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A series of changes to the Russia Sanctions Regulations (Regulations) will come into force on 3 September.
They address some technical issues and implement the non-legislative recommendations arising from the Ministry of Foreign Affairs and Trade (MFAT) review last year (see our commentary here).
We run through the detail and provide links to nine associated new or updated guidance notes.
Amending the approach to associates and relatives
The automatic application of sanctions to relatives and individuals who are associates of sanctioned persons, but are not specifically listed on MFAT’s Sanctions Register, has been removed. This has created compliance challenges for businesses so the change will be welcome.
The amendment implements a key recommendation from the review, that any associates and relatives who are subject to sanctions be listed by name. In the review:
- MFAT found that the regime’s approach to associates and relatives did not align satisfactorily with the approaches of counterpart sanctioning jurisdictions, and
- submitters ‘overwhelmingly’ noted that this approach makes compliance more difficult, and MFAT recognised that the administrative convenience does not outweigh the compliance costs and uncertainty.
The new MFAT Guidance note on this amendment confirms that individuals who the New Zealand Government intends to sanction because of their relationship to a sanctioned person will generally be designated by name and listed on MFAT’s Sanctions Register.
The automatic application of sanctions to associated entities of sanctioned persons, including subsidiaries, is retained, without change to the rules on ownership and control of entities.
Circumventing sanctions
A specific prohibition will be introduced on dealing with assets and services that are “for the purpose of circumventing sanctions” – a move MFAT describes as mitigating the risk that would arise if sanctions no longer automatically applied to relatives and individuals who are associates of sanctioned persons.
The MFAT Guidance note indicates this new prohibition targets the following types of behaviour:
- dealing with assets that have been transferred in such a way as to conceal a sanctioned person’s ownership and control – such as through a family member
- concealing the involvement of a sanctioned person through restructuring a transaction
- providing services to an agent of a sanctioned person, and
- participating in export chains through an intermediary who ultimately exports the goods onto Russia.
Dealing with ships
The sanctions on ships operating outside of international law will now extend to prohibiting all dealings with restricted ships listed in Schedule 6 of the Regulations. Those ships include Russia’s shadow fleet.
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’.
Limited exceptions apply, such as where an individual or ship is in danger or distress; or if the person is acting for the purpose of, or in connection with, the enforcement or intended enforcement of the Act.
New exception
The amendments add an exception to Regulation 12 enabling New Zealand banks to charge and collect normal service charges in relation to a sanctioned bank account. MFAT’s Guidance note provides that “normal service charges” may include:
- account maintenance fees
- administrative fees
- fees associated with the operation or maintenance of the account or asset
- arrears in such fees, and
- reasonable administrative costs incurred in managing the frozen asset.
MFAT notes that fees charged should be consistent with a bank’s usual fee structure and business practices for comparable accounts or assets. The change does not allow banks to release funds to any sanctioned person or make any asset available for the sanctioned person’s benefit.
Export of medical devices
The export prohibition for seven HS codes relating to medical equipment has been removed. MFAT states this addresses a long-standing issue raised by a key stakeholder in relation to compliance costs.
The Guidance note adds that “the amendment is intended to facilitate the export of goods for civilian medical and healthcare purposes”. The effect is that persons exporting these goods to Russia or Belarus will not need to apply for an exemption.
The amendment does not affect other obligations that may arise under New Zealand’s strategic goods and export controls regime. For example, where goods are intended for military, paramilitary, dual-use, or other controlled end uses, an export permit may still be required.
Remaining review recommendations
Those recommendations that would involve making changes to the Russia Sanctions Act (Act) itself are expected to be progressed next year.
New and updated guidance
- Guidance note on the change of approach to associates and relatives: a new note providing guidance on the amendment removing the automatic application of sanctions to relatives and individuals who are associates of sanctioned persons.
- Guidance note on the prohibition of evading sanctions and circumvention: a new note providing guidance on the prohibition on dealing with assets, securities or services for the purpose of evading or circumventing a sanction.
- Notes updated to include guidance on the new exception allowing banks to charge and collect normal service charges:
- Guidance note on trade measures: updated to include guidance on the removal of certain medical and healthcare goods from export prohibitions under the new amendments.
- Guidance note on importing Russian energy products: general updates to the guidance for New Zealand businesses in relation to the prohibition on importing coal, oil or gas products (these updates do not relate to the amendments to the Regulations).
