Australian Sanctions Senate Inquiry prioritises closing loopholes and enhancing enforcement measures

The report from an inquiry into Australia's sanctions regime has now been tabled with the Senate. It recommends numerous improvements to strengthen Australia's sanctions laws in light of emerging challenges faced in today's evolving geopolitical environment. Australian businesses should carefully monitor changes in the law to ensure that their internal controls are sufficient to ensure compliance.

Inquiry recommendations focus on emerging challenges

The inquiry focused on the impact of Australia's sanctions regime on designated individuals and entities, and its role in Australia's broader crime landscape. The appraisal of the sanctions regime was said to have been necessitated following the ability of hostile states to circumvent Western sanctions, as seen most recently in response to Australia's rolling wave" of sanctions imposed following Russia's invasion of Ukraine in February 2022.

Ultimately, the Committee concluded that sanctions remain an essential foreign policy tool, notwithstanding their complexity and the resultant impact and compliance costs. However, the Committee also found that there was significant room for improvement in terms of how sanctions were implemented and their resulting effectiveness. Eight recommendations were made across four key reform areas:

1. Consistency in application
2. Consider the application of thematic sanctions and explore ways to further strengthen consistency where appropriate.
3. Alignment with allies
• Prioritise the alignment of sanctions with allies (notably the US, UK and the EU) to maximise effectiveness and place greater emphasis on imposing such sanctions promptly (where foreign policy objectives allow, and while continuing to make its own judgments concerning sanctions imposition).
• Consider establishing a mechanism for engagement with civil society on Australia's sanctions regime.
4. Evasion of sanctions
• Work with global partners to increase focus on sanctions enforcement and close loopholes which allow Iran and Russia to evade the financial impact of Australian sanctions.
• Continue to impose sanctions on Iranian officials involved in serious violations or serious abuses of human rights, including wrongful detention.
• Prioritise, in consultation with international partners and non-governmental Australian stakeholders, the development of methodologies to target and measure the effectiveness of Australia's sanctions regime.
5. Repurposing of frozen assets
• Consider how to identify and locate all Russian and Iranian Islamic Revolutionary Guard Corps-associated assets in Australia which are currently subject to sanctions.
• Identify all Russian assets in Australia that are subject to sanctions, and consider what legislative and other changes are required to enable the transfer of these assets.

The Australian Government is considering the inquiry's report, and its response to the recommendations are expected in due course. The committee has urged decisive steps be taken without delay, and with the engagement of stakeholders.

Two additional reviews are on foot in the sanctions space. Any legislative change or reforms (which are due before the expiry of the Autonomous Sanctions Regulations 2011 in 2027) will also be informed by their subsequent recommendations.

• On 30 October 2024, DFAT published its report on its recent review of Australia's sanctions laws, the purpose of which was to ensure the laws remain fit for purpose and to streamline efficiencies for the government and public alike. Consideration of the proposed reforms and legislative change is currently underway.
• The Joint Standing Committee on Foreign Affairs, Defence and Trade (through the Human Rights Subcommittee) is also conducting an inquiry into the operation of the Magnitsky and thematic sanctions. A public hearing took place on 29 January 2025, which raised similar sentiments to those in DFAT's report, including cross-border harmonisation between allies to minimise loopholes and opportunities for sanctioned individuals, greater transparency into (and consistency of) the application of sanctions, inadvertent consequences (including on society), and asset freezing.

Sanctions compliance tools published to assist compliance

While there is significant focus on the effectiveness of Australia's sanctions regimes, DFAT's Australian Sanctions Office (ASO) has prepared more tools to assist Australian companies to navigate and ensure compliance with the sanctions laws.

On 28 January, six new guidance notes were released, together with a Sanctions Compliance Toolkit and a Sanctions Risk Assessment Tool. They provide critical guidance to regulated entities, and provides insights into how the ASO assesses potential compliance breaches.

Importantly, the ASO expressly recognises that sanctions compliance is complex and challenging, and that the sanctions landscape is dynamic. Therefore, eliminating all sanctions risks, particularly in circumstances where the laws cover indirect, as well as direct, conduct, is an "often-unattainable goal".

This directs focus to managing those risks as effectively as possible, by taking reasonable precautions and exercising due diligence to avoid contraventions (for example, by identifying the true beneficial ownership of assets, which is often hidden behind complex layers of corporate structures or intermediaries). Robust sanctions policies, procedures and controls (tailored to your operations and level of risk) should be implemented, particularly for those entities operating or transacting within volatile regions or sanctioned countries.

With a $26.4 million boost in DFAT's sanctions compliance monitoring and enforcement budget in 2024-25, employing robust compliance programs are now more important than ever. While the ASO employs a graduated risk-based approach to its response to sanctions breaches depending on the severity of the breach, as set out in its Compliance Policy, the penalties for sanctions offences are severe where enforcement action is deemed necessary. Violations can result in significant financial penalties, criminal prosecution, and reputational damage.

Key takeaways

• Careful analysis of identified risks must be undertaken periodically to ensure ongoing compliance with Australian sanctions laws, particularly for companies operating or transacting within volatile regions. Legal advice may be required, particularly for complex risks or transactions and given the chance of indirect, inadvertent violations, to mitigate the risks of non-compliance.
• Robust sanctions policies, procedures and controls should be implemented and regularly revisited to help mitigate sanctions risks particularly in preparation for expected significant reform. At a minimum, this should include taking reasonable precautions (eg. contractual obligations) and requiring detailed due diligence on all transactions, customers and suppliers.
• The sanctions landscape is constantly changing and activities which may be legal today, may tomorrow breach sanctions laws. Companies must monitor the regimes and ensure they are able to adapt and move swiftly in those circumstances.