Thinking | 25 February 2022

Australian sanctions against Russia: what do Australian companies need to know?

By Chris Sacré and Kendall Messer

Australia is one of many Western nations who have imposed sanctions on Russia for its invasion of Ukraine. In this article we provide a brief outline and explore what Australian companies and individuals need to do now to ensure that they are not exposed to sanctions risks.

Australia exported AUD$585 million in goods to Russia in 2020, and more than AUD$100 in services.[1] As such there are a significant number of Australian individuals and corporations who are at risk of contravening the expanding sanctions in Russia and Ukraine.

Any Australian company which does business in Russia, or with Russian entities or individuals, or supplies/buys goods or services to/from Russia, should review its sanctions exposure at this time.  Australian citizens involved in companies undertaking such trade will also wish to review their personal exposure.

Prohibitions relate to direct or indirect purchase or supply such that one must enquire as to the originator or end user and not simply one’s direct contractual counterpart.

In announcements made on 23 February 2022 and legislated yesterday, the Australian Government has increased sanctions in relation to Russia and the Donetsk and Luhansk regions of Ukraine.

Since 2014 and 2015, Australia has imposed autonomous sanctions in relation to Russia, Crimea and Sevastopol in response to the Russian threat to the sovereignty and territorial integrity of Ukraine. Those sanctions restrict the export, supply, import, purchase or transport of certain goods, provision of certain services, commercial activities, and providing or dealing with the assets of designated person or entities.

Ukraine

From 28 March 2022, the Australia sanctions regime in the Crimea and Sevastopol regions is extended to the Donetsk and Luhansk regions of Ukraine. These prohibitions are targeted at transport, telecommunications and energy sectors, and the exploitation of oil, gas, or mineral reserves in these regions.

Yesterday’s amendments also provide power for the Minister of Foreign Affairs to extend the sanctions regime to additional areas of Ukraine, should they fall under Russian influence.

Russia

As of today, 25 February 2022, the Australian autonomous sanctions relating to Russia have been broadened allowing the Minister for Foreign Affairs to apply targeted financial sanctions or a travel ban to:

  1. a person or entity she is satisfied is, or has been, engaging in activity or performing a function that is of economic or strategic significance to Russia;
  2. a person or entity who is a current or former Minister or senior official of the Russian Government; or
  3. a person who is an 'immediate family member' of a person listed under paragraphs (a) or (b).

These powers have been used in the last 24 hours to designate at least an additional 31 people and eight entities as subject to sanctions. The sanctions regime relating to Russia remains otherwise unchanged.

Does this impact you?

Australia’s autonomous sanctions regime applies to:

  • Australian citizens, whether engaging in conduct in Australia or internationally;
  • Australian companies, whether engaging in conduct in Australia or internationally; and
  • conduct engaged in by any person in Australia.

A person who engages in conduct in contravention of a sanction law can be convicted of an offence. The maximum penalties for an individual person are imprisonment for up to 10 years, or the greater of $555,000 or three times the value of the transactions.

A corporation who engages in conduct in contravention of a sanction law will be strictly liable and penalised by a fine limited by the greater of $2.22 million or three times the value of the transactions. A corporation may avoid strict liability by raising the statutory defence that it took reasonable precautions and exercised due diligence to avoid contravening the sanction law.

Note also that companies may be exposed to enforcement action by ASIC for breaches of directors' and officers' duties in relation to contravention of a sanction law.

What should you do now?

Due to the complexity and changing nature of the regime, any activities or commercial agreements of concern require assessment to ensure compliance with the sanction regimes.

The extensions to the sanctions regime in Russia are effective immediately.  The sanctions regime introduced to Donetsk and Luhansk regions does not come into effect until 28 March 2022, allowing Australians and Australian entities time to consider whether they are at risk of breach, and either cease their activities or apply to the Minister for Foreign Affairs for a permit to continue their activities.

Australians and Australian entities should immediately review their risk in relation to the Russian/Ukrainian sanctions regime. We recommend that you:

  • identify whether any of your contractual counterparts, trading partners, end users or suppliers or the financial institutions involved appear on the DFAT consolidated list.
  • identify any current contracts or activities that relate to Russia, Donetsk or Luhansk;
  • review all contracts for existing sanctions clauses to identify whether you are in breach of contract or subject to potential cancellation, including insurance policies;
  • review the cancellation and force majeure provisions of existing and future contracts to ensure they are wide enough to protect you;
  • conduct due diligence to understand exactly how products and services are being used, for what purpose, by who, and for whose benefit;
  • to the extent that your US$ payments are directed through US clearing banks review whether you will be exposed to payment delays caused by your payments triggering alerts in banking institutions abroad; and
  • diarise a regular review of the sanctions position as the situation in the Ukraine and the response of the international community develops.

Do not hesitate to contact Chris Sacre or your usual Hall & Wilcox contact if you would like us to assist with your review of your sanctions exposure.

Contact

Chris Sacré

Chris is a leading transport and trade lawyer with extensive experience in shipping, international trade and marine insurance.

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