Guidance from Australian Sanctions Office signals more enforcement post-ABC v QAL

The last six months have brought a stream of new developments around how Australian sanctions laws apply, heightening the demands on Australian businesses to ensure sanctions compliance. Understanding the scope of sanctions prohibitions, maintaining adequate compliance measures, and exercising reasonable precautions and due diligence, are becoming increasingly important for participants across a range of sectors with exposure to sanctioned countries, entities or individuals.

In a previous insight, Unravelling complexity: navigating Australia’s sanctions landscape, we discussed Australia’s sanctions laws and the Federal Court’s interpretation of the sanctions laws in the case of Alumina and Bauxite Company Ltd v Queensland Alumina Ltd [2024] FCA 43 (ABC v QAL).

Since then, a spate of developments has further shaped the Australian sanctions landscape:

• The Full Federal Court dismissed ABC’s appeal and upheld the Federal Court’s interpretation of the sanctions prohibitions in Alumina and Bauxite Company Ltd v Queensland Alumina Ltd [2024] FCAFC 142 (ABC v QAL (Appeal)).
  
  
• The Australian Sanctions Office (ASO) released a package of material and policies that provide guidance to assist businesses in complying with Australian sanctions laws, foreshadowing a stricter approach to enforcement.
  
  
• Parliamentary inquiries into the operation of Australia’s autonomous sanctions regime resulted in the publication of two reports and a series of recommendations aimed at strengthening Australia’s sanctions laws’ implementation and enforcement.

Against that backdrop, this insight discusses the practical implications for businesses, particularly those engaged in cross-border trade and with exposure to sanctions laws, arising from the judicial guidance to date and recently released material. We provide practical tips and insight into what to expect next.

Further judicial guidance on the interpretation of sanctions laws

The Full Federal Court’s decision in ABC v QAL (Appeal)

In November 2024, the Full Federal Court dismissed ABC’s appeal of the Federal Court’s first instance decision. At first instance, the Federal Court held that the production of alumina by QAL for ABC and the delivery of alumina to ABC pursuant to the Gladstone alumina joint venture would have contravened Australia’s autonomous sanctions imposed on Russia, as it would have constituted:

• the sanctioned supply of export sanctioned goods, in contravention of regulations 4 and 12 of the Autonomous Sanctions Regulations 2011 (Cth) (Regulations) and the Autonomous Sanctions (Export Sanctioned Goods—Russia) Designation 2022 (Cth) (Export Sanction); and

• dealing with designated persons, in contravention of regulation 14 of the Regulations (Designated Persons Sanction).

In dismissing ABC’s appeal, the Full Federal Court upheld the trial judge’s interpretation of the Export Sanction and the Designated Persons Sanction. Regulated entities should be cognisant of the following implications of the Court’s reasoning as affirmed on appeal.

In respect of the Export Sanction:

• Entities can contravene the Export Sanction where the supply occurs through a chain of transactions. This may include transactions through non-sanctioned countries. The Court confirmed that an entity may breach the prohibition, even where the initial supply and the eventual transfer of the goods to Russia occur in separate transactions. As a result, it may not always be possible to determine at the time of the initial supply whether the goods will ultimately be transferred to, used in, or benefit a sanctioned country. Instead, whether an initial supply constitutes a ‘sanctioned supply’ may depend on later events, including events that are entirely outside of the supplier’s control. This construction allows for the possibility that an entity may supply, sell or transfer export sanctioned goods in a manner that, initially, does not constitute a sanctioned supply (for example by supplying to an entity in a non-sanctioned country), but which subsequently becomes a sanctioned supply. This would be because, as a direct or indirect result, the goods are subsequently transferred to the country that is the subject of the sanction.
  
  
• The ‘benefit’ which must be shown to flow to a sanctioned country from the supply, sale or transfer of an export sanctioned good is given its ordinary meaning: ‘anything that is for the good of a person or thing’. This includes not only financial and economic benefits, but also non-financial advantages. The Court identified qualifying ‘benefits’ in the ABC case as direct and indirect employment in Russia generated by the aluminium industry, as well as an anticipated increase in corporate tax revenues payable in Russia by Rusal and its subsidiaries.

In respect of the Designated Persons Sanction:

• The Regulation prohibits making assets available to designated persons ‘directly or indirectly’. This phrase was interpreted broadly. The Court found that ‘indirectly’ includes making an asset available through an intermediary, an agent, or interposed corporate entities that are owned or controlled by the designated person or in which the designated person has a financial interest. As a result, an entity will engage in a proscribed dealing even when an asset is made available indirectly to a designated person who is an indirect shareholder in a business venture. This means that a business can contravene the Designated Persons Sanctions if it makes assets available to a corporate entity whose ultimate shareholders are designated individuals or entities even where their shareholding is lower than 50% (contrary to the position under EU and US sanctions laws). The Court recognised that this construction greatly broadened the scope of the prohibition.
  
  
• The ‘benefit’ that triggers the application of the prohibition is also defined broadly to include anything that is for the good, advantage or profit of a person, including financial and non-financial advantages. In relation to indirect shareholders, it can be constituted by an increase in the value of the company in which they invest.
  
  
• The Court acknowledged that there may be a de minimis threshold below which a minority shareholding interest in a downstream company may be insufficient to satisfy the prohibition. However, the Court did not indicate what the de minimis threshold might be. Australian sanctions laws do not provide for a de minimis threshold (unlike some of their counterparts like the European Union and the United States). This leaves the question open, noting that the relevant designated individuals in ABC v QAL held indirect interests of 12.68% and 31.04%, respectively, in UC Rusal (the parent company of ABC), which was deemed sufficient to enliven the prohibition.

Earlier this year, ABC applied to the High Court for special leave to appeal from the Full Federal Court’s judgment. In March 2025, the High Court refused special leave on the papers without comment on any argument raised in the application.

The ASO’s recent guidance and enforcement policy

Following the Federal Court’s decision in ABC v QAL, Australia’s sanctions regulator, the ASO, published a suite of materials aimed at supporting sanctions risk identification and management. This guidance is contained in several documents:

• The Sanctions Compliance Toolkit provides a summary of relevant sanctions laws. It offers a structured approach to compliance by outlining key principles, risk management strategies, and best practices that regulated entities can adopt to help ensure they do not breach sanctions laws. Importantly, the toolkit includes an overview of what the ASO considers to constitute an effective sanctions compliance program, comprising:
  
  
  • senior management commitment to sanctions compliance and adequate resources to support the program;
    
    
  • a sanctions risk assessment that allows the entity to continually assess its exposure to sanctions risks, both in terms of its products and services, its customers and suppliers, and its geographic reach;
    
    
  • the implementation of a screening program to continually identify and assess the entity’s exposure to sanctions risks. This includes screening customers, transactions, and third-party service providers for potential sanctions contraventions;
    
    
  • ongoing training of employees on sanctions compliance requirements and the risks of sanctions contraventions;
    
    
  • the implementation of a monitoring and enforcement program to ensure that the entity’s sanctions compliance program is effective. This includes reviewing reports and alerts, conducting audits, and taking corrective action when necessary; and
    
    
  • auditing of an entity’s sanctions compliance program by an independent party on a regular basis.
    
    In addition to these core elements, the ASO recommends that entities also consider implementing additional measures, such as:
    
    
  • establishing a sanctions compliance committee that oversees the operation of the sanctions program; and
    
    
  • actively fostering a culture of sanctions compliance within the organisation by promoting awareness of sanctions risks and emphasising the importance of compliance.

Finally, the guidance also includes three practical case studies. These outline conduct that may satisfy the requirements for a corporate entity to invoke the defence of reasonable precautions and due diligence, to avoid liability for a contravention of a sanctions prohibition (which otherwise gives rise to a strict liability offense). These studies are particularly insightful given that the terms ‘reasonable precautions’ and ‘due diligence’ are not defined in the legislation. However, the ASO cautions that the examples are limited to the relevant facts. What is ‘reasonable’ will vary based on a range of factors, including the size and nature of the business, the complexity of transactions, the geographic areas involved, and the specific sanctions regulations in place.

• The Sanctions Risk Assessment Tool provides a structured (yes / no) questionnaire intended for use by regulated entities to flag sanctions risks associated with a given activity.
  
  
• Nine guidance notes detail obligations for compliance with Australian sanctions laws. Six of these were published in January 2025. The following newly issued guidance notes outline factors relevant to assessing compliance with certain sanctions laws:
  
  
  • Guidance note on export sanctioned goods for Russia and  Specified Regions of Ukraine: consistent with the Court’s reasoning in ABC v QAL, the note calls on regulated entities to consider whether the export prohibitions are applicable to the relevant goods being supplied, transferred or sold; whether the end-user has links to Russia or specified regions of Ukraine; and whether the goods have an actual military end use. (In that case, the goods are likely to be considered as ‘arms or related materiel’ and, as such, Export Sanctioned Goods, regardless of the nature of the goods or whether they appear on the Defence and Strategic Goods List).
    
    
  • Guidance notes on dealing with assets owned or controlled by designated persons or entities and financial transactions involving designated persons entities: relevantly, the notes identify the factors relevant to determining whether an asset is owned or controlled by a designated person or entity. They explain that ‘ownership’ includes not only legal title, but the right to exclusively enjoy, destroy, alter, alienate or dispose of, or maintain and recover possession of the asset. ‘Control’ includes the person or entity’s command or direction over the asset, which may be established not only by possession of the asset but also by the ability to dictate how an asset may be dealt with in comparison to other persons or entities.
    
    
• Five advisory notes provide information on potential sanctions threats including Russian sanctions evasion methods.

A sign enforcement may be on the horizon: The ASO’s released its compliance and enforcement approach

In May 2024, the ASO published its Compliance Policy, which outlines its approach to performing its compliance and enforcement functions. This approach is informed by five guiding principles, namely: cooperation, foundation in evidence, risk and proportionality, consistency and fairness and transparency and accountability.

The Compliance Policy outlines that the ASO plans to engage a graduated risk-based approach to compliance and enforcement.

In determining whether to proceed with enforcement action, or which enforcement action to prioritise, the ASO will consider factors such as:

• the severity of the breach and the circumstances surrounding the breach;
  
  
• the interests of and impact on the broader sanctions framework; and
  
  
• Australia's national interest and foreign policy priorities.

While the ASO is not an investigative body and does not possess investigative powers, it has the power to:

• request information about an individual or entity from another Commonwealth agency for a purpose directly related to the administration of sanctions laws;
  
  
• compel an individual or entity to produce information to determine if a sanctions law has been or is being complied with; and
  
  
• seek a court injunction against an individual or entity on application by the Attorney General to restrain them from conduct that contravenes or may contravene Australian sanctions laws; and refer cases to another agency for investigation.

Where the ASO considers the breach sufficiently serious, it may also refer sanctions breaches to agencies with investigative powers, including the Australian Federal Police and Australian Border Force.

While investigations resulting in a finding of non-compliance may result in prosecution by the Commonwealth Director of Public Prosecutions, no enforcement action has been formally pursued against a corporate entity for sanctions violations in Australia to date.

Key takeaways from developments

The broad judicial interpretation of Australia’s autonomous sanctions in ABC v QAL and the material produced by the ASO leave regulated entities with a significant degree of uncertainty and compliance expectations, which may be difficult to meet. In fact, in its latest guidance, the ASO has acknowledged that ‘[i]t may not be possible to fully mitigate sanctions risks in every case, as even low-risk activities like exporting goods or dealing with overseas entities could involve designated parties or indirect links to sanctioned individuals or countries, making it hard to avoid all potential contraventions.’

Given these challenges, businesses are advised by the ASO to manage sanctions risks as effectively as possible. This can be done by taking reasonable precautions and exercising due diligence so as to avoid sanctions contraventions, and by seeking legal advice on the scope of sanctions prohibitions. While Australian sanctions laws contain strict liability criminal offences for each contravention, they also provide for a defence of reasonable precautions and due diligence, as discussed above. Entities should therefore ensure they have a sanctions compliance program in place that mirrors the guidance provided by the ASO in its Sanctions Compliance Toolkit to bolster any possible defence they can plead if a sanctions violation occurs.

While the assessment of sanctions risks is necessarily fact specific, at a high level, the developments to date provide the following practical takeaways:

• Conduct ‘top up’ screening when engaging with entities with exposure to sanction risk jurisdictions. As acknowledged by the Court in ABC v QAL, it is possible that a de minimis threshold exists below which a minority shareholding interest in a downstream company may be insufficient to constitute a breach of the Designated Persons Sanction. However, entities should bear in mind that any such threshold was exceeded in ABC v QAL, where a designated person held a 2.5% indirect interest in the relevant joint venture and 12.58% in the parent corporation (UC Rusal). As a result, Australian entities should exercise due diligence by conducting ‘top up’ screenings of transactions, customers and business partners when transacting with counterparties in or that may be related to entities operating in key sanction risk jurisdictions (such as, for example, subsidiaries of Russian corporations).
  
  
• Seek additional disclosures and end-use certificates for export sanctioned goods. As illustrated by ABC v QAL, the application of the Export Sanction is far reaching and places a heavy burden on regulated entities in relation to compliance. Careful consideration must be given to the ‘actual’ and ‘likely’ end use of the relevant export sanctioned good. In the first instance decision, the Court indicated that a binding and enforceable commitment preventing the transfer, use, or benefit of sanctioned goods in a sanctioned country may help avoid a breach, if it effectively keeps the goods out of the sanctioned destination. However, if the goods are transferred, used in, or benefit a sanctioned country despite the commitment, the supplier may still be liable. To be able to invoke the defence of reasonable precautions and due diligence, the ASO has advised entities to seek additional disclosures from their customers and obtain end-user certificates, where a sanctions risk arises.
  
  
• The ASO may revisit its position regarding permits. A sanctions permit is authorisation from the Minister for Foreign Affairs (or the Minister's delegate) to undertake an activity that would otherwise be prohibited by an Australian sanctions law. In principle, the ASO advocates for proactive risk management rather than relying on permits. Sanctions permits are generally appropriate only when there is a clear likelihood of a sanctions contravention occurring, and they should not be used as an exhaustive means of mitigating all sanctions compliance risk. That notwithstanding, since neither case law nor ASO guidance provide clear parameters regarding the type of conduct that amounts to a contravention of Australian sanctions laws, and given the heightened compliance risks resulting from the ABC v QAL case, we can expect an increase in requests for sanctions permits. At the same time, the ASO may reconsider prior decisions where permits were previously deemed not necessary.
  
  
• Adopt a risk-based approach and closely monitor compliance measures proposed by the ASO. The ASO has clarified that what constitutes ‘reasonable’ precautions will vary based on a range of factors, including the size and nature of the business, the complexity of transactions, the geographic areas involved, and the specific sanctions regulations in place. Consequently, what is deemed sufficient to enliven the defence of reasonable precautions and due diligence for one entity may not be for another. ABC v QAL shows us that the mere fact that a measure is burdensome or far-reaching will not displace the obligations of compliance. However the ASO has provided some guidance on what types of measures it expects entities to adopt, and the key elements that a sanction compliance program should consist of. Entities should ensure their compliance programs reflect those measures.

Further developments to expect, including likely enforcement

On 11 February 2025, the Senate Standing Committee on Foreign Affairs, Defence and Trade tabled its report in response to the Senate inquiry into Australia’s sanctions regime commenced in July 2024.

The report outlines eight recommendations aimed at improving the effectiveness of Australia’s sanctions regime, which shed light on the government’s priorities with respect to potential reforms to Australia’s sanctions framework.

Notably, the recommendations outlined in the Senate Committee’s report suggest that the Australian Government should address the fact it is ‘lagging’ behind active enforcement jurisdictions by:

• aligning sanction implementation with its allies (notably the United States, United Kingdom and European Union, who have taken a collaborative and active approach to enforcing their sanctions regimes) to optimise their effectiveness (Recommendation 2 and 3); and
  
  
• working with its global partners to increase focus on sanctions enforcement and close loopholes which allow Iran and Russia to evade the financial impact of Australian sanctions (Recommendation 4).

Further insight in relation to future enforcement can be gleaned from the AFP and DFAT’s submissions to the Senate Committee, which suggest that enforcement is likely to increase as:

• the AFP has four currently active sanctions investigations, referred from DFAT;
  
  
• DFAT is currently reviewing over 21 sanctions compliance matters presently, some of which may result in referrals to the AFP; and
  
  
• this year’s federal budget had allocated increased funding to the ASO, potentially enabling increased resources for monitoring, compliance and enforcement.

In light of the above signalling of a possible increase in enforcement action, and the broad interpretation of sanctions laws in ABC v QAL, the ASO’s guidance on sanctions compliance programs becomes more significant. Entities should revisit their processes to ensure they comply with the requirements and recommendations.