Simpson Grierson - New Russia Sanctions Act has implications for all NZ businesses

22/03/2022·3 mins to read

New Russia Sanctions Act has implications for all NZ businesses

In this FYI we discuss what the Russia Sanctions Act 2022 (Act) means for NZ businesses.

All New Zealand businesses need to be aware of how the Act’s sanctions apply, because the sanctions prohibit the supply of any type of service to sanctioned individuals and also prohibit dealing with any assets of or in sanctioned persons and entities, with limited exceptions.

‘Reporting entities’, as defined in the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act) also have a specific reporting duty under the Act to disclose suspected holdings of sanctioned assets or the provision of sanctioned services.

Current sanctions in force

The first sanctions were introduced on 17 March 2022 under the Russia Sanctions Regulations 2022. The sanctions are as follows:

Travel Ban: “sanctioned individuals”, as listed in the Schedule to the Regulations, cannot travel to, enter, or remain in New Zealand. This does not apply to New Zealand citizens or residence class visa holders;
Ships: New Zealanders must not operate, permit or authorise a ship to enter a port in New Zealand if that ship is associated with the Russian or Belarusian Government or military, or a sanctioned person. There is an exception where the ship or an individual is in danger or distress.
Aircraft: New Zealanders must not operate, permit or authorise an aircraft to enter New Zealand’s territorial airspace if that aircraft is associated with the Russian or Belarusian Government or military, or a sanctioned person. There is an exception for emergency landings or where the aircraft or an individual is in danger or distress.
Assets: New Zealanders must not deal with assets that are associated with sanctioned people or deal with assets in a way that would benefit a sanctioned person.
Services: New Zealanders must not deal with services provided by or to a sanctioned person.

There are some exceptions to these sanctions where the relevant activity or obligation arose immediately before the sanctions were put in place, or for certain necessities such as providing food and clothing, or providing legal advice regarding compliance with the sanctions.

Steps for reporting entities

AML/CFT reporting entities should consider the following:

Pro-actively identifying clients and beneficial owners with connections to the sanctioned individuals referred to above. If you are using a screening service, check that they have added New Zealand sanctions to their database;
Putting in place special measures for customer due diligence and decision-making around services and transactions with a sanctioned person or a Russian connection;
Be aware of the specific red flags for your sector identified by the Financial Intelligence Unit in this NZ Police update.

Section 15 of the Act creates the reporting duty for reporting entities. The reporting duty may also be extended to any person declared by regulations to be a “duty holder”.

Reporting entities will be required to make a s15 report to the Commissioner of Police (using goAML) within three working days of forming a suspicion on reasonable grounds that (in summary):

they are in possession or control of designated assets or assets owned or controlled, directly or indirectly, by designated persons; or
they are to deal with or are dealing with designated services, or services in relation to a designated person.

“Services” includes services of any kind, and could capture any service a reporting entity could be providing, whether or not those services are regulated for AML/CFT Act purposes. This means that reporting entities like law firms and accounting firms will need to consider all of their activities in light of this reporting duty, not just those that trigger customer due diligence under the AML/CFT Act.

Lawyers will not be required to disclose a privileged communication, as defined in s42 of the AML/ CFT Act.

As well as the s15 reporting duty, reporting entities will need to consider making a suspicious activity report under the AML/CFT Act if they have reasonable grounds to suspect that their services are being provided to customers who are knowingly or recklessly breaching sanctions imposed under the Russian Sanctions Act, which is an offence if done knowingly or recklessly without lawful justification or reasonable excuse.

Steps for all other sectors

All businesses need to be aware that providing any services or dealing with assets in breach of sanctions can put them in line for civil or criminal penalties, not to mention the reputational damage of being censured for this.

We recommend all businesses take immediate steps to consider whether they could be providing or receiving services, or dealing with assets, with respect to people who are or may become sanctioned, and look at steps to address this exposure. There are screening services that can assist with identifying persons subject to sanctions and this may be a worthwhile service to employ for some businesses.

Enforcement

You cannot contract out of any sanctions. If the Attorney-General considers a person has breached or is likely to breach a sanction without lawful justification or reasonable excuse, the Attorney-General may:

issue a formal warning;
accept (and seek a court order to enforce) a written undertaking given by a person to comply with a sanction; or
seek an injunction against the person.

Some of the offences and penalties under the Act are:

Offence	Liability for Individuals	Liability for Entities
Knowingly or recklessly breaching a sanction without lawful justification or reasonable excuse.	Imprisonment for up to 7 years and/or a fine up to $100,000	Fine up to $1 million
Providing false or misleading information or omitting key information when applying for an s 13 exemption.	Imprisonment for up to 7 years and/or a fine up to $100,000	Fine up to $1 million
Failing to provide an s 15 report, including false or misleading information or omitting key information from a report.	Imprisonment for up to 1 year and/or a fine up to $20,000	Fine up to $200,000

If a person made a commercial gain as a result of committing an offence, the court may order that person to pay up to three times the value of any commercial gain.