On Wednesday night, the New Zealand Parliament voted against progressing National MP Hon Gerry Brownlee’s Autonomous Sanctions Bill past the first reading stage.  As expected, the National and ACT parties voted in favour and the Labour, Green and Māori parties voted against.

New Zealand civil society will have mixed views about this development, but many in the business community will be breathing a sigh of relief.  If passed, the Bill would have further complicated the regulatory compliance obligations of many New Zealand businesses.  Some of these businesses already struggle to conclude cross-border contracts as they are unsure whether their proposed transactions comply with New Zealand’s existing sanctions and the myriad of foreign autonomous sanctions that may also apply to them.

In this alert, we recap the key features of New Zealand’s existing sanctions regime and the Autonomous Sanctions Bill.  We then summarise the Parliamentary debate and offer our views on both the vote and what may come next.

New Zealand’s existing sanctions regime

New Zealand currently implements the full range of United Nations Security Council (UNSC) sanctions – from comprehensive trade [1] and financial sanctions [2] to targeted arms embargoes [3], visa restrictions [4] and diplomatic restrictions [5] – via regulations made under the United Nations Act 1946 or, on occasion, the Terrorism Suppression Act 2002.

New Zealand can also apply a limited range of unilateral sanctions-type measures in an ad hoc way within existing legal and policy frameworks.  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.  Measures of this kind have been imposed in the recent past against individuals linked to the Ukraine crisis in 2014, and political figures linked to Fiji’s coup in 2006.

In contrast, unlike its Five Eyes partners, New Zealand does not have a general legislative power that allows the Government to impose unilateral trade and financial sanctions in the absence of a UNSC Resolution.  This constraint is 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, most recently evident in countries like Syria and Venezuela, which are both close allies of China and Russia.

Previous efforts to implement an autonomous sanctions [6] regime in New Zealand failed in late 2020 when the National Party’s initial Autonomous Sanctions Bill  dropped-off the Parliamentary Order Paper after languishing near the bottom since its introduction in May 2017.  Most recently, with increased attention on forced labour and supply chain transparency, as well as the deteriorating human rights situation in Myanmar, the National Party had suggested that the Bill would “easily pass in Parliament”.

The Autonomous Sanctions Bill

On 1 July 2021, National MP Hon Gerry Brownlee succeeded in having a revised Autonomous Sanctions Bill (Bill) drawn from the members’ ballot.

The Bill proposed to establish a framework for the implementation of autonomous sanctions by New Zealand.  If passed, it would have enabled the New Zealand Government to:

• designate individuals, entities, assets and services to be targeted by autonomous sanctions;
• impose prohibitions or restrictions in relation to designated individuals or entities, including travel bans and prohibitions on remaining in New Zealand, and prohibitions or restrictions on dealing with assets or services linked to those individuals or entities (including asset freezes);
• prohibit or restrict other kinds of specified dealings with designated assets and services (for example, trade embargoes);
• require registered banks in possession or in immediate control of assets that they suspect are designated assets or assets owned or controlled by a designated person to report that suspicion to the Commissioner of Police;
• increase the maximum potential penalties for domestic sanctions breaches to: (i) in the case of an individual, imprisonment for a maximum of 5 years or a fine not exceeding NZD100,000, or both; and (ii) in the case of a body corporate, a maximum fine of NZD1 million.  Both financial penalties proposed represent a 10-fold increase in the current maximum fines of NZD10,000 and NZD100,000 respectively; and
• create a new civil enforcement regime that would enable the Attorney-General to issue formal warnings, accept enforceable undertakings, and seek High Court orders and injunctions in relation to sanctions matters.

The Parliamentary debate

On Wednesday night, Parliament voted against progressing the Bill beyond the first reading stage. As expected, the National and ACT parties (33 and 10 votes respectively) voted in favour and the Labour, Green and Māori parties (65, 5 and 2 votes respectively) voted against.

Those in favour of the Bill noted that:

• There have been many, many positives to come out of the UN.  But when it comes to expressions of disapproval of rule breakers, of human rights abusers, of those who perpetrate acts of aggression or conquest of others, the UN (as a result of the veto system) falls well short of what might reasonably be expected. Specific mention was made of the UN’s failure to take meaningful action in response to serious threats to international peace and security taking place in the Ukraine, Syria, Israel and Xinjiang (China). [7]
• The Bill would create a significant and necessary extra tool of last resort in the New Zealand Government’s diplomacy tool kit, which would give life to the independent foreign policy stance long claimed by the country.  It would also bring New Zealand’s tool kit into line with those maintained by some of the country’s traditional allies (e.g. Australia, Canada, EU, UK and US). [8]
• While the practical impact of sanctions imposed by New Zealand would be limited by the country’s comparatively small size and geographic isolation, an autonomous sanctions regime would enable the New Zealand government to clearly demonstrate its commitment to matters that are of concern to our people and our values, including democracy, human rights, the rule of law, and our fundamental freedoms. [9]
• Any specific concerns about the Bill’s provisions or deficiencies could be addressed during the Select Committee phase and do not justify voting against the Bill at the first reading stage. [10]

The central arguments of those opposing the Bill were that:

• The Bill was first drafted back in 2012, and while it has not changed much since then, the international environment has.  The challenges confronting us have become increasingly more complex and multilateral.  This underlines the importance of international cooperation and multilateral solutions. [11]
• Autonomous sanctions regimes involve each country going off and applying sanctions by their own standards and political context. This approach undermines both international law and cooperation. [12] “(They) cannot be seen as a way of avoiding or an effective substitute for multilateral action; indeed, (they) should not be called upon by outsiders beyond New Zealand to strong arm our own interests.” [13] This approach “creates further risk of politicisation of sanctions rather than fairness and equity”. [14]
• The Bill as it stands is unfit for purpose beyond what could be rectified through its continued consideration beyond first reading.  Of most concern, the Bill: does not contain in-depth consideration of human rights issues; disregards and disrespects multilateral organisations and the country’s longstanding values-based approach to international politics; is too narrowly focused on the Asia-Pacific region; and fails to cover some emerging risks, such as threats to cyber-security.  These omissions highlight the importance of taking the time to get this issue right, also to discuss with the public what the impact of an autonomous sanction regime would have, especially on our economy and exporting community. [15]
• The Government is looking at how to provide greater support for human rights around the world and will continue to consider the best way to utilise its tool kit and the options within it.  “This work will include what role an autonomous sanctions regime could play within this framework.  So I’m not ruling it out; it is just that the bill falls short of expectations on that front.  I look forward to having more of a say on this as we continue the Government’s process.” [16]

Our view

As legal practitioners with significant experience of advising New Zealand and international corporates on international trade and financial sanctions compliance matters, we think that Parliament made the right decision this week.

While the Bill’s underlying objectives are laudable, it is likely that the specific regime proposed would have achieved little more than political signalling (and some counter-productive signalling at that).  In contrast, if passed, the Bill would certainly have further complicated the regulatory compliance obligations of New Zealand exporters, importers and trade facilitators (e.g. banks, freight forwarders, international carriers and insurance companies), some of whom already struggle to conclude cross-border contracts as they are unsure whether their proposed transactions comply with New Zealand’s existing sanctions and the myriad of foreign autonomous sanctions that may also apply.  Of course, further complexity generates further costs, at an already difficult time for New Zealand business.  Given this, in our view, the cost-benefit analysis of progressing the Bill (in its present form or otherwise) simply did not stack up.

We will be watching with interest to see how the Government makes good on its commitment to providing greater support for human rights around the world and look forward to reviewing alternative legislative and regulatory proposals to address human rights issues later in this Parliamentary term.

Footnotes

[1] Trade sanctions prohibit goods and services from being: (i) exported from New Zealand to designated States, entities or persons; or (ii) imported into New Zealand from designated parties, without the express consent of the Minister. Trade sanctions may apply to all goods and services or just certain categories of products, such as arms, military equipment, luxury goods, diamonds or financial services.

[2] Financial sanctions are one of the most commonly used forms of sanctions.  They can be comprehensive (i.e. prohibiting the transfer of funds to a sanctioned State and freezing the assets of a government, corporate entities and residents of the target State) or targeted (i.e. prohibiting anyone from dealing with the funds or economic resources belonging to or owned, held or controlled by a designated person; or prohibiting anyone from making funds or economic resources available directly or indirectly, to, or for the benefit of, a designated person).  Certain financial sanctions may also prohibit providing or performing other financial services (such as insurance or banking) to designated individuals or governments.  The UN maintains Asset Freeze Lists, which identify designated persons that New Zealand must subject to asset freezes.  The restrictions do not apply if the Minister has consented to the dealings.

[3] Arms embargoes are a sub-category of trade sanctions.  Arms embargoes generally include: bans on the exportation (and sometimes importation) of arms; transactions relating to arms; the carriage of arms; and the provision of arms-related technical assistance and training to designated States, entities or persons.

[4] Visa restrictions generally prohibit a designated person from entering or transiting New Zealand.  The UN maintains Travel Ban Lists, which identify designated persons that New Zealand must subject to visa restrictions.  The restrictions do not apply if a visa is granted under the Immigration Act 2009 on the advice of the Secretary of MFAT.

[5]  Diplomatic restrictions are political measures taken to express disapproval or displeasure at a certain action through diplomatic and political means, rather than affecting economic or military relations.  Measures include limitations or cancellations of high-level government visits or expelling or withdrawing diplomatic missions or staff.  These can be (and routinely are) imposed in the absence of authorising regulations.

[6] Autonomous sanctions are restrictive measures designed to influence the behaviour of a foreign individual, entity, or regime that is responsible for a situation of international concern.  Sanctions can take a variety of forms.  The aim of sanctions is to exert political and economic pressure to bring about change, as well as to limit the adverse consequences of the situation (for example, by limiting access to military goods or military training).

[7] Hon GERRY BROWNLEE (National).

[8] Ibid.

[9] JOSEPH MOONEY (National—Southland).

[10] BROOKE VAN VELDEN (Deputy Leader—ACT).

[11] Hon NANAIA MAHUTA (Minister of Foreign Affairs).

[12] TEANAU TUIONO (Green).

[13] Hon NANAIA MAHUTA (Minister of Foreign Affairs).

[14] TEANAU TUIONO (Green).

[15] Hon NANAIA MAHUTA (Minister of Foreign Affairs).

[16] Ibid.

This article was co-authored by Nathalie Harrington, a Senior Solicitor in our Public Law team.