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The Autonomous Sanctions Bill is Back 

by Sarah Salmond

Published: July, 2021

Submission: July, 2021

 



The Autonomous Sanctions Bill – once known as“the least successful piece of legislation in New Zealand history”– is back on Parliament’s agenda. This comes after National MP Gerry Brownlee succeeded in having his bill of the same name drawn from the members’ ballot last Thursday. The resurrected bill will receive a first reading in Parliament later this year.


If passed, the Autonomous Sanctions Bill is likely to further complicate 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.


In this alert, we recap the key features of New Zealand’s existing sanctions regime. We then summarise the Bill’s key provisions, considers their merits, and offer views on how this law reform process may unfold.


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 theUnited Nations Act 1946or, on occasion, theTerrorism 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 initialAutonomous Sanctions Bill dropped-off the Parliamentary Order Paper after languishing near the bottom since its introduction in May 2017. Now, with increased attention on forced labour and supply chain transparency, as well as the deteriorating human rights situation in Myanmar, the National Party has been calling for a reprisal of the bill, which it says would now “easily pass in Parliament”.


What just happened?


Last Thursday, National MP Gerry Brownlee succeeded in having a revisedAutonomous Sanction Billdrawn from the members’ ballot, which means it will receive a first reading in Parliament later this year.


The Bill proposes to establish a framework for the implementation of autonomous sanctions by New Zealand. If passed, it would enable 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.

What is the New Zealand Government’s view?


Throughout its term in office, the current Labour Government has shown a lack of interest in progressing autonomous sanctions legislation. In 2019, Prime Minister Jacinda Ardern stated that she had not come across a situation where she felt that New Zealand had needed an autonomous sanctions regime to take a stand on an issue.


In our view, the current Labour Government is likely to tread carefully throughout this law reform process. We have no doubt that UN veto holders and New Zealand’s Five Eyes partners will monitor developments closely, each with a somewhat different domestic agenda in mind. The Labour Government will want to ensure that the Parliamentary debate and any future legislation does not damage diplomatic relationships with, and between, China and the US in particular. New Zealand’s lack of an autonomous sanctions regime is arguably helpful to the Government in maintaining this balance. If the Government were able to impose unilateral sanctions, it would undoubtedly be under significant pressure to act in response to a number of very sensitive situations, including alleged human rights abuses in China’s north-western Xinjiang Province.


Why should New Zealand businesses be paying attention?


Individuals and companies operating in New Zealand are generally far more concerned about the extraterritorial effect of foreign autonomous sanctions regimes (especially the US regimes) than they are about New Zealand's sanctions regime. This is because New Zealand's sanctions are far less comprehensive, the penalties for breaches are comparatively modest, and the Government dedicates minimal resources to monitoring compliance and enforcement.


The extraterritorial application of foreign autonomous sanctions regimes has a significant impact upon the practical way business is conducted in New Zealand. For example, New Zealand sanctions laws do not prohibit receiving funds from non-designated Iranian nationals. Despite this, most major banks operating in New Zealand are foreign-owned and they routinely refuse to receive funds from Iran or Iranian nationals for fear of breaching foreign autonomous sanctions regimes that may apply to them. In our experience, most major financial institutions operating in New Zealand try to either ensure compliance with US sanctions legislation, or limit the application of US jurisdiction to certain potentially sensitive transactions. This is because the US regime is generally considered to contain the most stringent and rigorously enforced autonomous sanctions in the world.


If passed, the Autonomous Sanctions Bill is likely to further complicate 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.


In light of the above, we anticipate that the New Zealand business community will present robust submissions to this law reform process.


How can MinterEllisonRuddWatts help?


We have extensive experience of advising on sanctions compliance and enforcement related matters. We routinely assist clients to: conduct customer and transaction due diligence and screening processes; structure low risk transactions; develop or refine their Sanctions Compliance Programmes; conduct compliance assessments; and respond to potential sanctions breaches.


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 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.


Footnotes


[1]Trade sanctionsprohibit goods 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 or just certain categories of goods, such as arms, military equipment, luxury goods or diamonds.


[2]Financial sanctionsare 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 maintainsAsset 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 embargoesare 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 restrictionsgenerally prohibit a designated person from entering or transiting New Zealand. The UN maintainsTravel 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 restrictionsare 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 sanctionsare 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).


 



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