Australia Sanctions

AUSTRALIA SANCTIONS

Australia has two sets of sanctions regimes that operate in tandem. First, it can impose sanctions under the Charter of the United Nations Act 1945 (Cth) (“COTUNA”) in order to give effect to sanctions regimes adopted by the United Nations and, more specifically, the Security Council. Secondly, it operates an autonomous sanctions regime under the Autonomous Sanctions Act 2011 (Cth) and the Autonomous Sanctions Regulations 2011 (Cth) (“Autonomous Sanctions Regime”).

1. Legal basis and framework

This section of the Guide focuses on Australia’s Autonomous Sanctions Regime, which is currently the Government’s preferred regime.

Objectives

The Australian Government uses autonomous sanctions as coercive measures of foreign policy that do not involve the use of armed force. Australia typically uses them to achieve three objectives:

1. limiting the adverse consequences of a situation of international concern;
2. seeking to influence those responsible for giving rise to a situation of international concern, to modify their behaviour to remove the concern; and
3. to penalise those responsible for that situation.[1]

By way of example the Australian Government recently passed the Autonomous Sanctions Amendment (Russia) Regulations 2022 (Cth) (the “Russia Regulations”), amending the Australian Sanctions Regulations to allow the Minister for Foreign Affairs and Trade (the “Minister”) to impose sanctions on a broader array of individuals following Russia’s invasion of Ukraine. The Minister subsequently made a number of amendments to the Autonomous Sanctions (Designated Persons and Entities and Declared Persons – Russia and Ukraine) List 2014 pursuant to the Russia Regulations.

Criminal Liability and Extra-Territorial Application

Under Australia’s Autonomous Sanctions Regime, it is a criminal offence for an Australian citizen or body corporate to:

• engage in conduct that contravenes an Australian sanctions law
• engage in conduct that contravenes a condition of an authorisation under an Australian sanctions law; or
• provide false or misleading information in connection with the administration of an Australian sanctions law[2]

A “sanction law” is one which is specified in an instrument made under s 6(1) of the Autonomous Sanctions Act, which is promulgated in the Autonomous Sanctions Regulations. Interestingly, it is not necessarily the sanctioned individual or entity which bears the consequence of such a breach. Instead, the Autonomous Sanctions Regulations impose liability upon a person or entity who engages in the following activities with the sanctioned person:

• making a ‘sanctioned supply’
• providing a ‘sanctioned service’
• engaging in a ‘sanctioned commercial activity’
• dealing with a ‘designated person or entity’
• using or dealing with a ‘controlled asset’[3]

For example, reg 14 of the Autonomous Sanctions Regulations prohibits designated persons and entities from obtaining assets, by prohibiting another person from ‘directly or indirectly’ making an asset ‘available to, or for the benefit of’ a designated person or entity.

A breach of a sanctions law under the Autonomous Sanctions Regime by a body corporate is an offence of strict liability.[4] However, a defence is available if the body corporate establishes that it took reasonable precautions, and exercised due diligence, to avoid contravening the relevant sanctions law.[5] Furthermore, the Australian Sanctions Regime is expressed to apply not only in Australia, but also extra-territorially.[6]

The penalties for breaching Australian sanctions are as follows:

• for individuals: a maximum of 10 years imprisonment, and/or a fine set at the greater of (i) 2,500 penalty units (AUD $782,500 as of 1 July 2023); or (ii) three times the value of the impugned transaction; and
• for corporations: a fine set at the greater of 10,000 penalty units (AUD $3.13 million as of 1 July 2023) or three times the value of the impugned transaction[7]

Whilst not common, individuals have been convicted for breaching sanctions laws. In R v Choi (No 10) [2021] NSWSC 891, Mr Choi was sentenced to imprisonment after pleading guilty to providing “sanctioned services” to North Korean entities contrary to s 27 of COTUNA, s 16 of the Autonomous Sanctions Act and rg 13(1) of the Autonomous Sanctions Regulations. This was because Mr Choi had provided brokering services to North Korean entities for transactions involving military equipment, coal, petroleum products and pig iron. He was sentenced to a fixed term of imprisonment for three years and six months.

2. Designation procedures

Section 10(1) of the Autonomous Sanctions Act empowers the Governor-General (on advice) to make regulations relating to any or all of the following:

(a) proscription of persons or entities (for specified purposes or more generally)
(b) restriction or prevention of uses of, dealings with, and making available of, assets
(c) restriction or prevention of the supply, sale or transfer of goods or services
(d) restriction or prevention of the procurement of goods or services
(e) provision for indemnities for acting in compliance or purported compliance with the regulations
(f) provision for compensation for owners of assets that are affected by regulations relating to a restriction or prevention described in paragraph (b)

Before any such regulations are made, the Minister must be satisfied that doing so:

(a) will facilitate the conduct of Australia’s relations with other countries or with entities or persons outside Australia; or

(b) will otherwise deal with matters, things or relationships outside Australia[8]

Pursuant to reg 6 of the Autonomous Sanctions Regulations, the Minister “may”, by legislative instrument, do either or both of the following:

(a) designate a person or entity mentioned in an item of the table as a designated person or entity for the country mentioned in the item;

(b) declare a person mentioned in an item of the table for the purpose of preventing the person from travelling to, entering or remaining in Australia.

The use of the term “may” in reg 6 is significant, as it both grants the Minister a discretion to sanction an individual if they meet the criteria in an “item” in a “table” (also provided for in the Regulations – see below), and requires the Minister to consider whether, as a matter of discretion, an individual or entity should be sanctioned, even if they meet the criteria provided for in the table items.[9]

It appears that the Minister does not need to identify any specific activity or function in order to achieve the relevant state of satisfaction needed to sanction a person or entity pursuant to the regulations. As Kennett J said in Deripaska v Minister for Foreign Affairs [2024] FCA 62 at [172]:

… reg 6 was intended to enable decisions to be made concerning persons or entities operating in a range of countries which may have totalitarian regimes and little or no transparency as to the ownership of commercial interests or the performance of functions within, in the name of or connected to, government. Item 6A itself does not refer to an “identified” or “specified” activity or function, or require that activity or function to have any particular characteristics other than economic or strategic significance. Thus, while the Minister must reach the view (upon some rational basis) that a person is engaged in an activity or performing a function that has that significance, it does not follow that in every case it is necessary to be able to specify (for example) the shareholdings or board memberships that a person has, or the government offices that the hold.

Additionally, in reg 6A(2), the Minister is empowered to sanction individuals or entities in respect of “cyber incidents” if the Minister is satisfied that a person or entity has:

• has caused, or attempted to cause, a significant cyber incident; or
• has assisted with causing, or with attempting to cause, a significant cyber incident; or
• has otherwise been complicit in causing, or in attempting to cause, a significant cyber incident.

In determining whether a cyber incident is or would have been “significant”, the Minister may have regard to:

• whether the conduct of the person or entity was malicious;
• whether the incident involved any of the following:

o actions that destroyed, degraded or rendered unavailable an essential service or critical infrastructure;

o actions that resulted in the loss of a person’s life, or caused serious risk of loss of a person’s life;

o theft of intellectual property, trade secrets or confidential business information for the purposes of gaining a competitive advantage for an entity or a commercial sector;

o interference with a political or governmental process, the exercise of a political right or duty, or the functions or operations of a parliament.

Once a person or entity is sanctioned, they will appear on the Department of Home Affairs’ Consolidated List.

The breadth of the power to designate and declare is exceptionally broad. The table and items referred to in reg 6 include a number of countries, including (by way of example) Russia at item 6A, which provides that the criteria for designation are:

(a) A person or entity that the Minister is satisfied is, or has been, engaging in an activity or performing a function that is of economic or strategic significance to Russia

(b) A current or former Minister or senior official of the Russian Government

(c) An immediate family member of a person mentioned in paragraph (a) or (b) [10]

In the recent landmark case of Abramov v Minister for Foreign Affairs (No 2) [2023] FCA 1088 (Abramov (No 2)), Kenny J of the Federal Court of Australia further made it clear that the rules of procedural fairness do not apply to decisions made to sanction an individual.[11] Hence, so long as no jurisdictional error has been committed, the Minister is permitted to simply add a person or entity to the sanctions list without first providing them with an opportunity to be heard and make their case as to why they should not be sanctioned.

3. Licensing of activities otherwise prohibited by sanctions

In some cases, the Foreign Minister may authorise certain activities which would otherwise be prohibited by granting a permit or licence under reg 18 of the Autonomous Sanctions Regulations. However, the Foreign Minister must not do so unless satisfied:

(a) that it would be in the national interest to grant the permit; and
(b) about any circumstance or matter required by Part 4 of the Regulations to be considered for a particular kind of permit.[12]

If the permit is for the making available of, use of or dealing with assets or controlled assets to a sanctioned person or entity, that permit must be for:

(a) a “basic expense” dealing
(b) a “legally required” dealing; or
(c) a “contractual” dealing [13]

A “basic expense” includes:

(a) foodstuffs
(b) rent or mortgage
(c) medicines or medical treatment
(d) taxes
(e) insurance premiums; public utility charges
(f) reasonable professional fees
(g) reimbursement of expenses associated with the provision of legal services
(h) fees or service charges that are in accordance with a law in force in Australia for the routine holding or maintenance of frozen assets[14]

A “legally required” dealing is one which is necessary to satisfy a judicial, administrative or arbitral lien or judgment that was made prior to the date on which the person was sanctioned.[15]

A “contractual” dealing includes payments of interest on accounts holding controlled assets or required under contracts, agreements or obligations made before the date on which those accounts became accounts holding controlled assets (i.e., the date on which the person or entity holding that account became sanctioned).[16]

A permit may be applied for through the Australian Sanctions Office (“ASO”) which operates within the Australian Department of Foreign Affairs and Trade. Applications for sanctions permits are lodged and processed online via the Australian Sanctions Portal (otherwise known as “PAX”).

Applications are assessed by the ASO on a case-by-case basis. As such, the application process depends on the type of permit being applied for, to a certain extent, as some activities may require different supporting documentation, or require different inquiries to be undertaken, than others. In general terms, the ASO will require:

• a detailed explanation of the conduct or transaction that is sought to be undertaken
• the parties to the conduct or transaction, including their names, contact information, and location; and
• the monetary value of the conduct or transaction, including an itemised breakdown of the costs involved in some cases

The ASO aims to respond to all applications for permits within six to eight weeks from the time a valid application is made.  However, this is only aspirational – there is no set time for the ASO to provide a response. Accordingly, the ASO recommends that applicants allow three months for applications to be processed.

4. Procedure for challenging designations – grounds for seeking removal of designations and an outline of the procedural requirements at both an administrative and legal level

There are two ways in which a person or entity who is designated under the Australian Sanctions Regime can seek to challenge that designation.

First, a sanctioned person or entity can apply in writing to the Minister to revoke his or her designation under regs 10 and 11 of the Autonomous Sanctions Regulations. The Minister will be required to consider this application and make a decision as to whether the designation should be revoked within a reasonable timeframe (which will depend on the nature of the case, given that a specific timetable for a response is not provided for).

Secondly, a sanctioned person or entity can seek judicial review of the Minister’s decision – either the original decision to sanction that person or entity, or the decision by the Minister to refuse an application for revocation. According to Abramov, judicial review of a decision to sanction someone is only available at common law, not under the Administrative Decisions (Judicial Review) Act 1976 (Cth).[17]

In Abramov (No 2), Mr Abramov sought to challenge the Minister’s decision to sanction him pursuant to two separate designation instruments. Kenny J dismissed all of the grounds that Mr Abramov had raised with respect to his sanctioning pursuant to the second designation instrument, but accepted his argument that the Minister had constructively failed to exercise jurisdiction, by failing to consider whether or not to exercise her discretion to sanction Mr Abramov pursuant to the first designation instrument. This was because, when the Department of Foreign Affairs and Trade put forward Mr Abramov’s name as a target for sanctions, it failed to adequately alert the Minister of her discretion to sanction Mr Abramov, even if he met the criteria for designation under the Russia Regulations[18]. Instead, the decision was presented as a binary one; either Mr Abramov met the criteria for designation, in which case he should be sanctioned, or he did not, in which case he should not be sanctioned. It failed to address the situation where someone might meet the criteria and yet not be an appropriate sanctions target, as a matter of discretion. As such, the Minister committed a “jurisdictional” error by misunderstanding the nature of the jurisdiction to be exercised, and failed to address the correct questions required by the statute.

Hence, Kenny J declared that Mr Abramov’s addition to the sanctions list pursuant to the first designation instrument was void and of no effect. However, this finding was of limited practical benefit to Mr Abramov, because his challenge to the second designation instrument was unsuccessful, and he was therefore still subject to the Australian Sanctions Regime.

5. Costs and damages following challenges

If successful after applying to the Minister for revocation, the sanctioned person is unlikely to have his or her costs paid. If the sanction is set aside as a result of a judicial review, costs will follow the event and the applicant will have most of their costs paid by the Minister.

The position in Australia is not yet settled as to whether the government will be liable for damages in the event of a successful challenge to a designation. There is nothing in the Autonomous Sanctions Act which protects the government from liability. Equally, there is no statutory provision giving an affected individual a right to compensation if they were sanctioned wrongly. However, if the decision to sanction is set aside because it was affected by jurisdictional error, there may conceivably be a right to damages against the Minister for the tort of “misfeasance in public office”. In order to ground such a claim, the successful challenger would need to establish the following matters:

(a) the decision was an invalid or unauthorised act
(b) it was made maliciously
(c) it was made by a public officer
(d) in the purported discharge of his or her public duties; and
(e) the decision caused loss or harm[19]

Whether such an application would succeed in Australia remains to be seen.

6. April 2024 Amendments

On 9 April 2024, the Autonomous Sanctions Act was amended by the Autonomous Sanctions Amendment Bill 2024 (Cth) to address certain issues raised by Abramov (No 2).

Firstly, section 10A was introduced to provide that regulations made under the Autonomous Sanctions Act may make provision to allow for sanctions to be imposed on individuals and entities on the basis of past specified circumstances or past actions committed, or past positions held by the individual/entity, regardless of the period of time that has elapsed since the circumstances existed, the actions were taken or the position was held. However, as Kenny J said in Abramov (No 2) at [70], sanctions could already be applied under the old legislation with respect to past conduct, so this only clarifies a position that had already been established in the case law.

Secondly, items 3 and 4 in Part 2 of the Amendment Bill retrospectively validate regulations and instruments made under the Autonomous Sanctions Act which may otherwise have been considered invalid by a Court where they related only to past circumstances, actions or positions.

Thirdly, item 5 of the Amendment Bill retrospectively validates any sanctions imposed in circumstances where it is not clear that the Minister considered their discretion.

The amendments in items 3, 4 and 5 apply despite any effect they may have on a person’s rights and will also apply to civil and criminal proceedings instituted before the commencement of Part 2 of the Amendment Bill. They are accordingly clearly designed to respond to the parts of Abramov (No 2), in which Kenny J found that the Minister had failed to consider whether to exercise her discretion to designate him and thereby constructively failed to exercise jurisdiction.

Australia Sanctions Guide authors: Matthew Kennett (partner) and Sam Hagan (Associate)
Cornwalls law firm
Level 3/32 Martin Place
Sydney NSW 2000
Australia

The material in this Guide is for general information only and does not constitute legal advice.  The content of this page is accurate as of  April 2024.