In response to the invasion of Ukraine, the Federal Government has announced the extension of existing autonomous sanctions against Russia and Ukraine so as to apply these sanctions regimes to the Donetsk and Luhansk regions of Ukraine. The Autonomous Sanctions Amendment (Ukraine Regions) Regulations 2022 (the Ukraine Regions Regulations) amend the Autonomous Sanctions Regulations 2011 with effect from 28 March 2021.
Australia’s response to global events must be considered in the context of the sanctions imposed by European countries and the United States, many of which have extra-territorial application and can prohibit commercial activities in Australia when there are certain kinds of link with the other jurisdiction. Furthermore, restrictions imposed by the USA, the EU and other larger economies can be expected to lead Russian interests seeking to circumvent those restrictions to look for weaknesses elsewhere in the global financial system. Australia is well known internationally to be lagging relative to other developed countries in its AML/CTF measures, and is likely to be a target in this search for ways to finance the war in Ukraine.
Businesses with direct or indirect interests or connections in Russia or Ukraine, particularly in financial services, transport, telecommunications or the oil and gas sector should consider the new Australian requirements and monitor international developments carefully. If there is a risk that the relevant activities may be subject to Australian autonomous sanctions, either seek a permit (in the case of Australian sanctions from the Australian Sanctions Office), or cease the relevant activity. If the business is regulated by the AML/CTF laws and forms the view that a transaction in which it is involved may be to evade sanctions or otherwise to facilitate money laundering it should be considered for reporting as a suspicious transaction to AUSTRAC.
Anti-Money Laundering Program and sanctions
Providers of designated services under the Anti-Money Laundering/Counter-Terrorism Financing laws should review their AML/CTF Programs to ensure that the supporting risk assessments remain appropriate and up-to-date.
Any business that provides designated services under the AML/CTF regime (whether or not directly exposed to the region) should consider the impact of the rapidly evolving global events in Ukraine on the risk it or its products may be used to facilitate money laundering. Businesses with offshore financial exposure should be alert for transactions that may be motivated by efforts to circumvent the sanctions or restrictions imposed by other countries.
Business’ regulated by the AML/CTF laws should monitor their customers’ activity for transactions that are intended to evade international sanctions measures or other restrictions including commercial measures. This includes the steps taken to exclude some Russian banks from the international payments system by largely excluding them from the SWIFT messaging system that cross border payments depend on.
Trade and economic sanctions, by restricting the flow of goods, services and assets create equivalent incentives for avoidance, and generate opportunities for money laundering and new demand for the services of its practitioners. As a result events in the Ukraine impact the money laundering and terrorist financing risk presented by some jurisdictions, customers or activities.
Targeted Financial Sanctions
The Department of Foreign Affairs and Trade (DFAT) publishes a Consolidated List of all persons and entities who are subject to targeted financial sanctions under Australian law. This list is constantly being updated. These measures prevent any Australian citizen, or anyone on Australian soil, from making assets available to or dealing in the assets of a person designated on that Consolidated List. As at the time of writing:
- The kinds of people and entities that the Australian Government can list for targeted financial sanctions under the Autonomous Sanctions Regulations 2011 will be broadened to include those of “strategic and economic significance to Russia”;
- in particular, targeted financial sanctions will apply to
- eight members of Russia’s Security Council. This body provided policy advice about and justification for President Putin’s unilateral declaration recognising the so-called Donetsk People’s Republic and the Luhansk People’s Republic. Travel bans will also apply; and
- Rossiya Bank, Promsvyazbank, IS Bank, Genbank or the Black Sea Bank for Development and Reconstruction. Australians are also restricted from investing in the state development bank VEB.
Trade and Economic Sanctions
In addition the existing sanctions that apply to Crimea and Sevastopol will be extended to Donetsk and Luhansk. These will prohibit trade with those regions in the transport, energy, telecommunications, and oil, gas and minerals sectors. More detailed information is available from the website of the Department of Foreign Affairs and Trade.
Need more guidance?
You can read the Government’s press release here.
If you would like further information or advice on how these sanctions could affect you or your business, please contact Andrew Ham or our Banking & Finance Team at Hunt & Hunt.
~ Article by Peter Huang, Lawyer