What happened?

An expert Advisory Group has recommended [1] that New Zealand should introduce a comprehensive new sanctions legislative framework that would (among other things) enable the imposition of further autonomous sanctions to tackle human rights violations and other threats to peace and security abroad. Foreign Minister, Winston Peters, has confirmed that the Government will consider the report’s findings. Given the National Party has twice tabled autonomous sanctions bills that commanded the support of its current coalition partners (but ultimately failed), we expect the Advisory Group’s central recommendation has a reasonable chance of progressing in some form. If so, business community engagement will be critical to ensure that any new sanctions regime is targeted, workable and in New Zealand Inc’s best interests.

Who needs to read it and why?

This alert should interest lawyers, compliance and risk professionals, government affairs advisors and directors of companies operating in the following sectors: banking and finance; trade and logistics; defence and aerospace; technology and telecommunications; energy and natural resources; and professional services. These individuals may want to participate in any forthcoming law reform process and understand how any new sanctions regime will impact upon their companies’ operations, compliance obligations and risk exposure.

New Zealand’s existing sanctions regime

New Zealand currently implements the full range of United Nations Security Council (UNSC) sanctions – from comprehensive trade and financial sanctions to targeted arms embargoes, visa restrictions and diplomatic restrictions –via regulations [2]. New Zealand can also apply a limited range of autonomous sanctions-type measures in an ad hoc way within existing legal and policy frameworks [3].

Unlike its Five Eyes partners, New Zealand does not have a general legislative power that allows the Government to impose sanctions in the absence of a UNSC Resolution [4]. But the Government has had the power to impose autonomous sanctions in response to Russia’s military actions in Ukraine since March 2022. Previous efforts to introduce a wider autonomous sanctions regime in New Zealand have failed twice – in late 2020 [5] and in September 2021.

Advisory Group’s sanctions-related conclusions and recommendations

In late 2022, the Ministry of Foreign Affairs and Trade (MFAT) appointed the Advisory Group to produce a written report on the foreign policy tools available to respond to grave international situations of concern involving human rights and peace and security, including the advantages and disadvantages of a future, wider role for autonomous sanctions. 

After a lengthy discussion about: the importance of the review; the historical context; the Te Ao Māori perspective; the international legal context; and New Zealand’s existing foreign policy toolkit, the Advisory Group draws some conclusions about the merits of sanctions and makes some (arguably contradictory) recommendations. For example, the Advisory Group concludes that sanctions: “are regularly condemned”; “are rarely if ever successful in changing states’ behaviour”; “can precipitate further human rights abuses and humanitarian problems”; “often generate problems… and can end up being very costly for the state imposing the sanctions”. It then goes on to recommend the introduction of a comprehensive new sanctions legislative framework. The report says that this would enable New Zealand to: “show solidarity with victims”; “underline the unacceptability of unlawful conduct”; and “encourage those defending against unlawful action”.

Stepping back, the report’s key recommendations relating to sanctions are that New Zealand should:

• progress a new sanctions bill that incorporates New Zealand’s existing UN and Russia sanctions regimes and the sanctions-related provisions contained in the Customs and Excise Act 2018 and the Immigration Act 2009 [7]. The new bill should also enable the imposition of further autonomous sanctions measures to tackle human rights violations and other threats to peace and security abroad;
• new measures should only be introduced when consistent with New Zealand’s international legal obligations and only via a Parliamentary Resolution. MFAT should be responsible for tabling draft resolutions and only the Prime Minister or the Foreign Minister should be authorised to introduce them; and
• establish a properly funded and resourced regulatory “agency or arrangement” to progress any new sanctions framework.

What next?

The Advisory Group’s report was finalised in May 2023, but was only published in March 2024, without fanfare. We assume its publication was purposefully delayed until after the 2023 election and the appointment of a new Foreign Minister. 

Minister Peters has told media that he is aware of the report but has not yet considered it, noting that: “We will consider it in the fullness of time but we're flat out at the moment trying to organise overseas trips”. 

Given the National Party has twice tabled autonomous sanctions bills that commanded the support of its current coalition partners (but ultimately failed), [9] we expect that the Advisory Group’s central recommendation has a reasonable chance of progressing, even if in a modified form. 

If the Government does initiate a law reform process, it will subject to the standard legislative process, involving public consultation and full Parliamentary scrutiny. 

Our view

Our initial thoughts on the issues raised by the Advisory Group’s report are set out below.

A public consultation is needed

Before drafting and progressing a new sanctions bill, we think it is critical that MFAT consults a wide range of potentially affected stakeholders and interested parties. This is particularly necessary given the Advisory Group chose not to consult with interested parties, despite MFAT authorising consultation in the Advisory Group’s Terms of Reference [10].

What the Advisory Group is proposing would have far reaching implications for New Zealand, including for the country’s banks, importers, exporters, logistics service providers and investors. These businesses are already subject to a complex web of national, international, contractual and corporate sanctions obligations. Neither this report, nor the earlier regulatory impact assessment that accompanied the prior Autonomous Sanctions Bill,[11] have considered the commercial and practical implications of law reform properly. 

The report’s sole reference to private sector compliance costs states that: “because the major NZ exporters to Russia voluntarily suspended trade before the sanctions were introduced, the actual cost of implementation is much lower than it would otherwise have been”. This comment overlooks the multi-million dollar investments in compliance and dispute resolution made by New Zealand’s banks, financial institutions, traders, investors and others. It also overlooks the multi-million dollar losses some New Zealand companies have made as a result of having their Russian assets or investments confiscated or significantly devalued (or written-off). When considered together, these private sector costs dwarf MFAT’s annual administration and enforcement expenditure of over $2 million in year one of the Russia sanctions regime. 

New Zealand’s sanctions regime should be consistent with those of likeminded nations

Many of New Zealand’s allies and close trading partners have autonomous sanctions regimes, including the United States (US), the European Union’s 27 Member States (EU), the United Kingdom (UK), Canada, Australia, Switzerland, Japan and China. 

The human rights-related sanctions programmes of the US, EU, UK, Canada and Australia are modelled on the US Global Magnitsky Act 2016. These programmes are similar in many respects, but there are also significant differences, for example, in terms of the threshold for human rights offences, the inclusion or not of corruption-related offences, and the role played by parliament and civil society. 

The Advisory Group’s report does not mention Magnitsky laws or the legislative approaches taken by other countries. In our view, if New Zealand is to create a new sanctions legislative framework, it does not make sense to reinvent the wheel. New Zealand businesses operate internationally and must navigate multiple overlapping sanctions obligations. The more states implement aligned sanctions regimes, the easier it will be for businesses to comply and hence the more effective the sanctions will be. To illustrate this point, one needs to only consider the significant costs New Zealand businesses have incurred in light of: the divergent approaches New Zealand, Australia and the UK have taken to sanctioning Alexander Abramov; and the novel approach New Zealand has taken by including ‘associates’ in its definition of ‘sanctioned persons’ [12].   

New sanctions measures should not be adopted via a Parliamentary resolution

The Advisory Group’s report recommends that new sanctions measures should only be introduced via a Parliamentary resolution. This would be a departure from current practice and would be likely to cause significant procedural, diplomatic and compliance difficulties. 

New Zealand implements new UNSC sanctions by implementing regulations under the United Nations Act 1946 or, on occasion, the Terrorism Suppression Act 2002. New Zealand created a Russia sanctions regime via legislative action, but implements new sanctions measures by amending the Russia Sanctions Regulations 2022. New Zealand’s closest ally and trading partner, Australia, implements UNSC sanctions in the same way as New Zealand and adopts autonomous sanctions by amending its Autonomous Sanctions Regulations 2011. We are not aware that these processes have been subject to any criticism or claims of illegitimacy.

In our view, creating a new autonomous sanctions programme via legislative action, but adopting new sanctions measures via regulations (rather than via parliamentary resolutions) offers several advantages. The early involvement of Parliament helps to ensure a new regime’s legitimacy. Following that, regulations allow for more efficient, timely and targeted action that carefully aligns with actions taken by New Zealand’s allies. Moreover, regulations can be implemented discreetly when necessary, preserving confidentiality and preventing potential targets from being alerted to planned sanctions (and therefore being afforded an opportunity to restructure their interests to circumvent or evade those sanctions). From a practical perspective, it is difficult to see how new sanctions regulations could be introduced without the support of the government of the day. As a result, we question the need for ongoing Parliamentary resolutions.

Diplomatic and trade risks should be carefully considered before progressing much further

If Parliament passes legislation that enables the imposition of further autonomous sanctions measures to tackle human rights violations and other threats to peace and security abroad, then the Government will be expected to act in cases that meet the threshold for intervention. Any action could trigger a retaliation by the target of New Zealand’s sanctions (including in the form of counter sanctions and/or trade restrictions). Certain types of retaliation could generate significant economic harm to New Zealand, which would dwarf the expected benefits of the sanctions imposed. With this in mind, there are some benefits to New Zealand of not having a general legislative power that allows the Government to impose autonomous sanctions.

How can we help?

If the Government responds to the Advisory Group’s report, we expect that Government will consult with interested parties. We can help you prepare and present compelling submissions.

We have extensive experience of advising on sanctions compliance and enforcement-related matters, including sensitive matters relating to Russia, Iran, China, Cuba, Myanmar, North Korea, Syria, and Venezuela. 

We routinely assist clients to:

• develop or refine sanctions compliance programmes;
• produce obligations registers;
• conduct compliance assessments;
• undertake customer and transaction due diligence and screening processes; and
• structure low risk transactions.

Members of our team have represented clients in sanctions investigations undertaken by the New Zealand Customs Service, the UN, and the UK and US governments. We have also represented clients in contentious sanctions matters, including Banking Ombudsman Scheme disputes, Human Rights Commission mediations, and litigation. Team members represented the Respondent in Targa Capital Limited v Westpac New Zealand Limited [2023] NZHC 230 and the Defendant in New Zealand Customs Service v Pacific Aerospace Ltd [2018] NZDC 5034). 
 

Footnotes

[1] https://www.mfat.govt.nz/assets/About-us-Corporate/MFAT-strategies-and-frameworks/Report-on-Foreign-Policy-Tools.pdf 
[2] These regulations are made under the United Nations Act 1946 or, on occasion, the Terrorism Suppression Act 2002.
[3] These include the refusal of entry visas and the imposition of diplomatic sanctions, which may include the expulsion of diplomats, the suspension of official visits, and the suspension of aid and cooperation.
[4] This constraint is considered problematic because the UN veto system essentially prohibits the imposition of sanctions on UN veto holders – i.e. China, France, Russia, the United Kingdom (UK) and the United States (US) – and their close political allies. As a result of the veto system, the UNSC and therefore New Zealand have been largely unable to take meaningful action to counter serious threats to international peace and security.
[5] In late 2020, the National and New Zealand First parties’ initial Autonomous Sanctions Bill dropped-off the Parliamentary Order Paper after languishing near the bottom since its introduction in May 2017 by Foreign Minister Peters.  
[6] In September 2021, the New Zealand Parliament voted against progressing National MP Hon Gerry Brownlee’s Autonomous Sanctions Bill past the first reading stage. The National and ACT parties voted in favour and the Labour, Green and Māori parties voted against. The New Zealand First Party was not represented in this Parliament. See: Parliament drops the Autonomous Sanctions Bill, once again (minterellison.co.nz).
[7] The report makes no mention of the sanctions-making powers that exist under the Terrorism Suppression Act 2022 and whether these should be incorporated in the proposed new legislation. 
[8] Thomas Manch, “Government-appointed experts back sanctions law”, The Post, 6 March 2024.
[9] See: Parliament drops the Autonomous Sanctions Bill, once again (minterellison.co.nz).
[10] See Report, pp 5 and 45.
[11] See: Autonomous Sanctions Regulatory Impact Statement Oct 2012 FINAL (mfat.govt.nz).
[12] Further information available upon request.