Anti-money laundering and sanctions law
In this article, Partner Ian Hughes and Special Counsel Hui Ling Dean in HopgoodGanim's Dispute Resolution and Litigation practice cover two case studies relating to anti-money laundering (AML) and sanctions. Our team at HopgoodGanim delivers exceptional outcomes for financial crime and corporate investigations, with Hui Ling and Ian advising on corporate anti-money laundering and proceeds of crime litigation.
A recent example of Russian sanctions affecting Australia business is the Federal Court litigation over one of Australia’s largest alumina refiners, Queensland Alumina Limited (QAL).
QAL is a joint venture between Rio Tinto (holding an 80% interest) and Rusal (holding 20%). A Russian named on the List, Oleg Deripaska, owns 44.95% of a London-listed company called EN+Group which, in turn, has a 57% stake in Rusal.
Mr Deripaska has the capacity to direct influence over Rusal’s activities through EN+Group.
To ensure ongoing QAL operations, following the imposition of sanctions against Russia, Rio Tinto effectively took control of QAL, relying on ‘step-in-rights’ in the joint venture. This appears to have occurred as there was a risk that Rusal may be indirectly sanctioned for indirectly supplying alumina and certain services that may end up in Russia.
In response to Rio Tinto’s relying on the step-in-rights, Rusal offered an undertaking to ‘ring-fence’ its activities and not provide any alumina it received to Russia, Rusal or any of its subsidiaries. Ring-fencing, however, does not legally or financially separate assets from finances, and that undertaking did not ensure the integrity of the strict liability imposed by the Sanctions Act.
Rusal recently commenced proceedings in the Federal Court of Australia, arguing that Rio Tinto does not have the contractual right to step in as Rusal itself is not directly the subject of Australian sanctions.
Mr Deripaska has been investigated for money laundering in the past and with his controlling interest in Rusal, it is possible that (despite Rusal’s undertaking to ring-fence its activities and profits) Mr Deripaska could, utilising obscure trade techniques and financial routes, cause benefits derived from Rusal’s interest in QLA to pass to him in breach of the sanctions.
Another interesting aspect of this situation is, even if one accepted that Rusal had ring-fenced its activities, once alumina is loaded onto a vessel, it can switch off its automatic identification system, (which is against maritime law) and then travel to another port to load onto another Russian-bound vessel that is not sanctioned.
Since the Russian sanctions were recently imposed, research by the maritime intelligence group, Winward, has found a significant increase in Russian ships switching off their automatic identification system to avoid detection. 112 Russian-affiliated oil tankers have not sent an automatic identification signal for more than eight weeks.
It is therefore unsurprising that Rio Tinto, properly advised about its potential exposure, has relied on the step in provisions of the joint venture to minimise its exposure, not only to a breach of the Sanctions Act, but potential asset/benefit restraint and seizure from an Agency.
A generally unknown example of ‘related material’ is bauxite, which is a critical in the production of aluminium that is used to manufacture military equipment. Australia exports a significant quantity of bauxite to China for refining, some of which (given its trading partnership with and stated links to Russia) may be on-sold to Russia.1 Any direct or indirect role in the sale of bauxite to China which finds its way to Russia is potentially at risk under the Sanctions Act and subject to AML laws.
Another example of the effect of trade sanctions on Australian business is oil refining. There are two companies in Australia that refine oil (including Russian oil) and both have recently announced that they will cease refining Russian oil in compliance with Australian sanctions.2
Where breaches of the Sanctions Act and, in turn, the Code, amount to ‘serious offences,’ a Proceeds of Crime Authority may commence civil proceedings under the POCA to seek forfeiture orders for the entire value of assets involved in the transaction.
Another aspect of sanctions involves assets owned or controlled by ‘sanctioned’ persons and entities.
The Consolidated List (List)3 maintained by the Australian Sanctions Office identifies all persons and entities who are subject to targeted sanctions in Australia. The List can include foreigners in Australia as well as Australian citizens and residents here and abroad. For instance, Russian oligarchs on the List include, Alisher Usmanov, Gennady Timchenko, Vagit Alekperov and Arkady Lisin.
A party dealing with an asset that is owned or controlled by a Listed person or entity must freeze it and inform the AFP as soon as possible pursuant to regulation 23 and 24 of the Autonomous Sanctions Regulations 2011(Sanctions Regulations). ‘Asset’ is broadly defined in section 4 of the Sanctions Act and includes funds that have been deposited into Australia to purchase real estate on by, or on behalf of, the person or entity on the List.
Making an asset available to the person or entity on the List is a contravention of regulation 15 of the Sanctions Regulations, which attracts the penalties in section 16 of the Sanctions Act and, in turn the Code and because the contravention constitutes a ‘serious offence’ - the POCA may also be enlivened. Our team at HopgoodGanim delivers exceptional outcomes for financial crime and corporate investigations, with Hui Ling and Ian advising on corporate anti-money laundering and proceeds of crime litigation.
Find out more about HopgoodGanim's Dispute Resolution and Litigation practice. Our dispute resolution team includes both general commercial litigation practitioners as well as industry expert practitioners in the areas of banking and finance, intellectual property, technology, digital assets, resources and energy, construction, hospitality, environment and planning, taxation, employment law and property.
The team covers financial crime and corporate investigations, with Hui Ling and Ian advising on corporate anti-money laundering and proceeds of crime litigation. All of our practitioners are focused on helping clients achieve exceptional outcomes.
This article is part 5 of our content series, 'The money laundering deck: AML and counter-terrorism financing laws'. The series uses Russia as a case study to provide an analogy for how businesses can be impacted by AML and counter-terrorism financing laws while operating in Australia. Read the related articles in the series here:
3. https://www.dfat.gov.au/sites/default/files/regulation8_consolidated.xls. The Australian Sanctions Office (ASO) maintains the list and updates it regularly. You can subscribe to their mailing list to ensure you are reviewing the current List.