“Sanctions” have been in the news quite often lately. The United Nations has adopted, and many of its member-states have imposed, trade and economic sanctions against North Korea to pressure its regime to give up nuclear weapons. Similarly, recent political developments surrounding the so-called “Iran Nuclear Deal” have been all about re-imposing sanctions in relation to Iran’s development of nuclear weapons. There are currently 17 ongoing sanctions regimes imposed by the UN Security Council, focusing on nuclear non-proliferation, counter-terrorism and addressing unacceptable human rights.[1]

With these world geo-political developments as a backdrop, we take this timely opportunity to remind Australian financial services providers of their restrictions under ‘sanction laws’.

What are sanctions? A sanction is essentially an instrument used in international relations to restrict or prohibit trade and/or financial dealings or assistance with a particular country, company or person in response to serious violations of the norms of public international law, without resorting to war and armed conflict.

Australian citizens and corporations must comply with strict sanctions implementing UN Security Council Resolutions as well as those imposed by the Australia’s own laws[2]. These strict trade and/or economic restrictions prohibit dealing with assets, the provision of certain goods and services, and provision of financial or economic benefits (widely defined) , to particular countries (such as North Korea, Iran and Libya) or those on a list of individuals and companies (Consolidated List) unless a sanctions permit is obtained from the Minister of Foreign Affairs and Trade.

Examples of financial sanctions include prohibiting the provision of financial services by Australian financial institutions to those on the sanctions list, and also restricting Australian entities and persons from investing in a company domiciled in a sanctioned country. The exact nature of each sanction varies depending on the Regulations made for that particular sanctioned country, entity or individual.

Australian sanction laws have long arms and apply to Australian financial corporations with operations overseas (such as through an overseas branch) and foreign financial services providers owned or controlled by Australians. Challenges for compliance include the fact that the Consolidated List is constantly being updated and in any event does not reveal the connections of named persons.

Dealing with or providing financial services to any country, person or corporation sanctioned by Australia or the UN may result in penalties of up to:

  • AUD$2.1 million or 3 times the value of the transaction for corporations (whichever is the greater), or
  • AUD$525,000 or 3 times the value of the transaction (whichever is the greater) and/or up to 10 years imprisonment for individuals.

So, breaches of sanctions law can be quite hefty.

Therefore, Australian financial institutions and services providers (including their overseas branches and subsidiaries) should be careful to conduct adequate customer due diligence, as part of their “know your customer” process, to ensure that they are not providing financial services to or for the benefit of a person or entity on the Consolidated List. Similarly, Australian investors should take care and due diligence to ensure they are not funding any person or entity on the Consolidated List.

[1] Article 41, Chapter VII of the Charter of the United Nations gives the UN Security Council the power to call upon its member States to impose sanctions.

[2] Autonomous Sanctions Act 2011 (Cth)