Global Magnitsky movement gains pace Parliament passes reforms to Australias sanction regime

What you need to know

• On 2 December, the Australian Parliament passed the Autonomous Sanctions Amendment (Magnitsky-style and Other Thematic Sanctions) Bill 2021 (Cth).
• The bill will amend the existing Autonomous Sanctions Act 2011 (Cth) (Autonomous Sanctions Act) to set out new "thematic" categories of conduct to which autonomous sanctions can be applied. These categories of conduct include serious human rights abuses, serious violations of international humanitarian law, malicious cyber activity, and activities undermining good governance or the rule of law (including serious corruption).
• The amendments will expand Australia's existing country-specific sanctions regimes to enable Australia to sanction individuals or entities responsible for conduct of concern, regardless of where that conduct occurred.

What you need to do

• Companies should be aware that sanctions risks may arise in jurisdictions that are not presently targeted by sanctions regimes.
• Companies that do not currently have comprehensive compliance systems to manage sanctions risk (because they do not operate in jurisdictions that historically have been targeted for sanctions) may need to update their compliance systems.
• Companies should conduct thorough due diligence and re-assess whether risk management policies and other protections are too narrowly focussed on jurisdiction-based concepts.

Background

Autonomous sanctions are targeted punitive measures that governments impose as a matter of foreign policy, beyond the recommendations of the United Nations Security Council, in response to situations of international concern. They are intended to limit the adverse consequences of the situation, and influence or penalise those responsible for human rights violations or certain acts of corruption. In practice, sanctions are typically economic, financial, or trade related (such as travel bans; restrictions on the sale and transfer of goods and services; restrictions on the use of, or dealing with, certain assets; and other restrictions on commercial activities).

In Australia, autonomous sanctions regimes are imposed under the Autonomous Sanctions Act. To date, Australia's autonomous sanctions have been administered primarily via country-based regimes, rather than in relation to types of conduct of concern. Unlike country-based sanctions, "thematic" sanctions can be imposed in relation to conduct of concern, regardless of where it occurs.

For further background, please refer to our earlier publication, "Global Magnitsky movement: Upcoming reforms to Australia's sanctions laws", in which we discussed the Federal Government's response to "Criminality, corruption and impunity: Should Australia join the Global Magnitsky movement?", prepared by the Joint Standing Committee on Foreign Affairs, Defence and Trade.

The Bill: An expanding approach to sanctions

On 2 December 2021, the Australian Parliament passed the Autonomous Sanctions Amendment (Magnitsky-style and Other Thematic Sanctions) Bill 2021. The bill will come into effect the day after receiving royal assent.

The purpose of the bill is to make it clear that sanctions may be either country-specific or thematic, and that thematic sanctions regimes need not be restricted to any particular country. This is consistent with the growing recognition, as discussed in our previous publication, that Australia's existing country-based approach to sanctions requires recalibration in light of the growing frequency of conduct of concern that does not correspond to national borders (malicious cyber activity).

The bill will expand Australia's existing autonomous sanctions framework to expressly enable the Australian government to establish "thematic" sanctions regimes in response to conduct of concern. The categories of conduct to which sanctions will be able to be applied include:

• the proliferation of weapons of mass destruction;
• threats to international peace and security;
• malicious cyber activity;
• serious violations or serious abuses of human rights;
• activities undermining good governance or the rule of law, including serious corruption; and
• serious violations of international humanitarian law.

The inclusion of malicious cyber activity is particularly notable, as it means that Australia's thematic sanctions may in time be broader than many other countries including the UK, which have comparable regimes but no specific coverage of cyber activity .

The amendments will also establish a specific decision-making process in relation to listing decisions under thematic sanctions regimes. Before deciding to list a person or entity under a thematic sanctions regime, the Minister for Foreign Affairs, Defence and Trade will be required to consult with the Commonwealth Attorney-General and such other Ministers as the Minister considers appropriate.

There is no change to the existing penalties for breaching sanctions laws under the Autonomous Sanctions Act. The penalties for contravening a sanctions law currently include imprisonment or a fine of the greater of three times the value of an infringing transaction and 2,500 penalty unit for individuals ($555,000) or 10,000 penalty units for corporations ($2,220,000) .

Importantly, contravention of an Australian sanctions law is a strict liability offence for a company. A company has a defence if it can prove that it took reasonable precautions and exercised due diligence to avoid the contravention, meaning that it is critical for companies to proactively manage sanctions risks through an effective sanctions compliance framework. A formal compliance sanctions framework is strongly recommended in order to demonstrate an appropriate level of due diligence. Such a framework should incorporate the following elements: 

1. A Governance and oversight framework reinforced by management's visible commitment to sanctions compliance;
2. A Sanctions risk assessment to ensure that a company takes a risk-based approach to its sanctions compliance program;
3. Established internal controls, including effective sanctions screening and well documented policies and procedures that outline how a company identifies, reviews, records and escalates prohibited activity;
4. Independent testing and assurance that the company's framework is subject to regular , objective reviews and is in line with the complexity of its program and appropriate to its sanctions risks;
5. Customised training for employees responsible for managing sanctions risks; and
6. Legal obligations mapping and contractual protections such as warranties and exit clauses.
   

What next?

• Companies and their advisers should carefully monitor the introduction of new "thematic" sanctions regimes, and any changes to existing sanctions regimes and sanctions listings , to ensure that relevant policies, procedures, processes and contracts provide adequate precautions against sanctions contraventions. Ashurst can advise on the Australian sanctions regime and assist companies with operationalising the law to create an effective sanction compliance framework.
• The Joint Standing Committee on Foreign Affairs, Defence and Trade will review the operation of the amendments after three years .

Authors: James Clarke, Partner; Thomas Storer, Senior Associate; Rohan Hulonce, Associate; and Tanya Raitsina, Director-Ashurst Advisory.