Australia ramps up Russian sanctions with the petroleum and alumina industries in focus

By Chris Sacré and Kendall Messer

As the Ukraine conflict intensifies, Australia’s sanctions response is becoming more extensive and complex. Australian companies and individuals should:

• review their trading partners and end users for sanctioned entities;
• review their market sector for product specific sanctions such as alumina and petroleum products;
• plan ahead, anticipate further expanded sanctions, choose your trading partners carefully and get your sanctions clauses right; and
• look to extract yourself from high-risk contracts.

What do an egg, a football club and a superyacht have in common?

They are each owned by sanctioned Russian oligarchs. The first imperial Fabergé egg appears safe for now, remaining on display at the Victoria and Albert Museum in London, while Chelsea Football Club was first subject to a forced sale that has now halted as Roman Abramovich’s assets are frozen, and the superyacht Lady M was seized by Italian police, and remains so.

A Fabergé egg may appear a trivial extravagance of little concern and impact, but that is not so for the expanded Australian sanctions announced since our last bulletin.

For our prior sanctions updates,  see ‘Russia – the most sanctioned country in the world‘ and ‘Australian sanctions against Russia: what do Australian companies need to know?‘.

Australian commodity sanctions

Australia recognises the significance of the petroleum and resource sectors and its latest sanctions focus on alumina exports and petroleum imports.

Alumina

On 20 March the Australian Government announced an immediate prohibition on Australian exports of alumina and aluminium ores (including bauxite) to Russia. A joint statement of the Australian Government explains that ‘Russia relies on Australia for nearly 20 per cent of its alumina needs‘ and is thus aimed at limiting Russia’s capacity to produce aluminium and therefore its export market.

This will create some complex commercial and legal issues for Queensland Alumina Limited (QAL), 20% of which is owned by Russian entity Rusal, a share of which is ultimately owned by Oleg Deripaska, who assets are frozen. While Rusal is not a sanctioned entity, QAL cannot export to Russia by reason of the latest sanctions.

For an indication of the impact more widely, look to Rio Tinto, who have not yet publicly announced their intentions, but in a message sent to Reuters stated that ‘Rio Tinto is in the process of terminating all commercial relationships it has with any Russian business‘.

Oil and petroleum products

On 11 March, Australia issued autonomous sanctions prohibiting the import of oil, refined petroleum products, natural gas, coal and other energy products of Russian origin. Other than the prohibition on arms, these are the first Australian import sanctions against Russia.

These sanctions apply to the import of oil and petroleum products directly or indirectly from Russia. If the import is coming from a closer trade partner, for example Singapore, but originated in or have been exported from Russia there is a risk of sanctions breach.

This prohibition does not commence until 25 April, allowing 45 days for Australian entities to manage their existing contracts.

Australian designated persons and entities

The designation of individuals and entities by the Australian autonomous sanctions regime means that it is prohibited to directly or indirectly make an asset available, or deal with an asset of that person or entity, essentially their assets are frozen.

On 14 March Australia designated an additional 33 individuals including the controlling minds of several not (yet) sanctioned entities and family members of sanctioned individuals, including individuals sanctioned in 2014.

On 18 March Australia designated a further nine banks, a wealth fund, and the Ministry of Finance of the Russian Federation as sanctioned entities. The Hon. Marise Payne declared that ‘Australia has now targeted all Russian Government entities responsible for issuing and managing Russia’s sovereign debt.’

On 18 March Australia announced two additional sanctioned Russian oligarchs. An announcement with potentially greater gravity than previously sanctioned individuals:

• Oleg Vladimirovich Deripaska who is the founder of Volnoe Delo one of Russia’s largest private charity foundations that is focused on children and education, and a 20% owner of Queensland Alumina Limited through his company Rusal (the remaining 80% is owned by Rio Tinto); and
• Viktor Feixovich Vekselberg whose Fabergé Imperial Easter Egg is on loan to the Victoria & Albert Museum in London, and owns Lamesa Holdings, which has shareholdings in Falcon Oil & Gas, the 30% partner to Origin Energy’s 70% joint venture in the Beetaloo Basin.

On 25 March, a further 45 individuals were designated, most notably including the President of Belarus, Alexander Lukashenko, his family, and Belarusian Ministers, Commanders and similar highly ranked personnel in the Belarusian Armed Forces.

Australia has designated a further 22 strategic media and propaganda personalities including:

• Margarita Simonyan, Editor-in-Chief of Russia Today, Aurora Humanitarian Initiative supporter, and the woman who said ‘I don’t understand why there isn’t champagne in the studio’ as the invasion began; and
• Olga Skabeyeva, Russian television presenter, propagandist and known as the ‘iron doll of Putin TV’.

Key dates

Australians and Australian entities have until:

• 28 March 2022 to ensure their compliance with the Crimea and Sevastopol sanctions regime that is extended to Donetsk and Luhansk; and
• 25 April 2022 to ensure their compliance with the prohibition against import of oil, refined petroleum products, natural gas, coal and other energy products from Russia.

Do not hesitate to contact Chris Sacré, Kendall Messer or your usual Hall & Wilcox contact if you require any assistance in this area.