Review of Russia Sanctions Act

The Ministry of Foreign Affairs and Trade (MFAT) is reviewing the Russia Sanctions Act 2022 across a range of areas to determine its effectiveness and whether it is fit for purpose.

The review is a statutory requirement of the Act, which was passed under urgency in 2022 without public input. Submissions close on Monday 16 December 2024.

The issue of whether New Zealand should adopt a fully autonomous sanctions regime, as recommended earlier this year by an Expert Advisory Group, is outside the review’s scope with the Government yet to respond formally to the Group’s recommendations.

MFAT is seeking feedback on 70 questions across a range of topics. Several of these offer particular opportunity for input from business.

Does the Act strike the appropriate balance between the risk of sanction evasion in New Zealand and the Act’s compliance costs? One of the objectives of the regime, set out in the Russia Sanctions Regulatory Charter, is to manage, as appropriate, disproportionate impacts on New Zealand individuals and businesses. MFAT is unlikely to have full visibility of the extent of compliance costs, ranging from additional resourcing to dispute resolution, and affected revenue, at the individual business level. This is an opportunity to highlight these practical challenges for MFAT’s attention.

Are there any areas that are particularly challenging to comply with? Due diligence and risk assessments can be made more onerous where the Act adopts a less targeted approach, or diverges from other jurisdictions – e.g., the treatment of relatives as a class of sanctioned persons rather than on an individualised basis as in Australia. MFAT is consulting on this specifically in the context of the review, as well as whether there could be more guidance on associates, and more guidance generally (the existing guidance documents are available here).
Is the extraterritorial nature of the Act stated with sufficient clarity? The consultation document recognises the jurisdiction of the Act extends to New Zealanders overseas and to businesses that may be registered in New Zealand, but which have no connection to New Zealand. The term “carrying on business in New Zealand”, included in the definition of “New Zealand person”, is not defined in the Act or Regulations. Although this broad term was deliberately included to minimise the risks of sanctions evasion, the review is an opportunity to provide feedback on whether this approach is appropriate, and sufficiently clear for your business to understand its risk profile in New Zealand.

Is the Act workable for the financial sector? Regulation 10 prohibits “dealing” with assets (including funds) in relation to sanctioned persons, and Regulation 11 prohibits “dealing” with services (including payment/banking services) in relation to sanctioned persons. This is effectively an asset freeze – an obligation not to deal. For financial institutions, acting on a customer’s instructions or transactions may contravene this asset freeze. The review is an opportunity for financial institutions to provide feedback on the definitions of “dealing with” assets and services, the meaning of dealing with assets “for the benefit” of a sanctioned person, whether there should be a more explicit obligation to freeze assets or services, and on the provisions relating to reporting for duty holders.
Are the exceptions from the application of sanctions (Regulation 12) clear to interpret and apply? Regulation 12 contains exceptions for dealing with assets and services that would ordinarily be prohibited by regulations 10, 10A, and 11. Regulation 13 separately provides for individuals to apply to be exempted from a prohibition, in certain circumstances (to date, 12 exemptions have been granted). The review is an opportunity to provide feedback on any difficulties relying on an exception, or otherwise your experience with the exemption application process and ways it could be improved.