Australia's "rolling wave" of Russian sanctions requires ongoing corporate diligence

The Australian Government has acted on its promise to implement a "rolling wave" of sanctions to increase pressure on Russia following its invasion of Ukraine, requiring Australian companies to ensure high diligence in constantly monitoring the sanctions regime and analysing their business operations.

The initial tranches of sanctions imposed by Australia are summarised in our Alert published on 25 February 2022, and were targeted at those considered responsible for the violence in Ukraine. As foreshadowed, there have since been significant developments, including on specified imports, exports and designated persons.

Import of oil and mineral products

In a significant move and one in concert with the US and UK, from 25 April 2022, Australia will prohibit the import of oil and other energy products from Russia, including:

• mineral fuels;
• mineral oils and products of their distillation;
• bituminous substances;
• mineral waxes;
• refined petroleum products;
• natural gas; and
• coal.

These prohibitions, made under the Autonomous Sanctions (Import Sanctioned Goods—Russia) Designation 2022 (Import Designation), incorporates a grace period to 25 April 2022 to allow Australian businesses with existing contracts for the import of any of the goods referred to above to comply with the Import Designation, and to take deliveries of Russian oil already ordered and paid for.

Export of aluminium ores, concentrates and related products

As of 20 March 2022, a number of materials considered key components in the manufacture and development of weapons have now also been designated as "export sanctioned goods", pursuant to the Autonomous Sanctions (Export Sanctioned Goods—Russia) Designation 2022 (Export Designation). The export of the following goods to, or for the benefit of, Russia is now prohibited:

• aluminium ores and concentrates (including bauxite);
• artificial corundum;
• other aluminium oxide; and
• aluminium hydroxide.

These materials join a growing list of prohibited goods and materials related to arms, weapons, nuclear material, military equipment and specified oil exploration or production projects.

We note it is also important for Australian organisations to be conscious of the ability of various items to be considered dual-use. Certain materials may be used for legitimate commercial purposes, but can also be used in military systems or for weapons of mass destruction. Examples of dual-use goods are found on the Defence and Strategic Goods List published by the Department of Defence, and include certain electronics, sensors or lasers, navigation, avionics and marine goods.

Additional sanctioned individuals

Since the invasion of Ukraine commenced, the Australian Government has imposed targeted sanctions and travel bans on over 400 individuals as part of its focussed efforts to penalise those responsible for, and complicit in, Russia's invasion of Ukraine.  Predominantly, those individuals are:

• prominent Russian oligarchs and senior business people;
• Russian and Belarusian political persons, including advisers to President Putin, the Belarusian President, and Ministers from both nations; 
• military personnel, including various Commanders of both Russian and Belarusian armed forces;
• family members of senior political and military personnel; and
• media personnel, propagandists and purveyors of disinformation.

The varied roles of these individuals demonstrates the lengths the Australian Government is prepared to go to impose costs on Russia's actions, including those considered aiding and abetting the Kremlin, or trying to legitimise the invasion. Targeted financial sanctions have also been imposed on numerous additional financial institutions considered of economic significance to Russia, including the Central Bank of Russia.

Amid these sanctions, on 30 March 2022 Australia also imposed the first set of Australian Magnitsky-style listings under a thematic sanctions regime introduced last December. That regime concerns serious violations of serious abuses of human rights, serious corruption and significant cyber incidents, and it is of little coincidence that it has been relied upon in the midst of the invasion of Ukraine. Targeted sanctions and travel bans were imposed against 39 Russians (including tax and law government officials) accused of corruption and involvement in the death of whistleblower Sergei Magnitsky in 2009, who inspired law reform globally to sanction human rights abusers.

Company responses should reflect both legal obligations and ESG practices

In the short time since the conflict escalated and sanctions have been continuously imposed worldwide, some companies have been quick to respond by undertaking risk assessments into their supply chains and operations, conducting due diligence into Russian affiliations and, where necessary, curtailing their dealings with Russia.

Not only is this important from a compliance perspective, but also for a company's ESG (environmental, social and governance) practices. Such practices are being increasingly scrutinised by regulators, as well as key stakeholders including shareholders, employees, communities, peers and activist groups. 

Therefore, the responses taken by companies to the conflict in Ukraine and the increasingly restrictive sanctions environment must also accord with the company's ESG obligations, as well as carefully consider the expectations of its stakeholders.

A dramatic example is the increasing corporate exodus from Russia, where hundreds of companies have voluntarily scaled back or ceased operations in the region. While this of course will not always be an appropriate course of action for all companies, it demonstrates how far some companies are willing to go to respond to significant emerging ESG risks, even in the face of substantial financial losses as a result.

Related Insights

• Australia's extensive sanctions response to Russia's invasion of Ukraine: consequences for Australian entities