the Global Magnitsky movement?

This report recommended that Australia impose “targeted sanctions legislation to address human rights violations and corruption, similar to the United States’ Magnitsky Act 2012”, which will ensure that Australia is not a safe haven for human rights abusers and their illegal gains.

The Act and its amendments to the ASR goes further than contemplated by the report in a manner similar to thematic sanctions regimes in the United States (US), the United Kingdom and Canada identifying a number of behaviours beyond human rights abuse which would allow the imposition of thematic sanctions.

The Act sets out the amendments to the ASA with more specific details of the new regime to be found in regulations to be made pursuant to the Act now that it has received Royal Assent. The exposure draft of those regulations sets out a wide variety of thematic sanctions that can be imposed, although they are not intended to be exclusive.

There will also be a review of the effect of the Act three years after it has come into effect.

What you need to know

With the expansion of Australia’s autonomous sanctions regime, it is important for Australian businesses to undertake due diligence to ensure they do not engage with any designated persons or entities under the wider sanctions regime.

A consolidated list of all designated persons and entities is regularly updated by DFAT and can be found on its website linked here. It is the responsibility of Australian businesses and individuals to check this list as a part of their due diligence agendas.

As set out above, it is a serious offence to do business with any designated person or entity without a permit. If breached, it can result in severe penalties, including jail and significant fines. If you wish to do business with a person or entity who is on the Consolidated List, you must make an application for a sanctions permit through the Australian sanctions portal Pax.

The amendments to Australia’s sanctions regime create additional compliance issues for those in the private supply chain providing services to those exporting and importing goods, including freight forwarders and licensed customs brokers. Those providing such services will need to provide education on the revised sanctions regime to all their employees, undertake their own due diligence on proposed movements of goods and the parties involved, and secure sanctions permits where required if they are available.

Those compliance obligations will also extend to refusing to provide services where the proposed transactions breach (or are likely to breach) our sanctions regime.

General reform of the Australian sanctions regime and other related reforms

In addition to adopting the “thematic” sanctions described above, there is also a proposal that the ASR will be the subject of more comprehensive reform during 2022.

Changes to the ASR will operate alongside likely amendments to the modern slavery legislation following its own review in 2022.

Those amendments are anticipated to introduce prohibitions on the import of goods produced in part or in whole by forced labour in the same manner as such goods are already prohibited from import into the US.

These changes will add significant burdens to those in the private supply chain, creating more due diligence and compliance obligations to prohibit trading with certain persons and certain goods in the interests of restricting trade determined to be unacceptable by government.

As always, we will keep you informed of any further developments and would be pleased to provide more detail and information on the terms of the Australian sanctions regime and how it can be implemented in your business.

For advice on all aspects of Australian and international trade and customs obligations, please contact our Customs & Trade team.