NZ Herald publication
OPINION – published in the NZ Herald, largest circulation newspaper in New Zealand
1st March 2022
By Gary Hughes
Chair of the International Bar Association Anti-Money Laundering & Sanctions Experts committee
See here for original article as published in NZ Herald online [Paywall] – NZ Herald Gary Hughes – WHY NZ CAN’T LEVY PROPER SANCTIONS ON RUSSIA, AND WHAT IT LAYS BARE
As the world took a collective gasp at the most brazen act of European aggression since the 1930s, governmental reactions included denunciations of Russia and various forms of support for Ukraine.
Political responses soon turned to imposing sanctions upon the aggressor, and key individuals, banks and institutions. Sanctions, an umbrella term for various trade and commercial counter-measures, have become the go-to lever against rogue states, terrorist haven-providers, and purveyors of illegal weapons.
More specifically known as Economic Sanctions, or Targeted Financial Sanctions, they fill a gap somewhere between indignant diplomatic rhetoric and an actual military response.
Measures include trade embargoes, asset freezes, and hefty penalties for persons dealing with a sanctioned country. They have a significant impact on the pipelines of money that fuel bad actor states, and the lifestyle of their government insiders.
The US, EU, UK and Australia (under its Autonomous Sanctions Regulations 2011 already in place) moved to immediately restrict key Russian players.
The global body that sets Anti-Money Laundering standards is the Financial Action Task Force. Over time, its remit expanded to include terrorist funders and weapons of mass-destruction proliferators. A G-20 affiliate, the FATF calls out and blacklists the worst sanctioned countries: currently, only Iran and North Korea.
FATF norms are the closest thing we have to a set of multi-lateral rules on financial counter-measures.
But with Sanctions (and AML) it is up to each country to incorporate those norms into domestic legislation. Outside the United Nations Act 1946, New Zealand has not bothered. As a result, our only lawful mechanism for imposing foreign sanctions is when the UN leads a resolution, as it frequently does with ISIS, al-Qaeda and specially designated terrorists.
When a permanent Security Council member is the aggressor, the UN is hamstrung. Without a domestic statute to levy direct Sanctions, the NZ government is also left hanging, relying on mere travel bans, cessation of military exports, and diplomatic words.
In its Mutual Evaluation report on NZ (April 2021) FATF highlighted that our present Sanctions system is incomplete, with poor guidance, and lack of understanding amongst businesses. NZ Police currently only communicate UN updates to those firms that are AML reporting entities, even though Sanctions law applies to a much wider group – all citizens and businesses.
Critically, no legal agency has a mandate to enforce Sanctions. When MFAT wished to take its only case to date, against a Kiwi aerospace exporter supplying North Korea, it had to call in NZ Customs as prosecutor as MFAT has no enforcement arm.
An Autonomous Sanctions Bill 2017 was introduced to Parliament in the last months of the National government, but didn’t pass in time. Proposed legislation lapses if not adopted by the next incoming Parliament. The new government discarded it.
Gerry Brownlee is correct that he at least proposed that Bill, and tried again last year. But he might also mention that MFAT had produced a regulatory impact statement about the holes in our Sanctions regime as far back as 2012. Shilly-shallying on big picture reforms has become a habit of governments of all stripes.
Since the MMP era began in 1996, our leadership tends to prioritise short-term thinking. Legislation perceived as domestic vote-harvesting or crisis-averting gets through, sometimes rushed through. Difficult but important laws that don’t seem immediately needed in a peaceful, globalised, pre-pandemic world sit on the drawing board for a very long time.
Our collective insouciance to financial crime reforms has been laid bare.
Targeted Financial Sanctions is not the only area where we languish behind the UK, Australia, Canada and others. In anti-corruption, we rely on the antiquated Secret Commissions Act 1910 for most private sector bribery controls. A lack of modern Anti-Bribery regulation belies our overseas perceptions index results.
And we still fail to prioritise a Modern Slavery law, despite more cases coming to light of trans-national human trafficking, and local indentured or subjugated employee abuses.
By contrast, our AML laws are highly developed, amended with changing criminal threats, and well-regarded on the international scene. The main thing letting it down is a patchwork of enforcement bodies – with the FMA, Reserve Bank and DIA each doing a bit, and Ministry of Justice, Customs and NZ Police in the overly-complex mix too.
Politicians can move rapidly when something proximate and eye-catching, like a sports tournament, is at hand. In 2015, urgent Crimes Act amendments were sped through on match-fixing when it was realised that no existing offence properly covered it. That corruption control was required if we wished to host the ICC Cricket World Cup.
While our foreign-owned banks will need to take compliance steps based on US and Australian Sanctions, proper reformist attention is needed to modernise our trans-national crime and regulatory frameworks. Then, NZ could join major Western nations in reacting swiftly to the next crisis or conflagration that arrives.
- Gary Hughes is an Auckland barrister, and Chair of the International Bar Association’s Anti-Money Laundering & Sanctions Experts committee.