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Today I’m joined Peter Haig who is a Partner in the Commercial Litigation and Dispute Resolution team at Allens to talk about the sanctions against Russia.  Peter thank you so much for joining me.

Hi Kate thanks.

Now Peter what do the sanctions imposed by the Australian Government against Russia do, and what is their current status?

Like many countries Australia responded to Russia’s support for the separatist uprising in Eastern Ukraine by imposing sanctions and it’s key from a compliance perspective for Australian businesses to understand both the status and scope of these sanctions and this is not easy as its complex and it’s a relatively fast moving area of the law.  The nature of the sanctions and regulator’s expectations in this area means that to avoid falling foul of these sanctions much more is required than a simple screening of customer or counterparty names against the consolidated list that DFAT maintains.  So ensuring compliance requires a nuanced understanding of the two rounds of sanctions against Russia announced this year.  And I say sanctions against Russia but as with all sanctions these days these ones are what’s known as smart sanctions in that they’re tailored to achieve particular ends, they home in on particular individuals, entities or sectors rather than simply blacklisting a whole nation. 

I mentioned that there had been two rounds of sanctions this year so dealing with the first round, which was announced in March and implemented in June, these targeted key individuals and entities, primarily Russian and some Ukrainian, the targets are referred to as designated persons or entities and DFAT as I think I mentioned maintained the searchable list.  Round one prohibited Australian companies and individuals from making an asset available to or dealing with an asset of a designated person or entity.  Now that’s a very broad prohibition and it essentially outlaws any dealings with such persons or entities here being 11 entities and 50 individuals including prominent business people, politicians, among them the Deputy Prime Minister of Russia and also the former President of Ukraine, Victor Yanukovych and also companies including Bank Rossiya and Transoil.  More recently in September the Government introduced a second round of sanctions and these have only partially been implemented.  While these are still tailored or smart sanctions, Australia’s second round of sanctions are perhaps able to be characterised as being against Russian, and they reflect changes in the international political climate in the wake of the MH-17 disaster.  Last week the Government released an exposure draft of the proposed amendments to the Autonomous Sanctions Regulations to give effect to these aspects of the second round of sanctions and they’ve invited public comment.  We wouldn’t anticipate there’s going to be significant change to the exposure draft and companies should closely review the exposure draft to ready themselves for compliance.

So Peter which industry sectors are most likely to be affected by Australian sanctions against Russia?

All Australian companies and individuals are potentially exposed to targeted financial sanctions as the designated persons or entities that DFAT lists could crop up anywhere though they’ve obviously got to be encountered most commonly in and around Russia and Ukraine.  Those Australian companies that have the greatest exposure though are probably those that buy from or sell to or otherwise have commercial interactions with the Russian banking and finance, oil and gas, military and shipping sectors and that’s because the proposed prohibitions which are about to be implemented on designated exports, imports and commercial activities target those sectors and regions particularly.

And what should a company with links to Russia do to minimise its exposure to Australian sanctions laws?

There are a number of things, sanctions are offences of strict liability, but it is a defence if a company can show that it took reasonable precautions and exercised due diligence to avoid contravening a sanction laws, so it’s imperative that all companies ensure that they’re able to point to adequate compliance policies and procedures.  There are a number of steps that a company with operations or commercial relationships whether they be direct or indirect with the region or with designated persons or entities should take to minimise their potential exposure.  Obviously such steps need to be tailored to the individual issues facing the businesses, but in general we commend that Australian companies first have in place an appropriate compliance policy, we then say that it’s very important to conduct an appropriate level of due diligence on transactions and commercial relationships including considering whether companies and individuals involved in transactions and new and existing relationships appear on the Australian consolidated sanctions list.  Now there are obviously limits on what is expected and what is required definitely varies case by case, but when it comes to due diligence while a preform DD checklist or questionnaire might sometimes suffice other times a more detailed chain of inquiry may be required.  Companies should also consider what contractual provisions may be necessary with suppliers and third parties to minimise their potential exposure to sanctioned individuals and entities.  And finally they should conduct regular and ongoing training to ensure that staff understand and they’re aware of the company’s compliance policy, and that’s certainly something that’s being trumpeted by DFAT which has indicated that sanctions compliance is a current area of focus.

Well some good tips for the companies there Peter thanks so much for joining us.

Thanks very much Kate.