Russian Sanction Update | New Zealand

In March 2022, New Zealand enacted legislation to impose sanctions on Russia. These measures were introduced while a number of different jurisdictions also imposed progressive sanctions on Russia. In response, Russia implemented countersanctions to target foreign ownership of Russian assets. We’re working with colleagues around the globe to monitor the development of sanctions.

We initially summarised the sanctions introduced in New Zealand in the Global Sanctions Alert, which was published in March 2022. The article provides a updated summary of the New Zealand sanctions (as at November 2022). Our team is keeping a close eye on the development of the sanction regime, both locally and globally, and is available to provide tailored advice.  

New Zealand

The New Zealand sanctions were introduced in March 2022 by the Russia Sanctions Act 2022 (Act). This Act provides New Zealand with a framework to implement sanctions in response to Russia's illegal invasion of Ukraine, which are set out in regulations (being the Russia Sanctions Regulations 2022 (Sanctions)).

Broadly speaking, the Sanctions are intended to prevent business activities that support, deliberately or otherwise, Russia's actions in Ukraine. The Sanctions apply to all New Zealand individuals and entities dealing with designated persons, services and assets (and dealing in assets on behalf of a sanctioned person). While there are some exceptions, these primarily apply to conduct that precedes the conflict and otherwise do not relate to Russia's attack on Ukraine.  

The first tranche of sanctions issued on 17 March 2022 provided a schedule of sanctioned individuals, entities and banks, and:

• prohibit sanctioned individuals from travelling to, entering, or remaining in New Zealand (unless they are a citizen or resident)
• prevent ships and aircrafts connected to sanctioned individuals or entities (including the registration of aircraft in Russia or Belarus) from entering New Zealand ports or territorial airspace
• prohibit New Zealanders from dealing with assets owned, controlled or otherwise closely connected with sanctioned individuals or entities (including assets located outside New Zealand)
• prohibit New Zealanders from dealing with services provided by or to a sanctioned individual

The second tranche of sanctions was announced on 4 April 2022, preventing Russian oligarchs and certain people or entities with close ties to President Putin from travelling to New Zealand, moving assets here or using the country’s financial systems to avoid sanctions imposed by other jurisdictions.

Further sanctions were introduced on 19 April 2022 against Russia’s largest banks and financial institutions, with 18 entities being designated.

In terms of trade, targeted sanctions were announced on 25 April 2022, imposing a 35% tariff on all imports of Russian origin exceeding NZD1,000. This suite of sanctions also prohibits the export of certain goods to Russia and Belarus, including products closely connected to strategic Russian industries (as identified in the sanctions register).

October saw a significant expansion of the trade measures, particularly focussed on the import and export of luxury goods and products linked to the gas and petroleum industries. The expanded tariff restrictions came into force on 4 November 2022.

Regarding other measures, further sanctions targeting cyber activity and Belarusian defence entities were announced in May, and again in August, with the register of designated individuals being updated frequently by the Ministry of Foreign Affairs and Trade. Regulations were also amended in July to introduce measures prohibiting the import of gold of Russian origin and to permit New Zealanders in Russia to continue using services of a sanctioned entity where necessary for personal or domestic purposes. Further designations of key military and political figures and groups took place over September and October, with specific regulations drafted recently to target Alexander Abramov and his family.

Further information and a full list of designations made under the Sanctions can be found here.

Overseas response

The US, Canada, UK, and the EU have restrictive sanctions regimes already in place. Restrictions include a move by the US and its allies to prevent some Russian banks from using the SWIFT international payments system. The UK has fast-tracked new legislation to strengthen its sanctions laws, and established a public register of the beneficial owners of overseas entities (including trusts) that own land and property in the UK. The suite of restrictive sanctions implemented by the EU and UK also target road transport, import of certain high-value goods, oil and gas trade within Europe, and aviation and maritime transport.

Australian sanctions now cover the majority of Russia's banking assets and all entities that deal with Russia's sovereign debt. The sanctions also prohibit the import of crude oil, gas and energy products from Russia and the supply, sale or transfer of certain luxury goods to, or for the benefit of, Russia. Australia's Minister for Foreign Affairs has stated that Australia is continuing its “close cooperation with key international partners” in continuing to increase sanctions.

Countersanctions

In response, Russia has introduced a suite of sanctions against “unfriendly countries.” In summary, the countersanctions include:

• Restrictions on transactions involving shares in Russian companies or immovable property, including the buy-back of shares in Russian public companies, and a complete ban on transactions with persons from unfriendly countries that give rise to title to security and immovable property.
• A ban on the provision of debt financing by Russian creditors to persons from 'unfriendly countries' without permission from the government.
• A ban on transfers from Russian bank accounts held by foreign individuals and entities from sanctioned countries, and other restrictions to transferring funds abroad.
• Restrictions on the payment of dividends and other payments to Russian securities.
• Permission for Russian users to use patents of right holders from unfriendly countries without consent (or payment).

Outside of these sanctions, the Russian government also approved a draft law on “external administration for management of an organisation,” which provides for the possibility to appoint external management of a Russian company in certain circumstances. This includes where a company is controlled or owned by at least 25% “Hostile State Parties.”

Looking forward

Sanctions remain a developing area that will potentially affect a range of New Zealand companies and individuals.

From a practical perspective, we recommend the following:

• Carefully review the Sanctions, and the key terms and provisions of the Act. This will help you to mitigate any risk of being affected before further sanctions are created.
• Put systems in place to monitor sanctions as they arise, and consider whether you have adequate detection, reporting and risk-mitigation processes in place to collect information on your organisation’s exposure to sanctions-related risk.
• Check the list of sanctioned persons regularly to ascertain whether any listed person is a customer or otherwise associated with your business.
• If you are a fund manager, as an AML/CFT Act reporting entity, you are responsible for carrying out due diligence to understand the beneficial ownership of your clients and their legal arrangements to understand whether you are providing services to sanctioned persons. If you suspect that is the case, you will need to report that to the police. You should also check all existing sanctions before undertaking activities, to ensure continued compliance.

If you have any questions about the impact of these sanctions, please do not hesitate to contact one of our team.