Senate Foreign Affairs, Defence and Trade Legislation Committee, , 1:30:25 to 1:48:54
The committee explores the legal and constitutional barriers to seizing Russian central bank assets and the potential for adopting European Union models.
Topics: International law, National security
Speakers: Baran Morkoc, Jessica Collins, Dean Smith, Janindu Chith Weliamuna, Benjamin Main, Hon Sarah Henderson
>> Uh, thank you very much, Senator Jacone. Uh, Senator Collins,
>> thank you, Chair. And um uh I just want to thank the witnesses as well for their research and for their contribution to the hearing today. A couple of my questions have been answered, but I'm just going to get a bit of a clarification on a few things here. You said earlier in your evidence that uh the uh Russian sovereign assets should be frozen, not liquidated so that the Russian government could make reparations at a later point in time. Is that correct? Do is there precedence for that for a a country that is engaged in an illegal uh war uh to actually end up turning around and making reparations in the end?
>> I'm unsure. I'd have to take that on
>> Uh you also mentioned uh in your uh submission that we should legislate and pursue criminal prosecution um forfeite of private assets. You said to freeze the sovereign assets because of the constitutional restrictions, but you said to go forth with the private assets. Are you aware of the differences uh in Australia uh of the I guess the proportion of Russian sovereign assets versus private assets?
>> I'd have to take that on notice.
>> Thank you very much. That would be helpful. Uh you also mentioned uh that I believe sanctions could be exploited under certain settings. I'm just wondering what that exploitation would look like and by whom.
>> Could you clarify exp what settings in particular, please?
>> Well, I'm just wondering from you. Uh there you mentioned at some point while you were giving evidence just now about potential for being exploited and I just wanted you to expand on that, please.
>> So, under the current regime, there's no um ban on sanctioned persons sending payments through to domestic citizens here. I think the uh I think it was DEFAT's guidance note made mention that if and when that occurs, you should not be able to transfer those fund uh those funds if you're a domestic citizen receiving things from a sanctioned person. And the reason that pathway is open is for legitimate payments such as pensions, pension like Russian pensioners living in Australia. um comparative to other international practice namely United Kingdom and United States that is a irregularity. Those states have banned um sanctioned persons being able to pay their domestic citizens. So that is a gap I would say especially considering that yes there is a argument for legitimate pension uh legitimate funds such as pensions and that gap being open but they have taken the pathway of exemption licenses to allow that transaction to continue rather than a wholesale um exemption for payments in
general. That seems like an extraordinary gap in the sanctions framework to be able to receive funds from sanctioned persons. Uh given that usually if you are receiving a pension I would have thought it would come from an entity rather than a person. Is that correct? Would that be your understanding?
>> At law an entity is a person in this
>> What is a person? Sorry.
>> At law an entity is a person. So a bank in Russia would be a person legally
But surely under the sanctions framework we can disagregate. We can identify that you know if the central bank is providing a pension well that's one thing but if a sanctioned person is sending money over we can that surely would be illegal.
>> It's not illegal. I think the guidance note makes mention that if a scenario like that takes place that on receiving that payment you don't do anything with it. But I think there's a gap there in yes, it's all well and good to receive a payment, but there's nothing stopping someone from using it. Sure, we could trace that, but the prospect of it being there, in my opinion, is concerning.
>> So any person here in Australia can receive money from a sanctioned person in Russia and there is no recourse? >> No. That seems extraordinary that they can hold assets and there is no recourse and then they can potentially use that money here in Australia >> thank you. Um you you also mentioned that you you you can't seize sovereign assets because it would be seen as a punitive measure and you would have to judge uh you know Russia of uh acting criminally. Has the Australian government not done that yet? Have we not identified Russia as acting in a way that contravenes
international law? So um in terms of finding them to have committed a crime uh that would not be up to the executive government under the constitution that is solely the uh remit of the courts. Um so the forfeiture of assets would have to occur uh as a penalty imposed by the courts as a result of a court finding uh that an entity or a person has uh breached the law. Um and I think you also refer to this in terms of sovereign like in relation to sovereign assets. Um as my colleague mentioned before sovereign assets are protected under state immunity and um it I don't think we have found a way around
>> Okay. So so the the you can't have punitive measures against sovereign assets assets as it stands under the
>> Yes. And also against any other assets. um any forfeiture would have to be by
>> But surely the the whole point of the sanctions framework is to have punitive measures. Am I understanding that right?
>> Yes, senator. But um
>> which means that Russia as an entity is absolved from having what I'm understanding from your evidence is that Russia then would be absolved from having any kind of sanctions placed on it because we can't ascertain that it's actually acting criminally. Is
that right? >> No senator because what we are referring to is the confiscation and sort of liquidation of assets. So forefeiter so the the government is well within its power to seize or sort of freeze sorry not seize freeze an asset um which is what the government's currently doing.
Okay. But we can still have punitive measure measures through the sanctions framework. That's that part's correct.
>> Yes, we can have punitive measures with sanctions. That is all well and good. But I think it comes down to the understanding of punitive. We can't take their assets from them for a Commonwealth purpose. that would be giving those assets to Ukraine to finance their war and reparations because the constitution permit uh prohibits forfeiture of property here being central bank assets without uh that being on just terms. There's an exemption to that the high court has explained in the context of criminal forfeitures which requires a court find criminality on part of an entity and as a consequence of that they may take assets away. Now with sovereign assets there's another hurdle of um state immunities at international law which we've ratified domestically in the foreign state immunities act which prevents criminal suit of states and components of them here being the Russian central bank. we even if we got did away with that at customary international law outside of Australia, it invites an ICJ case um and within Australia our hands are tied because of the um simultaneously both the foreign state immunities act and um the the exe high court's exemption uh rule for forfeitures. So you'd have to have a court judge the Russian central bank. If they find criminality, then they may be able to take away um the assets. The issue is criminality is not for the executive uh government to judge. It's for the courts. It's a separation of powers issue at the end of
So I mean obviously there's a lot of people in Australia that would love to see uh Russian sovereign assets and funds uh stripped from it here in Australia. Uh we are all in support of Ukraine in this. Um so the pathways to achieve that are in your view through the high court but still very difficult to do that. Is that what you're saying?
I think in Australia it is difficult but I don't think that means we can't take any avenues. I think that the government should support the uh European Union's measure uh attempts at confiscation. I think the developments happening there are worth advocating for. Also considering that they have around 300 billion US of frozen assets where I think in Australia notwithstanding Dr. Moisenko's contributions. I think it is around 200 million reported by the um federal government. I think it would be more meaningful for the federal government to support um the United sorry the European Union's um confiscation measures at the moment considering the fact that the European Union has offered Ukraine round about the same amount 300 billion in financial contributions since the war begun in 2022. So I think it would be a more meaningful measure to support.
Okay, I've been asked to move on, but just my final question is um if the UN if the EU is able to do this, are we able to learn from them and be able to have some pathways here to be able to do it?
>> Can I take that on notice
>> or is it just we need to thank you very much. It would be very helpful. Thanks for your evidence today.
>> I thank Senator Collins. I'll just go briefly now to Senator Smith who's joined us in the room. Senator Smith,
>> thank you gentlemen for your participation. Uh you describe the sanctions regime in Australia as holistically sound. So do the gaps that you've identified arise because they are conscious gaps by policy makers or are they oversightes?
I think they are conscious gaps in this instance. Indirectness is one of those it is broad the amount of scenarios a company could be engaged in which may breach sanctions law for instance but there is a risk of it being too broad. In this case, the courts have taken indirectness in respect to the sanctions legislation as being quite quite broad and I think that without a guidance note that deals with that issue from the from DEFAT or the ASO that could be cause for concern with respect to consciousness. Um, as for the payment gap, again, the government has said that it's there to preserve legit access to legitimate payments, but comparative with foreign state practice, I think there are better ways of going about that, such as exemption licenses obtained through the ASO as a possible
>> Governments often um justify their policy positions or the evolution of their policy positions as being necessary for um international Uh why in this particular set of circumstances um is the government not uh seeking uh greater international conformity. >> It's okay not to know.
>> Could you rephrase the question?
>> Um so okay let me I will rephrase it. What are what are we not seeing? What influences exist over Australia's sanctions regime that are not immediately obvious to observers like ourselves?
>> I think with our sanctions regime, it is holistically sound. It is the good aspects of international practice from the EU, US, UK are there. It's small things like that pay uh payment gap that
>> small things allow um uh uh allow allow practices to escape through the system. And so what people are growing what people are growing impatient about is the conscious utilization of these gaps by the people that we're trying to sanction. >> And so um and there's a growing impatience. People think because a sanction uh regime exists, they assume it's >> And of course, what we know is that we are dealing with sophisticated operators, not unsophisticated operators. And we're dealing with very very large sums of money. So the motivation to um you know u um work around the regime is highly incentivized. So um let me put it this way. How would you characterize the responsiveness of Australia's sanction regime to uh reform to improvement? You have made mention a couple of times about the importance of the guidance note. Why can't these things be constantly upgraded improved
>> I think there are aspects of it which are lagging such as that guidance note issue. Um I think with foreign comparing them to other countries there are aspects of it gaps which are of concern such as payments but beyond that I think that it is it's I think a case of the fact that you know Australia is not dealing with an extensive amount of Russian assets compared to the European Union, United States, United Kingdom and so forth. There's not as big an incentive to deal with issues in such a strict manner. But I think that it's in the proverbally speaking it's in the legislaturator's court to deal with gaps as they emerge. These things come through practice. Legislation you know is reflexive. It's discursive. It can be ripped apart in certain ways. I think over time the point of you know noticing these gaps and shut like clocking down on them is what I think is important in
this instance. So if you had to rate the responsiveness of Australian sanction regime, you know, 1 to 10, 10 being highly responsive to changing circumstances, uh one being, you know, not responsive. How would you rate its responsiveness?
>> I don't think it's a it it's rankable. I think it's in I don't think it's rankable because there's so much in there that is good and there's little pieces that about I don't think you can look it's much more it's a descriptive issue you can't treat it quantitatively
>> okay well the dilemma for us is we're trying to be prescriptive we're trying to identify uh exactly where things can be improved >> do your colleagues have any uh observations or comments that they might like to add
>> um well I guess for the aluminina um sanctions example like Australian sanctions to my knowledge haven't I focus purely on just trying to do a deep dive into the aluminina sanctions and in that aspect like the sanctions Australia sanctions on the export of aluminina and bork site and the other uh aluminina sorry aluminium related products um has not changed at all uh but in this specific instance I guess it was because the well not I guess it's because the aluminina sanctions were um relatively successful. >> Um so for that instance the sanctions framework did not change even as Rousul has uh started to get around the sanctions I suppose um by diversifying where it sources its aluminina from.
>> Final question from me. What is the most effective way to measure the effectiveness of our sanctions regime?
I think with respect of it's a broad question. So with respect of freezing assets, I think Australia has done a good job. We've frozen private and uh Russian private and state assets. That is good. With respect of well that leads into an issue of ownership because it is structured, it is layered. How do we deal with that? Things like indirectness. On one note, I think that it being um the expansiveness of the issue is of concern with how courts have interpreted indirectness with respect to our sanctions legislation. I think that if the federal government can provide guidance for entities on how to deal with that, they will be stronger because at the end of the day, it's a due diligence issue. >> With respect of the payment gap, I think more can be done to close it while preserving legitimate payments. So I think that its effectiveness there are strong components of it which are effective. There are minor gaps which may be exploited in future that I think the government should address with haste.
>> Thank you very much. Thank you for your submission. Thank you.
>> Um thank you very much Senator Smith and thank you very much for your attendance today. We do really appreciate your evidence. If you could return any questions or notice to the committee by Friday the 27th of February 2026. Again our sincere thanks. We will now adjourn for the lunch break and return at 12:50. Thank you.