International Sanctions

Economic and financial Sanctions against Russia by New Zealand

This page has a general summary of the legal rules and restrictions in New Zealand Russia Sanctions law, implemented in response to foreign geo-political developments.  This is basic overview material, and only updated to December 2022.

Gary is a leading NZ Sanctions & AML lawyer, and also holds office (pro bono) as Chair of the International Bar Association’s AML & Sanctions Experts Committee.

Important Note – this page holds brief general information only; and foreign Sanctions obligations are not only complex but rapidly changing as new sanctions may be added or amended. Readers are urged to always review the Russia Sanctions Act, Regulations, and the designated persons Register itself  – or – contact Gary for legal advice.

International Sanctions law
What are international Sanctions, or ‘Targeted Financial Sanctions’?

Sanctions are international relationship/diplomacy restrictive measure imposed by one country on trade, investment, assets or citizens of another country.  If their home country law allows, nations can take a range of steps to persuade or punish other nations for transgressions of international law or global community expectations. Economic and Financial Sanctions fall somewhere on the spectrum of diplomatic steps between say, claiming in an international court or disputes body or expelling an ambassador, and armed military action.

In the case of Russia since its 2022 invasion of Ukraine, imposing Sanctions is part of a multi-national and multi-faceted set of steps to exert pressure on Russia (and other countries assisting Russia, such as Belarus) financially or economically. That aims to limit its ability to finance the war, reduce its level of trade, export revenues and engagement with the global financial system, or to get around sanctions by other countries in seeking to use NZ trade and firms instead.

The FATF is an international AML & Financial Crime inter-governmental forum based around OECD and G-20 nations.  It supports disparate national sanctions issues, and helps streamline approaches to thm.  FATF literature uses the label “Targeted Financial Sanctions” or TFS.

What has NZ done about Sanctions on Russia?

A new bespoke piece of legislation (the Russia Sanctions Act 2022) was passed to deal with Russia, and countries deemed in future to be assisting Russia – for now, only Belarus.  This new Bill went through rapidly with little consultation, being passed by Parliament under urgency all in one day and then came into force immediately on 12th March 2022.

The Russia Sanctions Act 2022 establishes an over-arching framework piece of legislation, allowing New Zealand to impose and enforce sanctions in response to military actions by Russia.  Under that framework, the actual targeted sanctions then can be put in place by specific Cabinet Regulation or Gazette Notices (forms of subsidiary/delegated legislative orders) without reverting back to Parliament.

The NZ lead agency, MFAT (Ministry of Foreign Affairs & Trade) has emphasised that:

As a small country that depends on the international rules-based system
for security and prosperity, it is fundamental to New Zealand that these rules are protected, and that violations can be punished. …

The intent of the sanctions regime is to punish and influence Russia, however the Government is also conscious of the potential impacts sanctions can have on New Zealanders around the world and those in, or doing business in, New Zealand. For this reason sanctions regulations are implemented and managed to enable mitigation of these impacts where appropriate.

But didn’t we have some sanctions on other countries before that?

New Zealand has not previously had any autonomous sanctions regime, only choosing to follow United Nations agreed multi-lateral sanctions efforts.   That reliance on a UN-led system came a cropper when one of the UN Security Council members with permanent right of veto is in fact the aggressor country or supports the one being sanctioned.

An Autonomous Sanctions Bill 2017 was introduced to Parliament in the last months of the John Key National government, but didn’t pass in time.  Recent governments led by both National or Labour have not seen this policy as being a priority.  So NZ then proceeded in a reactionary and rushed way in order to deal with the unfolding situation created by Russia in Ukraine in early 2022.

For more detail on the background, see Gary’s article published in the NZ HERALD: Why NZ can’t levy proper sanctions on Russia, and what it lays bare

Earlier Sanctions in place have followed UN statements against rogue states (North Korea or Iran), or those engaging in nuclear arms proliferation activities, or terrorist groups (e.g Al-Qaida or the Taliban). But those Sanctions only apply after a United Nations Resolution, in accordance with NZ legislation in the form of the United Nations Act 1946 and Regulations made under it.

Who in New Zealand must comply with the Russia Sanctions laws?

ALL New Zealand individuals, businesses and organisations need to make sure they are not doing business with persons or entities that are subject to Russia Sanctions.  This is not something that only affects banks, or businesses – all citizens must follow the new sanctions laws, and if necessary cease or freeze any past activities if now prohibited.

For businesses, carrying out a risk assessment is an important first step.  That will help to understand who your end-customers and suppliers are (not just the immediate person you deal with) and who owns or controls them, or might be an affiliate of them.  You should start by reviewing the official MFAT Register of Designated Persons/Parties, then proceed with the help of experienced legal advice

Under the umbrella Russia Sanctions Act, a detailed online Register is maintained by MFAT.  The first actual list of “sanctioned persons/entities” was brought into force by separate Regulations on 18 March 2022. Since then, several successive and wider tranches of lists have been added to the Sanctions Register by updated Regulations at regular intervals. The names and businesses added typically follow the lead of Australian, US or UK sanctions listed persons – but are not always identical to those other lists.

Under the Anti-Money Laundering and Countering Financing of Terrorism laws, “duty-holders” such as financial institutions and professional firms have additional obligations to look out for, identify and quickly report suspicious activity associated with potential sanctions evasion, including making appropriate risk-based customer due diligence enquiries of high risk transactions. We have seen NZ banks move to over-react and freeze a lot of transactions out of abundance of caution.

Which groups of Russians are subject to the sanctions?

The names and details of who is a sanctioed person can be changed rapidly be Government orders. So always check the most recent version of the office Russia Sanctions Register

That contains a list of specified Russian politicians, oligarchs, banks, businesses and military personnel. Those designated individuals, firms, groups and entities each have the applicable types of sanction as relevant to them.  The Register also lists trade tariff measures and prohibited export items.

Common sanctions measures are:

  • Restrictions on trade in goods or providing services
  • Restrictions on engaging in commercial activities for or on behalf of designated person
  • Limitations on dealing with assets, property or bank accounts
  • Targeted financial sanctions (including asset freezes) on individuals and entities
  • Travel bans on individuals
  • Aircraft and ship movement restrictions.

Examples of Sanctions currently applied include against:

  • Russian politicians and businessmen deemed supporters or associates of Vladimir Putin
  • Russian and Belarusian vessels and aircraft
  • Certain luxury goods of Russian origin
  • Imports of gold, coal, oil and gas of Russian origin
  • Banks and financial institutions in the Russian Federation
  • Exports of some categories of technology or strategic goods to Russia or Belarus is prohibited
  • Oil and oil exploration products cannot be exported to Russia.
So can we still trade with Russia at all?

Yes, that might be possible in some goods and services.  Not all trade with Russia is forbidden. But it is much more complex, and a high-risk activity.

As well as a new high tariffs imposed on Russian import goods, with the expectation that market forces will discourage trading in Russian goods to New Zealand, some types of exports particularly in technology and defence industry items are prohibited altogether.

Any trading relationship with Russia should be the subject of specialist legal advice, with a close focus on the detailed lists and regularly changing Sanctions register and regulations.

What are the potential penalties?

Maximum penalties under the Russian Sanctions Act are set at (per offence) up to 7 years’ imprisonment for individuals or a fine not exceeding NZ$100,000 and, for an entity or bank, a fine up to NZ$1 million.

There has only been one NZ company to have been prosecuted under older UN sanctions regulations.  In September 2016, it was discovered that a light aircraft manufactured by NZ company Pacific Aerospace flew at an air show in North Korea, in DPRK colours. As a result of media attention, NZ Customs investigated as to how a Kiwi airplane came to be there.  UN Sanctions regulations meant that aircraft and spare parts were prohibited exports to North Korea, and Pacific Aerospace had supplied warranty parts on several occasions  knowing it would be sent to repair aircraft in the North Korea.

The company was eventually convicted and fined around $76,000 for Sanctions and Customs & Excise Act breaches. When we see the first prosecutions under the newer Russian Sanctions Act with stiffer penalties, the Courts are likely to impose significantly higher amounts.