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House to House July 2010


UnitedNationsSecurityCouncilSanctions– risks for Australian freight forwarders


Australian freight forwarders face potential penalties in excess of AUD1,000,000 if they breach United Nations Security Council Sanctions (“UN Sanctions”). Forwarders need to be aware of these sanctions if they are involved in the trade of certain goods to or fromone of a number of countries againstwhich Australia is obliged to impose these sanctions.


It is important todrawadistinctionbetween UN Sanctions and bilateral sanctions. Bi- lateral sanctions aremeasures that theAus- tralianGovernment elects toimpose, asop- posed to UN Sanctions that it is obliged to impose underUNSecurity CouncilResolu- tion 1373 and which are incorporated into Australian lawvia theCharter of theUnited NationsAct 1945 (“theAct”). This article fo- cuses on the UN sanctions.


The objective of the UN Sanctions is “to apply pressure on a State or entity to comply with the objectives set by theSecurityCouncilwithout re- sorting to the use of force”. Section 27 of the Act makes it an offence for an individual or body cor- porate to engage in conduct that contravenes a UN sanction enforcement law. Australian freight forwarders may be caught out if they issue a house bill of lading in respect of sanctions-desig- nated goods for export to one of the specified countries. Importantly, the prohibitions apply whether the immediate or final destination is one of these countries, which will often be difficult to determine prior to export.


In Australia, the specific sanctions are outlined in the Customs (Prohibited Exports) Regulations 1958, and theCustoms (Prohibited Imports)Reg- ulations 1956. Amongst the measures imposed


are prohibitions on the export (without appropriate permits) of “paramilitary equipment’ to Sierra Leone, “arms or related materiel” to countries in- cluding Afghanistan, Liberia, the Democratic Re- public of the Congo, Sudan, Cote d’Ivoire, Lebanon, Eritrea and the Democratic People’s Republic ofKorea (NorthKorea), “luxury goods” to North Korea and “listed goods” to Iran. The sanc- tions also apply to certain imports under theCus- toms (Prohibited Imports) Regulations 1956, which include prohibitions on the transfer of Iraqi culturalproperty andan absolute prohibition on the direct or indirect importation of rough diamonds fromtheCôteD’Ivoire (the importation of rough di- amonds from other countries is heavily regulated but not absolutely prohibited through UN Sanc- tions as is the case with theCôte D’Ivoire).


The sanctions in respect of North Korea are per- haps the most intriguing as the list of “luxury goods” includes products such as wine, spirits, tobacco, yachts and pleasure craft, perfumes, cosmetics, jewellery, lead crystal drinking glasses, consumer electronics, sports equipment and pho- tographic equipment. This reflects the interna- tional community’s concern that these items are imported solely for the benefit of theNorthKorean leadershipwho or for the government to gift to loy- alist families who run the government. By pro- hibiting countries from exporting such luxury goods into the country, the UN aims to place pressure on the leadership to comply with UN resolutions relating to the development and test- ing of nuclear weapons.


Whilst the obvious target in terms of imposing penalties for the breach of theActwould likely be companies and individualswho supply the goods, the Act is drafted widely enough that the for- warder could also face a substantial fine. For a body corporate, the current penalty is a finewhich is the greater of AUD 1,100,000 or three times


the transaction value (if this can be determined). For a body corporate the offence is one of strict liability (meaning that it will not be necessary to prove that the company intended to commit the offence). However, the company will have a defence if it can prove that it took reasonable precautions and exercised due diligence to avoid committing an offence.


Whether a company has taken precautions and exercised due diligencewill likely depend on the particular circumstances, and what inquiries a reasonable person would have made having regard to the information presented to the com- pany, for example on a Shipper’s Letter of In- struction. A company will likely need to show that itmade proper inquiries of their customers in an effort to determinewhether the transaction in- volved goods that are the subject of sanctions, or transport to, fromor through a sanctions-affected country. In circumstances where permits have been granted, companiesmay also be required to establish that they took precautions to verify the legitimacy of the permit, and to confirm that the nature and destination of the goods complywith the terms of the permit.


With any penalty regime, good knowledge of your customers and their activities should reduce the likelihood of a prosecution.


Tom Irving, TT Club


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