Government sanctions Russian oligarchs and their associates
Earlier in the day, the New Zealand government imposed sanctions on 36 people with close ties to the Russian government, including some of Russia’s wealthiest businessmen, as well as chairmen, chief executives and major shareholders. of some of the largest Russian companies. The sanctions prohibit New Zealanders from having a wide range of relationships with the 36 people, as well as associates, agents, senior managers and entities they own or control.
This alert summarizes the New Zealand government’s sanctions targeting Russia and considers what further action may follow in the coming weeks. It also explains the practical implications of sanctions imposed by New Zealand and foreign governments on New Zealand companies with links to the Russian market.
Who should read this?
New Zealand companies (including banks) doing business with Russia, and in particular those dealing with Alfa Group, Bank Rossiya, Gazprom, Metalloinvest, Reneva Group, Rostec, the Russian Direct Investment Fund, Severgroup, Sheremetyevo International Airport, Transneft and United Company RUSAL.
Second tranche of sanctions targeting Russian oligarchs and their “associates”
As part of the New Zealand government’s ongoing response to Russia’s invasion of Ukraine, new sanctions targeting 36 people with close ties to the Russian government or the Russian president came into effect today.
The targets include some of Russia’s wealthiest businessmen (including Roman Abramovich), as well as the presidents, CEOs and major shareholders of some of Russia’s biggest companies (including Alfa Group, Bank Rossiya, Gazprom, Metalloinvest, Reneva Group, Rostec, the Russian group Direct Investment Fund, Severgroup, Sheremetyevo International Airport, Transneft and United Company RUSAL).
These people (and some of their immediate family members) are now “designated persons” who will not be able to travel to New Zealand, move assets here, manage assets already there or use the country’s financial systems to circumvent sanctions. which may be imposed by other countries in the future.
It is important to remember that this second tranche of sanctions also prohibits New Zealanders from having a wide range of relationships with these 36 people and any of their “associates”. The relevant definition of “partner” is broad and will ensure that the following persons will also be subject to New Zealand sanctions:
- the agent of a designated person;
- an entity that a designated person “owns or controls” (applying a relatively low ownership or control threshold of 25%); and
- the “senior officer” of a designated person.
Identifying ‘associates’ and entities that a designated person ‘owns or controls’ is likely to prove difficult for some New Zealand companies that do not carry out rigorous customer and transactional due diligence processes.
First round of sanctions targeting Russian political and military figures
This is the second installment of sanctions imposed under the Russia Sanctions Act 2022 (Act). The first tranche was introduced on March 18, 2022, when the government passed the Russia Sanctions Regulations 2022 (Regulations), which includes a List of Sanctioned Persons. Our previous alerts on the Act and Regulation are available here and here.
The first tranche of sanctions prioritizes political and military individuals and entities. It expands pre-existing sanctions against the Russian President, Prime Minister, Foreign Minister, Defense Minister and nine other members of the Russian Security Council to include the freezing of assets and the banning of their ships and aircraft to enter New Zealand. It also prohibits service transactions involving 18 military entities and a state-backed Russian bank, Promsvyazbank (PSB). It also adds 364 people to New Zealand’s travel ban list.
A full list of individuals and entities affected by the sanctions is detailed on the MFAT website. The MFAT has also published Q&As on sanctions. The New Zealand Police Financial Intelligence Unit (FRC) has published guidelines for reporting entities under the Act.
New sanctions will be enacted in the coming weeks
Announcing the second tranche of sanctions, Foreign Minister Nanaia Mahuta said, “Officials continue to work as quickly as possible to identify individuals and entities, while ensuring that legal thresholds are met and that due diligence is exercised. Other measures will be enacted in the coming weeks.”
New sanctions against Russian banks?
When the law was passed, the government signaled that the first tranche of sanctions would include an immediate asset freeze and sanctions against Russian banks. Despite this, only one Russian bank (PSB – a bank few New Zealanders are likely to do business with) has been included so far.
Many expect the New Zealand government to soon target some or all of the 11 Russian banks and government entities sanctioned by Australia on Friday, March 18, 2022. The additional banks together account for around 80% of all banking assets in Russia , and include Sberbank, Gazprombank, VEB, VTB, Rosselkhozbank, Sovcombank, Novikombank, Alfa-Bank and Credit Bank of Moscow. Additional entities include the Russian National Wealth Fund and the Russian Ministry of Finance. Seen alongside the earlier targeting of Russia’s Central Bank, Australia’s sanctions now target all Russian government entities responsible for issuing and managing Russia’s sovereign debt.
The big picture
Russia is now the most sanctioned country in the world; with almost as many named as Iran, Syria and North Korea combined (see Figure 1 below). While eight jurisdictions have imposed a comprehensive set of stand-alone sanctions on Russia (see Figure 2 below), it is the unilateral sanctions measures of the US and Australian governments that are causing the most headaches for New Zealand businesses. This is due to the pre-eminence of the US dollar (and thus the involvement of the US financial system) in Russia: New Zealand payment flows, and the level and nature of Australian investment in the New Zealand banking sector.
Since the beginning of Russia’s invasion of Ukraine, more than 500 of the world’s largest companies have announced their withdrawal from Russiaas have many New Zealand companies.
Figure 1. Russia is now the most sanctioned country in the world
How can we help?
We have extensive experience in advising on sanctions compliance and enforcement issues, including in relation to recent Western government sanctions targeting Russia. We regularly assist our clients to: produce bond registers; conduct compliance assessments; undertake due diligence and selection processes for clients and transactions; structure low-risk transactions; and developing or refining sanctions compliance programs.
Members of our team have represented clients in sanctions investigations by the New Zealand Customs Service, the UN, and the UK and US governments. We have also represented clients in mediations and legal proceedings relating to sanctions in New Zealand and the UK.
We work closely with partner firms in other jurisdictions, including MinterEllison’s Asia-Pacific network of offices, when foreign legal advice is needed.
This article was co-authored by Nathalie Harrington in our public law team.