Last year, we forewarned that the full impact on the Australian market of Russia’s invasion of Ukraine was yet to be realised. Some months later, the full force of the conflict has been felt by most Australians, primarily through the surging costs of gas and oil.
For some, an added challenge of the last 12 months has been navigating the raft of new international sanctions introduced by the Federal Government in response to the conflict.
Following strong and continual growth in the resources and renewables sectors in 2022, the steady application of these sanctions has posed a significant and somewhat underappreciated risk to the sector generally. With Russian-Australian imports and exports tending to fall in the resources sector, it is important that the sector remains aware of its obligations and stays up to date on appropriate developments. Given the fluidity of the conflict, variations to Australia’s sanctions regime are being made promptly, and often without any forewarning.
First introduced in 2011, and with several additions and extensions since then, the Australian sanctions regime is a political and economic tool aimed at targeting certain entities, persons and dealings the Australian Government determines to be contributing to conflict, human rights abuses or terrorism. Regulated by the Autonomous Sanctions Act 2011 (Cth) and Autonomous Sanctions Regulations 2011 (Cth) (collectively, the Legislation), the regime sets out prohibitions in relation to:
- certain dealings with persons and entities named on the Consolidated Sanctions List;
- sanctioned commercial activity, services, supply or import; and
- the consequences for any breach of these prohibitions.
In addition to economic sanctions, there are ‘Magnitsky style’ sanctions that target certain breaches of fundamental rights. A tranche of these sanctions was introduced against certain Iranian and Russian entities (and persons) in late 2022, in response to their involvement in human rights contraventions. Whilst these sanctions are important, in 2023, we expect the greatest challenges facing the renewables and resources sector will stem from the economic-style sanctions implemented against both Russia and Ukraine.
Sanctioned entities and persons
An important tool for authorities and those potentially affected by sanctions is the Consolidated Sanctions List. Created to expressly name and inform the public of sanctioned persons or entities, the Australian Government maintains and updates the register on an as-needed basis. Easily accessible on the Department of Foreign Affairs website, we recommend as a first step that participants in potentially-impugned dealings:
- cross-reference any potential dealings with new entities or persons with international parent companies or related parties as against the Consolidated Sanctions List; and
- conduct due diligence on any current or potential contractors, sub-contractors or other involved parties, to ensure there are no links to any sanctioned person or entity.
While undoubtedly an important tool and one that should be reviewed thoroughly, contrary to common belief, Australia’s sanction regime extends beyond those on the Consolidated Sanctions List. The Legislation makes clear that any dealings or associations with sanctioned entities or persons, either directly or indirectly, will be monitored and potentially prosecuted. So too will dealings that contravene other specific sanctioned actions, such as the supply and importation of sanctioned goods.
Effect on resources and renewables
The Legislation purposely centres around four key sanctioned areas:
- the making of a sanctioned supply – import;
- the making of a sanctioned supply – export;
- engaging in a sanctioned commercial activity; and
- the provision of a sanctioned service.
There are several key implications for the resources and renewables sector generally, mainly stemming from the sanctioned import and export of specified goods and services. The Legislation is accompanied by numerous Federal Government statements and amendments that add (or clarify any additions) to the sanctioned activity and goods lists.
Relevantly, notable additions to the sanctioned list include:
- importation and supply prohibitions on aluminium ores (including bauxite), aluminium oxide (including alumina) and aluminium hydroxide;
- importation prohibitions of certain energy goods including oil, gas and coal from Russia; and
- the creation or acquisition of energy developments or infrastructure in specific Ukrainian regions.
It is also a sanctioned commercial activity to sell to or make available to a sanctioned entity or person, an interest in a commercial activity involved in refining fuels, exploration or production of crude oil and natural gas or the liquefaction of natural gas.
Financing
In addition to the prohibitions on imports and exports, the Legislation restricts the provision and receipt of financial services in connection with designated Russian persons and entities. Put simply, it remains a sanctioned act to provide financial assistance or services to assist any sanctioned entity or assist in sanctioned undertakings. Given the strength of the Australian resources and renewables position, it is uncontroversial to assume international funding of Australian projects will continue into 2023 and beyond. Australian companies need to remain vigilant to ensure they are not receiving funding from prohibited sources.
Importantly, we note that the Australian Transaction Reports and Analysis Centre (AUSTRAC) has been closely monitoring financial dealings for any potential sanctions evasion. AUSTRAC has broad powers and may refer any financial intelligence to the Australian Sanctions Office (ASO) or the Australian Federal Police (AFP) for further action.
Penalties
Where a person or entity makes an unauthorised import or export of sanctioned material, they will be in breach of the Legislation and face the risk of significant penalties.
The penalties under the regime are calculated on the basis of three times the total value of any transaction, or AUD11,000,000, whichever is greater in value. An offence against the regime is one of strict liability, meaning that a person’s knowledge or intent will be irrelevant as to whether the offence was committed.
If a person’s proposed dealings will or are likely to contravene the Legislation, the person may apply for a permit to engage in the import and export of sanctioned goods and engage in certain sanctioned activities. Any exemptions are at the discretion of the Minister for Foreign Affairs, and will be granted only in circumstances where it would be in the national interest to do so, and the Minister is satisfied about any circumstances required under the Legislation.
Australia’s international sanction regime should not be avoided or ignored. With severe fines for even inadvertent breaches of the regime, strict compliance is strongly encouraged to ensure any commercial activity (including the importation and exportation of resources) is undertaken in a lawful manner. We also reiterate the fluidity of the regime, with additions or extensions occurring sometimes overnight. We recommend that all resources and renewables proponents monitor the sanctions regime and pay particular attention in circumstances where new sanctioned activities or entities have come to light.
Should you have any concerns over your organisation’s dealings, it may be prudent to engage directly with the Department of Foreign Affairs, to demonstrate a co-operative and transparent approach to the regime, should the circumstances warrant such engagement.
For more information on this topic, or to explore other articles from our 2023 edition of Emerging Issues for the Australian Energy and Resources Industry, click here.