Australian autonomous sanctions relating to Russia, Crimea and Sevastopol for sanctioned exports, imports, services and commercial activities took effect on 31 March 2015.
This adds to Australia's targeted financial sanctions and travel bans relating to Russia against designated persons and entities that were made in June and September 2014. For details of the targeted financial sanctions, please see our earlier client alerts here and here.
Who will the expanded sanctions impact?
The expanded sanctions are primarily focussed on sectors. They will impact dealings involving Russia, Crimea and Sevastopol in the defence, oil and gas, energy, mining, transport and telecommunications sectors and related commercial and investment activities.
The expanded sanctions differ to existing Australian autonomous sanctions by:
- applying to only part of a country, being Crimea and Sevastopol;
- introducing new types of sanctions for commercial and investment activities; and
- introducing some sanctions which are multi-layered, setting out the primary sanctioned conduct as well as exceptions.
As with the existing designated person and entity sanctions, the new sanctions apply to conduct engaged in by Australian citizens and Australian incorporated entities no matter where in the world they are located (as well as to conduct relating to Australia).
The prohibitions in the Regulations for sanctioned exports, imports, services and commercial activities all make a body corporate liable for sanctioned conduct engaged in by entities over which the body corporate has effective control (no matter where incorporated or located). This increases the potential exposure of companies if they control special purpose vehicles or subsidiaries that could engage in activities that falling within the new sanctions.
What are the expanded sanctions?
Key aspects of the new sanctions are summarised below. Please note that this is a simplified summary and may not identify all details of sanctioned conduct relevant to a transaction.
Sanctioned Exports and Imports
- Export to and import from Russia of "arms or related materiel" (this term is treated as generally including dual-use (as well as military) items listed on the Defence and Strategic Goods List).
- Export to Russia of specified items suited for use in particular categories of petroleum exploration and production.
- Export to Crimea and Sevastopol of specified items relating to infrastructure for the transport, telecommunications, energy and oil, gas and mineral reserve exploration sectors.
- All imports from Crimea and Sevastopol (unless verified by Ukrainian authorities).
- Providing broadly described services for use in Russia in connection with a military activity or arms or related material.
- Providing a listed service for use in Russia (including its Exclusive Economic Zone and Continental Shelf) in certain types of oil exploration and production. Listed services are drilling, well-testing, logging and completion services and supply of specialised floating vessels.
- Providing broadly described services for use in Crimea or Sevastopol in connection with the manufacture, maintenance or use of export sanctioned goods.
- Providing broadly described services if this relates to engaging in a sanctioned commercial activity for Crimea or Sevastopol.
- Providing an investment service assisting with or relating to a sanctioned commercial activity for Russia, Crimea or Sevastopol. "Investment service" is a newly defined term covering a broad range of investment advice, portfolio activities and dealing with financial instruments.
Sanctioned Commercial Activities / Investments
- For Russia:
- Dealing with bonds, equity, transferable securities, money-market instruments or similar financial instruments issued by an entity identified by instrument with a maturity period in excess of 30 days. Exceptions apply.
- Making or being part of an arrangement to make loans or credit if made by an entity identified by instrument with a maturity period in excess of 30 days. Exceptions apply.
The entities are identified in 3 categories to align with the Regulations. The entities listed are not already listed as designated entities subject to targeted financial sanctions.
These sanctions also cover an entity over 50% owned by a listed entity and an entity acting on behalf of or at the direction of a listed or covered entity.
- For Crimea and Sevastopol, granting a financial loan or credit or establishing a joint venture relating to infrastructure in the transport, telecommunications or energy sectors in Crimea or Sevastopol or exploring oil, gas or mineral resources as specified by instrument.
How do the expanded sanctions align with other countries?
The expanded sanctions are intended to align with sanctions implemented by the EU, Canada and the US. Several amendments to the draft regulations and instrument were made to more closely align with the EU approach.
Are pre-existing contracts and investments protected?
There is a 30 day transition period for sanctioned exports that are the subject of agreements in place before the new laws commenced.
There are limited exemptions for some sanctioned commercial activities for Russia. For example, some pre-existing loans made by entities listed for Russia are exempted where the "terms and conditions" (as defined) are fixed.
DFAT has also announced a 90 day period for people with a pre-existing legal obligation to apply for an authorisation to engage in what would otherwise be sanctioned activity.
What are some of the key issues?
Key issues businesses will need to address for the expanded sanctions include:
- Understanding the complexity of these new sanctions. Care is needed to ensure potentially sanctioned conduct is identified and that available exceptions are not overlooked. Businesses who have already worked through the similar EU requirements may find the process easier.
- If importing from Crimea or Sevastopol, understanding the Ukrainian authorities' verification process.
- For sanctioned investment and commercial activities, understanding the scope and impact of the new terms and the interplay with sanctioned services.
- Implementing updated processes to screen for potentially sanctioned conduct. Where relevant, screening against lists of designated persons and entities should be supplemented to include the new entities specified for the sanctioned commercial activities for Russia.
- Identifying arrangements that may have the benefit of the pre-existing agreement protections.
- Identifying arrangements which may require authorisations from DFAT.
Details of the new sanctions can be found here.