Over the past eight weeks, following the announcement of the G7’s Sanctions Enforcement Coordination Mechanism, we have journeyed to our offices in each of the G7 members to ask our local sanctions experts to weigh in on what companies should know about sanctions enforcement in their jurisdiction — and what companies should be doing today to prepare — in light of the increase in sanctions enforcement, which we are already seeing on the ground. By popular demand, we are extending the series to cover sanctions enforcement in other jurisdictions around the world. This week, we are starting with Australia.
- What are the recent sanctions enforcement trends in Australia?
There have been few Australian sanctions enforcement cases to date. However, if contemplated civil pecuniary penalties are introduced, then enforcement will become easier and likely increase.
Most prosecutions have been against individuals rather than bodies corporate (i.e., companies) for supplying or brokering the supply of sanctioned goods.
In January 2023, the Australian Government commenced a review of its autonomous sanctions regime. An enforcement issue flagged in the Government’s Issues Paper for the review was that there are currently limited enforcement steps available between education and prosecution. Given difficulties faced in prosecuting sanctions offences, the Government is considering introducing a system of civil pecuniary penalties that may be imposed and which can be assessed on a lower standard of proof. The review is scheduled to be completed by 30 June 2023. More on enforcement trends is likely to be known once the report on the Government’s review is published.
- What are the maximum penalties for violations?
The maximum penalties for engaging in sanctioned conduct in breach of Australian law for:
- individuals – up to 10 years in prison, and/or a fine the greater of 2500 penalty units (AUD 657,500 as of 1 July 2023) or three times the value of the transaction; and
- bodies corporate – a fine the greater of 10,000 penalty units (AUD 2.75 million as of 1 July 2023 approx. USD 1.852 million) or three times the value of the transaction.
- Is there a mechanism by which companies can submit a voluntary self-disclosure of possible violations to mitigate penalties?
There is no formal voluntary disclosure mechanism under Australian law to disclose an actual or apparent breach of sanctions law. Expressions of genuine remorse have been taken into account in reducing the sentence of individuals convicted of sanctions offences.
The circumstances of discovery of an actual or apparent breach of sanctions law could be relevant to determining whether an offence has been committed. The treatment is different for individuals and companies.
For the offence of engaging in sanctioned conduct by individuals the relevant intent element must be proven (e.g., intent, knowledge, recklessness or negligence). Individuals do not have the benefit of a due diligence defence.
The offence for bodies corporate is a strict liability offence. Importantly, bodies corporate also have the benefit of a due diligence defence where there will be no offence if the body corporate proves that it took reasonable precautions, and exercised due diligence, to avoid contravening the sanctions law. For example, if despite a company diligently undertaking thorough checks to screen that it was not supplying to a sanctioned person, the company later discovers the ultimate end user benefitting from the supplies was a sanctioned person, the company may be able to rely on the due diligence defence.
- Do you anticipate increased coordination on enforcement matters with allies?
Increased coordination by Australia on enforcement matters with allies is possible but at present is unclear. We expect this to become clearer following publication of the Government’s report on the Australia’s sanctions regime referred to above. Should the Australian government seek to increase coordination with allies on sanctions enforcement, Australian law enforcement would be able to extend international law enforcement cooperation practices to sanctions matters.
To date, Australia’s focus on coordination with allies on sanctions matters has largely been on coordination of sanctions measures to be imposed or lifted (as opposed to coordination of enforcement). For example, Australia has largely aligned its sanctions measures against Russia with those of the European Union, United Kingdom and the United States.
Circumstances where Australia might be asked to coordinate sanctions enforcement with allies in part will depend on when the relevant conduct triggers the jurisdiction of both an ally and Australia, i.e., where there is a nexus to both Australia and an ally. The existence of multi-jurisdictional, complex supply chains and growth of online businesses, together with the extra-territorial scope of some county’s sanctions laws (e.g. the United States, to which sanctions laws apply to certain transactions denominated in US dollars) and the use of secondary sanctions, means the likelihood of increased enforcement with allies will increase.
- What is one thing that you would recommend companies do now to get ready for increased enforcement?
As a specific measure, companies should check if their business operations have a connection with Australia that triggers the application of Australian sanctions laws and assess where their existing sanctions compliance and screening practices need to apply Australian sanctions laws. Adequate screening processes for Australian sanctions law can also assist a company to be able to rely on the due diligence defence.
