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AUSTRAC announcement shows heightened focus on sanctions compliance – Export Controls & Trade & Investment Sanctions



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Key takeaways

  • 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:














Sanction

Prohibited activity

Sanctioned supplies

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.

Sanctioned services

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).

Sanctioned imports

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.





    Lawyers Weekly
Law firm of the year
2021                  

Employer of Choice for Gender Equality
(WGEA)



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