The New Zealand Parliament passed the Russia Sanctions Act 2022 (Act) under urgency last night, with the unanimous support of the House. The Act establishes a legal framework that enables the Government to impose and enforce sanctions targeting individuals and entities (persons), assets and services associated with Russia’s military actions in Ukraine. Sanctions may also target those supporting Russia’s military actions, including Belarus and potentially other countries.

Existing sanctions-type measures targeting Russia

This historic Act represents the first time that Parliament has authorised the Government to impose unilateral trade and financial sanctions in the absence of a United Nations Security Council (UNSC) Resolution. Russia can veto UNSC sanctions proposals, so there is no prospect of UNSC sanctions targeting Russia.

Up until now, the Government’s response to Russia’s military actions in Ukraine has been limited to stern words and the introduction of a few sanctions-type measures, including targeted travel bans (see here), the prohibition of goods exports to Russian military and security forces (see here), and the suspension of bilateral foreign ministry consultations until further notice.

Government’s new powers

From 12 March, the Governor General can make regulations that:

• designate classes of persons, assets[1] and services[2] to be targeted by sanctions.  The actual names of specific persons, assets and services to be targeted will be specified in designation notices issued by the Secretary of Foreign Affairs (Secretary). New Zealand persons cannot be designated;
• impose prohibitions or restrictions in relation to designated persons, including travel bans, prohibitions on remaining in New Zealand, and investment restrictions;
• impose prohibitions or restrictions on dealing with assets[3] or dealing with services[4] linked to designated persons;
• mandate duty holders[5] (e.g. registered banks) to freeze the assets of designated persons and specify rules as to how those frozen assets may or must be held or managed during the time they are prohibited or restricted;
• require duty holders 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 to the Commissioner of Police (Commissioner) within three days of forming that suspicion. A report can be filed via this website. The Commissioner must disclose all reports to the Ministry of Foreign Affairs and Trade (MFAT) and may disclose a report to other government agencies for law enforcement purposes;
• require duty holders who provide services thought on reasonable grounds to be designated services or services relating to a designated person to report to the Commissioner (as above); and
• prohibit or restrict other kinds of specified dealings with designated assets and services.

The Government has signalled that the first set of regulations will be made within a week of the Act coming into force and that it will publish designation notices specifying the names of sanctioned persons in tranches. The first tranche will be implemented next week and will focus on expanding travel bans and introducing immediate asset freezes and sanctions on Russian banks. Given the interconnectedness of the New Zealand and Australian banking industries, we expect that New Zealand’s bank designations will be similar to Australia’s (see here). The second tranche of sanctions will be implemented in a couple of weeks and will focus on a more forensic analysis of Russian investment in New Zealand. The Foreign Minister has been clear that: “While the legislation is broad, it does not mean that someone who is Russian and wealthy will automatically be a target.  We are not looking to target every individual or company simply for being Russian. We are looking to target people, services and entities responsible for or associated with Russia’s aggression”.[6]

MFAT will maintain a Sanctions Register on its website listing all current sanctions and any related exemptions; with the publication of exemptions being atypical when compared to other jurisdictions.

Penalties for non-compliance

Compliance with the Act will be critical because individuals and entities found in breach of sanctions may be subject to stiff penalties, commercial losses and unquantifiable reputation damage.

The maximum penalties under the Act are:

• in the case of a body corporate, a maximum fine of NZD1 million; and
• in the case of an individual, imprisonment for a maximum of 5 years or a fine not exceeding NZD100,000, or both.

These maximum financial penalties represent a 10-fold increase in the current maximum fines for sanctions breaches under New Zealand’s United Nations Act 1946, which are NZD10,000 and NZD100,000 respectively.

There is a separate, lesser offence for a breach of the Act’s reporting obligations. For a body corporate, the maximum fine is NZD200,000. In the case of an individual, the maximum penalties are imprisonment for a maximum of 1 year and/or a fine of NZD20,000.

Practical implications

The practical effects of this legal regime will be felt well beyond New Zealand’s borders because the Act has ‘extraterritorial effect’. Acts or omissions that occur wholly outside New Zealand can still be subject to proceedings under the Act if the person charged is a New Zealand citizen, ordinarily resident in New Zealand, or an entity incorporated or registered under New Zealand law. The Act also extends to acts or omissions alleged to have occurred on board New Zealand-registered ships and aircraft.

The groups likely to be most affected by future sanctions include: New Zealand-based financial institutions and notably those with customers who transact with Russia or have investment portfolios in Russia; exporters of goods and services with long-term or ongoing business in the country; as well as New Zealand’s expatriate community in Russia and Russia’s expatriate community in New Zealand. For many of these groups, exiting ongoing business and other relationships may prove difficult, not least as President Putin continues to issue Decrees aimed at preventing the outflow of strategic goods, services, investment and foreign currency from Russia.[7]

Recommendations

If you are a New Zealand registered business with interests in Russia, you will need to familiarise yourself with the new rules and should consider whether your dealings may be subject to the provisions of other countries’ foreign autonomous sanctions regimes. For example, a New Zealand importer of Russian products may find it very difficult to send payment in US dollars if the related payment channel involves a Russian bank that has been added to the US Government’s Specially Designated Nationals and Blocked Persons List (SDN List) and/or disconnected from the SWIFT international payment messaging system. For further information about how other Western governments’ sanctions targeting Russia can affect New Zealand businesses, please see our earlier alert here.

In practical terms, we recommend that you:

• review the forthcoming regulations and check the Sanctions Register regularly to ensure that you understand the new rules and requirements, and are comfortable that you are not dealing with a designated person, asset or service;
• determine whether you are subject to overseas sanctions laws, by mapping out your ownership and management structure, as well as your overseas presence, trade routes used, the origin and destination of the goods and services you handle, and the currencies you transact in;
• determine whether you have connections or dealings, directly or indirectly, with persons subject to New Zealand and foreign sanctions, including by reviewing your financial, contractual and trading relationships;
• consider what you need to do to ensure sanctions compliance, including monitoring regime changes, reporting on and managing sanctions risks; and
• consider wider consequences for your business, including potential supply chain disruptions, contractual disputes and reputational considerations.

If you discover that you are involved in prohibited dealings, we recommend that you seek legal advice immediately and before taking action to disassociate yourself from those dealings.  It is worth noting that a person with an obligation or a duty imposed by the Act is immune from liability in New Zealand criminal and civil proceedings for any act done or omitted to be done in contravention of the Act or regulations if the act or omission “was in good faith” and “was reasonable in the circumstances”.[8]

If you have questions or concerns about this Act, we recommend that you consider alerting MFAT’s Ukraine Taskforce or participating in The Treasury and MFAT’s forthcoming post-implementation review, which will be completed in the coming weeks.

How can we help?

We have extensive experience of advising on sanctions compliance and enforcement related matters, including in relation to Western governments’ recent sanctions targeting Russia.  We routinely assist clients to: produce obligations registers; conduct compliance assessments; undertake customer and transaction due diligence and screening processes; structure low risk transactions; and develop or refine sanctions compliance programmes.

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 sanctions-related mediations and judicial proceedings in New Zealand and the UK.

We work closely with partner firms in other jurisdictions, including the Asia-Pacific-wide network of MinterEllison offices, when foreign legal advice is required.

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

Footnotes

[1] Asset means everything that is capable of being owned, whether it is real or personal property, or in tangible or intangible form, or inside or outside New Zealand, and includes any legal or equitable estate or interest in property, and the proceeds of dealing with any asset.

[2] Service means a service of any kind, whether dealt with inside or outside New Zealand, including, without limitation: advice, assistance, or training; an electronic service (for example, relating to information technology); a communications service; a bunkering service; a carriage service; a financial, accounting, or insurance service; a military activity: a service that facilitates, or is provided in relation to, any activity.

[3] Dealing with assets means using, receiving, providing, or otherwise exchanging, trading, or controlling assets in any way and by any means. This includes, without limitation: operating an asset; possessing or acquiring possession of assets; transferring, holding, lending, hiring, carrying, supplying, procuring, paying for, buying, selling, importing, exporting, assigning, sharing, gifting, or disposing of, or providing access to, assets; and allowing or facilitating dealing with assets.

[4] Dealing with services means using, receiving, providing, or otherwise exchanging, trading, or controlling services in any way and by any means. This includes, without limitation: supplying, brokering, arranging, procuring, paying for, buying, selling, gifting, or transferring services; disrupting, intercepting, or disabling services, or interfering with services; and allowing or facilitating dealing with services.

[5] Duty holders include casinos, designated non-financial businesses or professions, financial institutions, high-value dealers, TAB NZ, and any person or class of persons declared by regulations to be a duty holder.

[6] Click here

[7] For example: Decree No. 79 “On the Application of Special Economic Measures in Connection with the Unfriendly Actions of the United States of America and Foreign States and International Organizations who have Joined the United States of America” (the “Decree no. 79”); and Decree No. 81 “On Additional Temporary Economic Measures to Ensure Financial Stability of the Russian Federation” (“Decree no. 81”).

[8] Act, s 17.