Companies should prepare themselves for the impact of new sanctions in relation to Russia and Specified Ukraine Regions

A new round of financial sanctions and an export ban on their way

In late May 2023, the Australian Government announced a new round of sanctions on Russia comprising financial sanctions targeting, inter alia, 21 Russian entities as well as certain economic sectors and industries, particularly energy, gold, steel and banking.

The Australian Government also announced a forthcoming ban on the export of machinery and related parts to Russia and areas of Ukraine currently under Russian control.

These sanctions measures represent the latest in a series of sanctions imposed by the Australian Government in response to Russia’s invasion of Ukraine since February 2022. They are stated to be targeted at disrupting Russia’s ability to source key military materials, reducing international reliance on Russian energy resources, closing loopholes used to avoid existing sanctions and undermining Russia’s access to the global financial system.

New financial sanctions

The Australian Government has imposed new financial sanctions targeting, inter alia, 21 Russian entities as well as certain economic sectors and industries, particularly energy, gold, steel and banking.

Consistent with Australia’s existing sanctions against Russia, this new round of financial sanctions applies to Australian citizens, entities incorporated in Australia, Australian registered body cooperates and Australian flagged vessels both in respect of their activities in Australia and their activities abroad.

It is a serious criminal offence to directly or indirectly provide assets to, or deal with the assets of, a person or entity subject to Australia’s financial sanctions. Penalties include a maximum sentence of up to 10 years’ imprisonment for individuals, and substantial fines for both individuals and bodies corporate.

What should companies and individuals be doing right now to protect themselves?

To ensure they can comply with all operative sanctions including this latest round, Australian companies and individuals should be seeking advice on the following steps:

• Examining their corporate structures to ensure they are not captured by these new financial sanctions.
• Evaluating their existing and prospective contracts, operations and other business activities.
• Checking their relationships with international banks or investors with global investment portfolios.
• Reviewing whether existing due diligence, screening, and monitoring procedures are sufficient to manage potential sanctions risks across their business activities.
• Implementing updated training for employees with respect to the new sanctions and in particular those roles that have exposure to customers or suppliers overseas, as well as procurement, finance, risk, compliance and legal functions.

What is likely to be covered by the export ban?

The export ban will be implemented by the Australian Government following a round of public consultations. The Department of Foreign Affairs and Trade (DFAT) has commenced public consultations on the design and implementation of the export ban.

Companies should be aware that the export ban:

• Could apply to many forms of electrical equipment, machinery and mechanical appliances such as engines, motors, generators, turbines, as well as their constituent parts (as classified in Chapters 82, 84 and 85 of Australia’s Tariff Classification).
• May apply to products that have non-military uses or non-military related end uses.

The scope of the export ban may catch some companies by surprise. For example:

• Products that contain semiconductors may be captured by the new ban, as semiconductors can have both civilian and military equipment end uses.
• The ban may also capture machinery and/or related parts to any other market that will be, or may be, further processed and/or subsequently re-exported to Russia or Russian-controlled areas of Ukraine.

The ban may also have an impact on day to day operations. For example:

• The ban may also impact on unpaid invoices.
• The ban may impact repair, maintenance, consulting and other technical services provided in connection with the export of machinery and/or related parts to Russia or Russian-controlled areas of Ukraine.

Companies should also consider the implications of the export ban on their existing contractual arrangements. Further information can be found in our article Australia’s Sanctions Regime for Russia and Specified Ukraine Regions: How to Avoid Being stuck between an Arbitration and a Sanction.

What should companies be doing to preserve their operations in light of the forthcoming export ban?

Australian companies should proactively review their supply chains now to assess how their products and operations could be affected. The ban follows similar bans being imposed by other countries, and companies with cross border operations and supply chains should be seeking advice on all export bans imposed by governments within their supply chains and corporate structures.

Companies should consider making a submission to DFAT. Companies have until 19 June to make submissions to DFAT on the export ban. It is anticipated that design of the ban will be finalised in July with implementation to follow shortly afterwards. Once the export ban is in place, exporting goods subject to the ban will be prohibited unless the exporter has a sanctions permit.

If your operations are covered or affected by the ban, you should seek advice and consider proactively applying to the Australian Sanctions Office for a permit. You can refer to our Australian Sanctions Briefing for more detailed guidance.