Introduction

Global sanctions have proliferated rapidly over the past decade, with Australia’s 2023‒24 activity spurred on by recent and continuing events such as the Russia‒Ukraine conflict, destabilising activities in the Middle East, and ransomware attacks. As of July 2024, per the Consolidated List managed by the Australian Sanctions Office (ASO), just under 40% of sanctions in force were originally imposed in 2022 ‒ with 27.2% and just under 14% being imposed in 2023 and 2024 respectively. Overall, there has been a deceleration in Australia’s usage of sanctions. As the Australian government shifts its sanctions focus and embraces the Magnitsky-style framework, legislative reviews are underway promising more efficiency and global co-ordination. Even if such reform is realised, businesses must be cautious of the sweeping scope of Australia’s sanctions from both a commercial and criminal perspective and the piecemeal nature of the regimes.

Analysis of Australia’s Sanction Use

Australia’s primary focus: Russia‒Ukraine conflict

Despite the deceleration in Australia’s sanction output throughout the past year, Australia continues to rely on this tool in its international relations arsenal. On numbers alone, Australia’s primary target of existing sanctions remains the Russia‒Ukraine conflict. An examination of the Consolidated List shows that almost 50% of in-force sanctions (from 2003 to 2024) relate to the autonomous sanction regimes concerning Russia and Ukraine. However, Australia’s focus for 2024 appears to have shifted, with almost equal designations under the autonomous sanctions regimes relating to Syria (25.3%), Russia (24.1%) and Iran (23.2%).

Notwithstanding this shift, there is likely to be further sanctions action in respect of the ongoing Russia‒Ukraine conflict and refreshed concerns that the Russian oil price cap continues to be circumvented. Previously, such concerns have been met by the ASO issuing further guidance to market players, and Australia designating small to medium-sized traders and shipping companies largely based in Asia and the Middle East.

Increasing attention: Israel‒Palestine conflict

An area to watch for sanctions is the Israel‒Palestine conflict. In July 2024, the International Court of Justice (ICJ) issued a non-binding advisory opinion on the legal consequences arising from Israel’s policies and practices in the occupied Palestinian territory. In its opinion, the ICJ canvassed certain obligations that all states had in respect of the situation.

Five days after the opinion, the Australian government imposed Magnitsky-style sanctions (see next section) on seven Israeli individuals and one organisation for “settler violence”. These entities had already been sanctioned in several other jurisdictions as early as February 2024.

The Australian government may issue further sanctions in the coming months, as the Israel‒Palestine situation continues, the ICJ’s opinion and emphasised obligations are considered, and further international proceedings take place. It is expected that these will likely match those that the USA, the UK or the EU have already sanctioned.

Deceptive increase in Magnitsky-style sanctions

Australia has been increasingly using Magnitsky-style sanction instruments. During the eight months since December 2023, the Australian government issued five of the total of nine instruments since the Magnitsky-style sanctions framework was implemented in December 2021 (31 months as of July 2024).

For context, Magnitsky-style sanctions are named after Sergei Magnitsky, a lawyer killed in prison for exposing corruption. They are a distinct type of sanction, as they target individuals in order to freeze assets and prevent free travel, rather than a particular state.

Despite bipartisan support in passing the legislative framework in December 2021, the take-up on issuing such sanctions was slow. The first use of Magnitsky-style listings was in March 2022, in respect of 39 individuals who were exposed by Magnitsky or involved in his abuse and death. The powers were then reused in December 2022, imposing sanctions on 15 entities for the death of Mahsa Amini and the violent crackdown on protests in Iran, as well as the assassination of former Russian opposition leader Alexei Navalny. In February and March 2023, sanctions were imposed on 45 entities in total response to the ongoing human right abuses and oppression in Iran.

Since December 2023, there has been a steady increase in the rate of implementing Magnitsky-style sanction instruments against entities for the poisoning of Vladimir Kara-Murza, cyber-attacks, (additionally for) the mistreatment of Alexei Navalny, and violence by Israeli citizens against Palestinians in the West Bank. However, these instruments do not target the same number of entities as they previously did. In fact, each of the five instruments targets substantially fewer individuals than their predecessors, with all five only targeting 20 of the total 119 entities sanctioned under the Magnitsky-style framework.

This trend may indicate that the Australian government is becoming more reliant on sanctions, embracing the flexibility offered under this framework. Regardless, this practice is further adding to the piecemeal structure of the Australian sanctions framework and requires businesses to ensure they are keeping up to date not only with the state-specific sanction regimes but now also those that arise owing to particular individuals or events.

Australia’s Position in Global Sanctions System

Fracturing lines

Data suggests that sanctions continue to be used globally, with the number of sanctions increasing year-on-year, and yet there is a long-term trend of there being more individual states’ autonomous sanctions imposed than consensus-based UN sanctions. The latter now reportedly constitutes only 1.42% of sanctions worldwide. As countries continue to act without reference to a de facto co-ordinating central body, there has been a notable fracturing of the global sanctions order, which is seen even in Australia.

In recent experience, Australia’s sanction use has not even aligned with its traditional allies. By way of example, the sanctions imposed for settler violence in July 2024 were on individuals and entities against which the UK, the USA and the EU had already imposed sanctions (some as early as February 2024). This trend is only set to become more noticeable as countries seemingly take different approaches to sanction use. Where Australia is seeing a deceleration of sanctions, other countries such as the USA are “bucking” the global trend and are using sanctions more and more.

Beyond a country’s approach to sanctions, other causes of this fracturing may include:

• the delay of information-sharing between the initial and following sanctioning state(s);
• a delay of the following procedural processes of the state(s); and
• no system to notice or recognise a successful challenge or delisting application in respect of a sanction in foreign jurisdictions.

Australia’s partial reliance on other countries in sanction matters but failure to properly co-ordinate can have unreasonable consequences, such as:

• providing an avenue for properly designated individuals to circumvent foreign sanctions; or
• continuing to impose sanctions on improperly designated individuals where a foreign country has recognised the improper basis for sanctioning.

These issues may be addressed in the Senate’s latest inquiry into the sanctions regime announced in July 2024 (as detailed later in this article) and lead to statutory or policy reform in 2025.

United front on cybercrime

Notwithstanding the above-mentioned fracturing, Australia is often seen as pursuing a co-ordinated approach with its allies. This co-ordination is particularly illustrated in the developing field of cybercrime, where there have been co-ordinated international investigative and law enforcement efforts, resulting in the simultaneous sanctioning of entities. This was seen in 2024 with Operation Cronos, a co-ordinated law enforcement action against the LockBit ransomware group and comprising Australia, the UK, the USA, France, Germany, Switzerland, Japan, Sweden, Canada and the Netherlands, with Finland’s support.

By way of background, LockBit is alleged to have been responsible for more than 7,000 attacks between June 2022 and February 2024, as well as approximately 18% of total reported ransomware incidents in Australia in 2022‒23 (119 victims). Most notably for Australia, LockBit is said to have been responsible for the compromise of Medibank and the theft of almost ten million health insurance records of Australians in 2022.

In January 2024, as a result of Operation Cronos, Australia imposed its first-ever cybersanction on Aleksandr Ermakov, a Russian national who is alleged to have had a senior role in LockBit. This Australian first was soon followed by a second with a financial sanction and travel ban being imposed on Dmitry Yuryevich Khoroshev, a Russian citizen alleged to have been a senior member of LockBit. Simultaneous sanctions were issued by multiple other countries, including the UK and the USA. Law enforcement efforts continue, with the USA issuing indictments and a transnational organised crime reward for Khoroshev.

In June 2024, the ASO signalled its strong support of the EU’s then-recent imposition of sanctions against cybercriminals and renewed its commitment to using sanctions to “deter and respond to malicious cyber-activity”. As cyber-attacks are increasing, there may be a correlating uptick in sanctions ‒ specifically, those under the Magnitsky-Style Regulations (further detailed later in this article). Watch this space.

Reform on the Cards 

More reviews: another cook joins the kitchen

In January 2023, the Department of Foreign Affairs and Trade (DFAT) announced its review of Australia’s autonomous sanctions framework after 12 years of operations and ahead of the framework expiring on 1 April 2024. The review was to consider a range of aspects of the existing framework, including increasing the enforcement actions available to ASO (TOR 6) and providing more guidance on key concepts, terms and definitions (TOR 9).

Public consultation concluded on 26 February 2023 and the results were published in July 2024. Although the review was initially set to conclude on 30 June 2023, the report and recommendations remain unpublished and are still being considered by the Australian government. In the meantime, the regulatory framework was renewed until 1 October 2027 and the public is to be consulted on any reforms to come.

Also in July 2024, the Senate referred a separate inquiry into Australia’s sanctions regime to the Foreign Affairs, Defence and Trade Reference Committee. At the time of writing (July 2024), public consultation is open until 6 September 2024 and a report is due on 11 February 2025.

While there is a certain overlap between the terms of reference for each review, the latest reveals fresh ground for future reform, with the legislature’s attention turning towards:

• increasing Australia’s co-ordination with like-minded states in order to address “any gaps and time lags” (TOR A, TOR C and TOR H);
• considering potential uses of frozen/confiscated assets (TOR D), echoing the USA’s latest use of sanctions-frozen Russian assets to fund a loan to Ukraine; and
• considering further co-operation and engagement with the community, including financial institutions (TOR E).

Offences and Enforcement

Alumina decision: sweeping scope of sanctions

A long-standing issue in terms of the Australian sanctions regime has been understanding the scope of the targeted financial sanctions. Even the DFAT identified this as an issue to be examined in their 2023 review. While the review remains outstanding, recent cases have served to only confirm the expansiveness of these provisions and offered limited guidance on their parameters.

One of the most important legal developments in the Australian sanctions landscape is the landmark judicial guidance provided by the Federal Court of Australia in Alumina and Bauxite Company Ltd v Queensland Alumina Ltd (2024) FCA 43 (“Alumina”). The case concerned the early termination of a supply arrangement by the supply parties via the force majeure provisions in reliance on sanctions against Russia.

For the sake of brevity, certain Australian sanctions offences may be triggered where the designated person or country receives a benefit or good as a “direct or indirect” result of someone supplying a good/service to the person, country or a third party (see Regulations 4, 12 and 14). There was (and remains) no legislative or regulatory guidance on how to interpret “direct or indirect”. According to the Alumina decision, whether the goods immediately result in ‒ or eventually (no matter the additional steps or actions in the supply chain) result in ‒ the good or benefit to the designated person or country, there would be an offence. In doing so, the court openly acknowledged that there was the “possibility that a person may engage in a transaction that initially is not a sanctioned supply, but which subsequently becomes a sanctioned supply” due to “events that occur after the transaction has been undertaken”.

Another element of certain sanction offences is that there must be a “benefit” conferred. The court also found that the “benefit” (for Regulations 4 and 12) includes “anything that is for the good of a person or thing” or “advantage, profit, good” that increases tax or employment for a sanctioned country. This only serves to expand the scope and uncertainty of these provisions.

Of course, one should be able to avoid penalties under the sanctions regime if any supplier obtains a permit for their operations, or a (body corporate) supplier takes reasonable precautions and exercises due diligence at the time the initial supply is made, or even if an individual supplier makes the initial supply while mistaken as to a relevant fact (eg, they are deceived about who is the end user). Nevertheless, the suppliers are still left without a clear idea of the scope of the laws and possible offences. This not only impacts liability under criminal and corporate law but also obligations under contract.

Where suppliers are investigated by the ASO in respect of their compliance, they will be significantly reliant upon:

• their best efforts regarding due diligence and compliance programmes;
• their ability to obtain and follow (in a technical sense) permits, which may also have interpretation issues; and
• as a last resort, the ASO’s discretion to avoid the cost and time of an investigation (and perhaps trial) in such scenarios.

This serves as a warning for all suppliers who are subject to Australian sanctions law on the importance not only of undertaking reasonable precautions and due diligence in their business operations, including applying and obtaining a permit where there is any identified risk, but also of the need to always ensure force majeure clauses can properly respond to changes in sanctions law.

Absence of enforcement action

Without published statistics, it is difficult to determine trends, including in the use of Section 19 notices and enforcement proceedings. According to the Office of the Director of Public Prosecution’s 2023 Annual Report, there were no charges under the Sanctions Act, leaving R v Choi (No 10) (2021) as the only reported law enforcement case in Australia.

This stands in sharp contrast to the USA, where high-profile enforcement action has taken place, including a USD508 million settlement with British American Tobacco for alleged sanction violations in April 2023 and a USD968 million settlement with Binance Holdings for more than 1.6 million alleged violations of multiple sanctions regimes.

Australia’s lack of enforcement action may be due to resources, a preference for a co-operative approach by the ASO, or acknowledgment that the sanctions regimes are new and untested ‒ giving rise to such cases as the Tigers Realm Coal Limited v Commonwealth of Australia (2024) (“Tigers Realm”), where the business continued to operate for approximately 18 months, despite the ASO assessing such operations as being prohibited. In respect of this case, the ASO is reportedly still considering enforcement options; however, as of July 2024, the relevant Australian Securities Exchange (ASX)-listed company was delisted and the sale of its assets was complete, pending President Putin’s approval.

The ASO’s 2023‒24 review may well recommend increasing enforcement action or expanding the regulatory arsenal beyond education, criminal prosecution and conditional permits. Further, compliance and enforcement action may be on the horizon ‒ on 14 May 2024, the Australian government announced its 2024‒25 Budget, which included:

• increased funding to strengthen the capability of the DFAT; and
• specifically allocating AUD26.4 million between 2024‒28 to strengthen the monitoring and enforcement of Australia’s sanctions regimes.

Regulatory focus ‒ digital assets

In late May 2024, the ASO published an advisory alert for digital currency exchanges (DCEs). In the alert, the ASO confirmed cryptocurrencies are considered an “asset” and called on DCEs to ensure they are undertaking reasonable precautions and due diligence in cryptocurrency dealings. As such, the ASO is putting the DCEs and digital asset platforms under heightened scrutiny, without addressing the practical and legal compliance difficulties in this space.

Permits in Practice

Publication but continued limited use

An important non-legislative development is in the publication of general permits. Since the inception of the autonomous regimes, the Minister of Foreign Affairs (“the Minister”) has had the power to make general permits to allow conduct that would otherwise be prohibited by sanctions. In July 2023, for the first time, the ASO published the existing general permits concerning certain IP, legal services, tax and oil and petroleum price caps on their website. Some of these permits had been issued as early as 25 May 2022. Previously, each individual and entity would have to make an application for a permit, without knowing if a general permit existed.

It remains the responsibility of each individual seeking to rely on the general permit to “read the terms of the permit carefully” and report to the ASO that they intend to rely on the permit. For any conduct falling outside these permits, entities must engage with the ASO and apply for an individual permit. The ASO estimates the standard waiting time to be three months. Such a length of time can lead to significant consequences for the financial industry and other businesses ‒ the impact of which is compounded, given the lack of notice before sanctions are imposed.

There is still a distinct lack of general permits seen as key in other jurisdictions, such as for humanitarian reasons or for an orderly wind-down of existing business activities and contractual obligations. The impact of the latter is compounded by the lack of authoritative guidance on the sanctions regimes, as illustrated by arguments progressed in the Alumina and in the Tigers Realm cases.

Gap between law and banking policies

A subsisting trend among certain banks operating in Australia is that their sanction policies and practices do not account for permits. Accordingly, although an entity may have obtained a permit or fall under a general permit to allow for dealings with designated persons, the bank continues to prevent transactions relating to the engagement.

This gap undermines the effectiveness of permits and has serious ramifications that permits try to address. By way of example, failure to recognise the general permit allowing transactions that are required by Russian tax law will result in serious consequences for any individual or entity who has tax obligations and may even impact their position under Australian law should there be any correlative aspects, such as foreign tax credits. Another example is the failure to recognise the general permit allowing the provision of legal services. Prevention of payment may lead to:

• the denial of legal services crucial to ensuring the sanctions regime is accurate and fair; and
• the abrogation of certain individuals’ human rights.

Although this trend may be raised in the Senate’s latest inquiry, it relies on banks being able to prepare and implement policies that properly accommodate permits. The practical difficulties of the banks in doing so are only exacerbated by the piecemeal and fractured nature of the domestic and global sanctions system.

Developments in the Process of Challenging Sanctions

Abramov and Deripaska decisions

Two other notable cases were Alexander Abramov v Minister for Foreign Affairs (No 2) (2023) FCA 1099 and Deripaska v Minister for Foreign Affairs (2024) FCA 62 ‒ both of which involved individuals challenging their designation under Australia’s Russia sanctions regime.

Specifically in the former, the court confirmed that sanctions could be imposed on the basis of:

• past (but discontinued) conduct, without expressing a limit on how far back the Minister can refer in imposing sanctions; and
• a person’s activities, even if the activities were neither important nor momentous and did not have a “clear” and “substantial” nexus with Russia ‒ although the court did acknowledge that there does need to be some sort of nexus and conformity “with the standard of legal reasonableness”.

These findings confirm the significantly wide discretion that the Minister wields in imposing sanctions. The court also reiterated its general hesitancy in examining such decisions, indicating that they involve sensitive judgments on foreign policy and other matters that are informed by strategic and governmental information.

These decisions put further strain on the ability of affected individuals to seek a review of the Minister’s decisions, further confining such a process to the procedure set out in Section 11 of the Sanction Regulations. This process involves the individual making an application for revocation to the Minister and only requires the Minister to consider this request once every 12 months. The application of revocation has become an even more critical component as a mechanism for procedural fairness in this high-stakes environment.

Legislative amendment

In reaction to this decision, the Australian Parliament (somewhat unnecessarily) cemented the flexibility by passing the Autonomous Sanctions Amendment Bill 2024 (Cth) to (retrospectively) amend the Sanctions Act to expressly state that entities can be validly sanctioned based on past conduct or status. The Autonomous Sanctions Amendment Bill 2024 (Cth) also shored up the sanctions that came before it by confirming the validity of these decisions even where the Minister failed to consider their discretion as to whether they should designate the person.