Contents
MFAT has recommended amendments to the Russia Sanctions Act (RSA), as part of its first statutory review of the RSA’s operation and effectiveness. While the recommendations are significant in number – 29 in total – MFAT is not proposing sweeping changes. Overall, the review found the RSA is fit for purpose, which largely appears consistent with the views of submitters. Although some submitters criticised banks for their implementation of the RSA, arguing that ‘derisking’ was taking place, MFAT did not find evidence of major shortcomings. Instead, the RSA regime is ‘operating satisfactorily’.
MFAT has identified that monthly imports from Russia fell 99% after the sanctions were introduced (compared to the average monthly imports in 2021).
The most significant proposal is that MFAT be empowered to order any duty holder to produce, or provide access to, records, documents or information that are relevant to analysing or investigating a possible offence under the Act.
We outline five key themes in the recommendations and summarise recent sanctions developments in New Zealand regarding Russia’s shadow fleet and New Zealand reimposing sanctions against Iran.
RSA review: MFAT recommendations
Proportionality and burden of compliance
A common theme across the review is proportionality and the burden of compliance. While MFAT recognises the regime ‘imposes significant costs on individuals and entities’, it ultimately ‘apprehends, from the nature and extent of exemption requests and from consultations with the regulated community, that the sanctions have had a limited impact on New Zealand individuals and businesses’. A number of MFAT’s recommendations seek to:
- reduce the compliance burden, including a key recommendation that any associates and relatives who are subject to sanctions be listed by name. Currently, associates and relatives are a class of sanctioned persons, without being individually listed. Submitters ‘overwhelmingly’ noted that this approach makes compliance more difficult, and MFAT recognised the administrative convenience does not outweigh the compliance costs and uncertainty, and
- ensure the compliance burden is not increased, notably in relation to duty holder obligations, applicable particularly to banks. For example, MFAT considered a dual reporting requirement (to both Police and MFAT) would be unduly burdensome.
Institutional roles, coordination and oversight
The review considered overlap between different regulatory regimes and coordination between agencies. A number of MFAT’s recommendations address those interactions:
- AML/CFT: Submitters did not support greater overlap between the RSA and the AML/CFT regime, and the review reflects that. MFAT recommends it is not necessary to make any legislative amendments to create a power of supervision for AML/CFT Supervisors to oversee compliance with the RSA regime, create positive obligations on duty holder under the RSA, or tie the AML/CFT Act and RSA any closer together.
- Customs: MFAT recommends that the relationship between the section 13 RSA process (to apply for an exemption) and the process under Schedule 5 of the Customs and Excise Act (to apply for a review of a seizure of goods) be resolved either through an MoU between New Zealand Customs and MFAT or legislative amendment.
- Police: MFAT recommended that it engage with the Financial Intelligence Unit of NZ Police to consider whether there are ways of improving the handling of suspicious activity reports (SAR) within current procedural arrangements. MFAT has recommended retaining the requirement for duty holders to report a suspected sanctions breach within three working days.
- Other oversight bodies: Submitters were unanimous in not supporting other oversight bodies (such as the Banking Ombudsman Scheme) having jurisdiction over RSA matters, pointing to the complexity of sanctions law and limited expertise of other oversight bodies in this area. MFAT did not recommend expanding the jurisdiction of existing oversight bodies to RSA matters, nor establishing an independent oversight body.
Enforcement and information gathering
The review identifies that unintentional non-compliance continues to be a risk (due to differences in awareness and knowledge of obligations) and ‘intentional non-compliance also remains a real risk’. The review proposes a strengthened investigatory and enforcement role for MFAT, enabling it to order any duty holder to produce, or provide access to, records, documents or information that are relevant to analysing or investigating a possible offence under the Act. MFAT recommends this power be complementary to that of the Police Commissioner, have safeguards and include a penalty for non-compliance.
The recommendations also propose steps to strengthen monitoring:
- enabling MFAT to share relevant information with other agencies monitoring for sanctions compliance, and
- monitoring by the MFAT Sanctions Unit for possible types of sanctions evasion behaviour.
Alignment with International Practice
Consideration of overseas regimes is a theme across the review. Alignment with international practice justified several recommendations:
- amending section 13 to expressly enable the Minister to initiate a review of a sanctions decision and grant an exemption or recommend an amendment or revocation, without receiving a request (which aligns with regimes overseas),
- better aligning regulation 12(7)(c) (exemption for the purpose of preserving, or maintaining the value of, a restricted asset) with international practice, including undertaking a full analysis of partners’ sanctions regimes in that regard, and
- amending the approach to associates and relatives, as described above, with MFAT finding the RSA’s approach to associates and relatives does not align satisfactorily with the approaches of counterpart sanctioning jurisdictions.
Focus on increased clarity in guidance and definitions
Overall, the review makes few recommendations for legislative change, generally favouring further or improved guidance, including:
- guidance or case studies to clarify the interplay of New Zealand’s legislation with other jurisdictions where relevant,
- updates to the Regulatory Charter to provide greater information on the roles and responsibilities of respective agencies involved, and
- updates to existing guidance on the duty to freeze under regulations 10 and 11 (including how to implement the duty for varying types of asset classes).
Other key sanctions developments
In parallel to the statutory review, there have been other important sanctions developments in recent weeks.
Russia’s shadow fleet: the vessels continue to be a key focus of amendments to the Russia sanctions regime. The Government designated an additional 65 vessels on 30 October, after 27 and 19 vessels were designated in June and September respectively. The Minister for Foreign Affairs has described New Zealand’s designation of the shadow fleet as reflecting ‘a joint effort with likeminded international partners to prevent sanctions evasion’. The ever-expanding list of designated vessels underscores the need for entities involved in the maritime industry to be conducting appropriate due diligence.
Iran sanctions: last month, MFAT published guidance on the Iran Sanctions Regulations that came into force on 18 October. The United Nations Security Council (UNSC) sanctions on Iran were reinstated in September, after France, Germany, and the UK jointly triggered the snapback mechanism under the Joint Comprehensive Plan of Action. The Iran Sanctions Regulations implement those UNSC sanctions by introducing a range of new restrictions and obligations for New Zealand persons, including a duty to exercise vigilance when doing business with entities incorporated in Iran or subject to its jurisdiction, and a compulsory business registration scheme (which will enter into force on 1 February 2026).
MFAT’s guidance explains that conducting due diligence is an important part of compliance with the ‘duty to exercise vigilance’ and includes suggestions for due diligence activities. It also notes the need to ensure compliance with foreign autonomous sanctions regimes, such as those imposed by the US, UK, Australia and the EU.
Our thanks to Maisy Bentley for her assistance preparing this update.
