Sergei Magnitsky was a Russian tax accountant. In 2008, while working with Bill Browder and his Hermitage Capital investment fund, he accused Russian tax officials and Russian law enforcement of a US$230 million tax fraud against the Russian revenue. For his troubles, he was arrested and jailed, accused of aiding tax evasion and in November 2009 he died in mysterious circumstances in Matrosskaya Tishina detention facility in Russia.
As a result of the campaign by Bill Browder, the US Congress passed the Russia and Moldova Jackson–Vanik Repeal and Sergei Magnitsky Rule of Law Accountability Act, 2012, otherwise known as the Magnitsky Act. The US Magnitsky Act targets the illicit assets of alleged individual wrongdoers (rather than foreign states) by freezing assets, excluding targets from the US banking system and travel bans. It is a law that allows an incumbent US government to target foreign nationals, rather than foreign states, that it does not like. Similar laws were subsequently passed in Canada (Justice for Victims of Corrupt Foreign Officials Act, 2017 and secondary Regulations), the United Kingdom (the Sanctions and Anti-Money Laundering Act 2018 and the Global Human Rights Sanctions Regulations 2020 and the Global Anti-Corruption Sanctions Regulations 2021) and the European Union (Council Regulation (EU) 2020/1988 dated 7 December 2020 concerning restrictive measures against serious human rights violations and abuses). Generally speaking, national governments make public the list of names of the natural and legal persons, entities and bodies whose funds and economic resources have been frozen.
While Magnitsky style laws are often described as a law to promote human rights, regrettably the reality is far more prosaic. The US Magnitsky Act is far less used against foreign nationals of governments supported by the US government or those in political favour. Like all sanctions-style laws, its focus ebbs and flows according to the political imperative at any point in time.
On 3 December 2019, the Australian Minister for Foreign Affairs instructed the Joint Standing Committee on Foreign Affairs, Defence and Trade (Standing Committee) to inquire into the use of targeted sanctions to address human rights abuses; in other words, to consider introducing an Australian Magnitsky law. After nearly a decade of Magnitsky laws in the US, Australia is now moving to join the pack and introduce powers for government to punish natural and legal persons due to alleged human rights abuses.
Some might say this was long overdue. However, Australia’s autonomous sanctions regime (independent of the United Nations’ sanctions system), has been regularly used to target foreign nationals out of favour with Australian governments. These sanctions often have had little to do with human rights but more often, are used to make political statements against foreign nationals in countries whose governments have different policies and world views to those of Australia. This is unsurprising and reflects Australia’s legal landscape generally – in Australia, there is neither a human rights act nor a federal bill of rights to enshrine human rights protection, unlike Canada, the UK and the EU.
One of the recommendations of the Standing Committee’s Report was that the Australian Government should enact stand-alone targeted sanctions legislation to address human rights violations and corruption. This recommendation was modelled on the US Magnitsky Act.
In August 2021, the Government formally responded to the Standing Committee Report, agreeing with the recommendation. The Australian Foreign Minister stated that the Government plans to reform and modernise Australia’s autonomous sanctions laws to enable the imposition of targeted financial sanctions and travel bans against the perpetrators of “egregious acts of international concern”. All political parties have expressed strong bipartisan support for such legislation.
On 2 December 2021, receiving royal assent on 7 December 2021, the Autonomous Sanctions Amendment (Magnitsky-style and Other Thematic Sanctions) Act 2021 (Cth) amended the Autonomous Sanctions Act 2011 (Cth) (Sanctions Act) by permitting the targeted sanctioning of individuals and other entities for limited proscribed conduct, but not the unilateral freezing of assets.
The amendments are designed to:
The thematic sanctions include the following:
An exposure draft for amendments to the Autonomous Sanctions Regulations 2011 (Regulations) has also been released.
An entity or individual can be declared a designated person or a designated entity if it is determined that they:
The Minister for Foreign Affairs and Trade will be able to designate a person or entity as a designated person or a designated entity.
It is an offence under the Sanctions Act to do business with a designated person or entity other than in accordance with a permit. It is an offence to directly or indirectly make an asset available to or for the benefit of a designated person or a designated entity or to deal with the assets of such a person or entity (other than in accordance with a permit).
The goal of the new amendments is to allow the Australian Government to respond flexibly and swiftly to a range of situations of international concern. However, it should be noted that countries and individuals who may engage in the thematic conduct are equally creative at evading and/or ignoring sanctions. They are often seen as political tools, used to justify political initiatives, and are rarely applied consistently or fairly. The Minister for Foreign Affairs has observed that it is “timely for Australia to ensure that we do not become an isolated, attractive safe haven for such people and entities, and their illegal gains.” This has been a long-expressed desire by the Australian Government, yet the OECD (and FATF) has often found Australia’s laws have fallen behind other developed nations and the flow of illicit funds appears to continue to come into and out of Australia. The gambling sector seems particularly vulnerable, at least from recent examinations (by royal commissions) into the conduct and behaviour of casinos and their gaming operations and from the media exposé of how pubs and clubs seem to permit money laundering through their operations in apparent disregard of the law. In addition, the attractive Australian real estate sector is often regarded by international observers as particularly vulnerable to permitting illicit funds to be used to purchase and sell real estate.
It is fair to say that thematic sanctions are a political, diplomatic tool, used by governments to promote a certain view about how others should conduct themselves. While human rights sanctions and targeting illicit money is commendable, such sanctions are invariably patchy are often one easily avoided by sovereign governments support for targeted individuals and entities. The risk is that such sanctions are regarded as simply a means to politically attack those “out of favour” while not being used against a country’s political friends. Inconsistency of approach means sanctions may be regarded as a political tool of governments that change as quickly as do political agendas. Yet, cutting through these issues is the one identified by Bill Browder when speaking to ABC News, when he observed “bad guys are hit where it hurts. Assets can be frozen and seized, while travel becomes much more difficult. They really hate this so much.”
In the predominant western developed nations, Magnitsky-style sanctions laws are here to stay. How they are used will very much depend on the political will of governments to target individuals (often high profile) or entities (often supported by sovereign governments) in the hope that international behaviour may change. A sceptical view of world politics suggests many sanctioned individuals and entities will continue to have the support of their own national government irrespective of investigative efforts to uncover human rights violations. Whether change really occurs remains to be seen.
Nevertheless, companies that do business in ‘high risk’ jurisdictions (where high risk individuals and entities are often located) should consider reviewing their business operations and policies to ensure they comply with Australian current sanctions laws and how the new Australian Magnitsky laws might impact their operations and value chains.
Be the first to receive the latest articles, news and publications.
On 26 November 2021, the OECD Working Group on Bribery (WGB) adopted a revised Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business...
Consultant, Robert Wyld and Associate, Lara Douvartzidis have written the Australian chapter on sanctions law.
Despite the COVID-19 conditions that exist around the world, activities in the commercial crime space continue along.