- The Australian Transaction Reports and Analysis Centre (AUSTRAC) has established an intelligence unit dedicated to monitoring compliance with Russian sanctions, signalling a sharper regulatory focus on sanctions laws.
- Given this increased regulatory focus, businesses need to take steps to ensure they comply with sanctions.
- We recommend that businesses take a particularly cautious approach when dealing with individuals or entities based in Russia or the sanctioned region of Ukraine and develop and implement robust compliance policies, procedures and other controls for monitoring for compliance with sanctions laws.
- Businesses that provide a designated service should also update their anti-money laundering and counter-terrorism financing (AML/CTF) program and compliance arrangements to ensure they adhere to AML/CTF laws when dealing with persons who are sanctioned or in sanctioned territories, which AUSTRAC regards as 'high risk'.
Background – AUSTRAC's 27 June Russian sanctions announcement
On 27 June 2022, AUSTRAC made an announcement about two important sanctions-related matters:
- The establishment of a dedicated AUSTRAC intelligence unit to monitor and triage financial reporting about Russian sanctions, which will be used to detect sanctions evasions by relevant authorities.
- Participation in the Russia-Related Illicit Finance Sanctions Financial Intelligence Unit Working Group (theFIU Working Group), an international network for the sharing of financial intelligence between key authorities on sanctions-related matters.
AUSTRAC's sanctions announcement signals increased sanctions law enforcement
Traditionally, the Australian Sanctions Office (ASO) of the Department of Foreign Affairs and Trade (DFAT), the Australian Federal Police (AFP) and the Commonwealth Department of Public Prosecutions (CDPP) have been responsible for ensuring compliance with Australian sanctions laws (such as the Autonomous Sanctions Act 2011 (Autonomous Sanctions Act)).
Under these laws, a court may impose a financial penalty on a company that is guilty of a sanctions offence of up to 10,000 penalty units (currently A$2.22m) or three times the value of the offending transaction(s) (whichever is greater). Individuals can face a 10-year prison sentence and/or a fine of up to 2,500 penalty units (currently A$555,000).
Despite the dedicated sanctions regulatory architecture and stringent penalties applicable, Australian sanctions laws have not been rigorously enforced in the past. Prosecutions for sanctions offences have been few and far between, and have been confined to the clearest instances of offending, for example:
- In May 2019, a Melbourne woman pleaded guilty to sanctions offences for exporting nickel (which can be used to build nuclear arms) to Iran between March 2009 and April 2010.
- In July 2021 a Sydney man was convicted of sanctions offences for exporting missile componentry to North Korea.
However, the 27 June announcement by AUSTRAC signals a heightened focus on sanctions law compliance.
While authorities like the ASO, the AFP and CDPP are retaining their responsibilities under Australian sanctions laws, AUSTRAC — Australia's money laundering regulator — will now be playing a key role in investigative efforts by establishing a dedicated intelligence team to monitor financial reporting (including suspicious matter reporting and international funds transfer reporting) which concerns Russia.
These reports are being used to produce financial intelligence to assist responsible authorities with detecting sanctions breaches. AUSTRAC also announced that it is joining global efforts to coordinate sanctions evasion intelligence through its participation in the international the FIU Working Group.
Raising the bar on Russian sanctions
A brief overview of Australia's Russian sanctions
AUSTRAC's announcement came in response to Australian Government sanctions imposed on various individuals, companies and organisations with ties to Russia following its invasion of Ukraine. Australian sanctions laws apply generally to activities in Australia and to activities undertaken overseas by Australian citizens and Australian-registered bodies corporate.
Sanctions introduced following the invasion include the following:
Supplying certain 'export sanctioned goods' to a person in Russia or Crimea, Donetsk, Luhansk or Sevastopol (each a 'specified Ukraine region'), or for use in or for the benefit of, Russia or a specified Ukraine region.
'Export sanctioned goods' include certain oil and gas drilling and piping equipment, certain mining equipment, certain construction and excavation equipment as well as arms and related materiel, aluminium and luxury goods.
Sanctioned commercial activity
Engaging in financial activity with specified Russian financial institutions and companies (such as making loans or dealing in securities and other financial instruments). The prohibition also covers the financing of certain infrastructure in, and the financing of gas, oil or mineral exploration in, a specified Ukraine region.
Providing services that assist with either of the above activities. This also includes services related to certain oil exploration and production activities to Russia (or to a person, entity or body for use in Russia).
Importing certain goods from Russia (such as coal, peat, various gases, certain oils, bitumen, tar and asphalt, as well as arms or related materiel).
Importing goods of any kind from a specified Ukraine region.
Dealings with designated persons and entities
Directly or indirectly making an asset available to, or for the benefit of, a designated person or entity. Additionally, assets controlled by designated persons or entities must not be used or dealt with (i.e. they are 'frozen').
Designated persons and entities include certain key Russian commercial banks, certain Russian companies (including oil and gas companies) and certain Russian businesspersons (such as high net worth individuals and oligarchs). It also includes Russian politicians and senior officers of the Russian armed forces. The full list of designated persons and entities (the Consolidated List) contains thousands of persons and entities, and is available on the DFAT website.
In addition to the sanctions referenced above, Australia maintains various sanctions against countries including the Democratic People's Republic of Korea, Iran, Libya, Syria, Iraq and others. Sanctions are also maintained against certain extremist groups, individuals and companies (who are on the Consolidated List).
Although the sanctions vary depending on the subject, common prohibitions include export restrictions (typically on raw materials, metals and industrial goods), import restrictions and restrictions on providing certain services (especially assistance relating to military activities).
AML/CTF compliance links to Russian sanctions
AUSTRAC's primary responsibility is to ensure compliance AML/CTF laws (such as the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act)).
However, AUSTRAC's recent announcement recognises the potential for overlap between those laws and sanctions laws, as both sets of laws aim to preserve the integrity of Australia's financial system. Since AUSTRAC's announcement signals increased regulatory monitoring of transactions involving persons who are sanctioned or in a sanctioned country, the announcement also marks the potential for a heightened regulatory focus on ensuring compliance with overlapping AML/CTF laws and is in line with their increased focus on cybercrime in relations to cryptocurrency and ransomware.
This means that entities who provide a 'designated service' under the AML/CTF Act need to be conscious of this heightened focus, particularly in relation to any transactions with persons in countries or regions subject to sanctions. AUSTRAC regards such countries and regions as 'high risk', triggering various obligations (such as enhanced customer due diligence requirements).
AUSTRAC advises that customers or suppliers from these places, and transactions to and from these places, should be carefully monitored.
What should AML/CTF Act 'reporting entities' do?
Given AUSTRAC's 27 June Russian sanctions announcement, we recommend 'reporting entities' take a number of important steps in relation to AML/CTF laws and sanctions compliance, such as:
- updating AML/CTF programs to accommodate sanctions (for instance, by implementing appropriate risk-based systems and controls for identifying which transactions involve sanctioned persons or persons in sanctioned territories); and
- when dealing with any persons identified as sanctioned or in a
sanctioned place, ensuring:
- transactions with those persons are carefully monitored for compliance with AML/CTF laws;
- enhanced customer due diligence procedures are applied; and
- sanctions are even more carefully considered when deciding whether to make a suspicious matter report.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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