Magnitsky

Sergei Magnitsky, a Russian tax adviser, was assisting Bill Browder and his company, Hermitage Capital, with an investigation of Russian officials for a corporate raid and tax fraud. In 2009 Mr Magnitsky was arrested and, later that year, died in prison. Bill Browder’s book “Red Notice” provides an account of the horrific abuse suffered by Mr Magnitsky by Russian authorities. Subsequently, after his death, Mr Magnitsky was put on trial.

Mr Magnitsky’s death prompted Mr Browder to lead a push for the USA and other countries to implement a Magnitsky Act, which would target individuals (and their families and beneficiaries) and entities with sanctions. This regime would complement the existing country-based sanction regime. In 2012, the USA implemented the first Magnitsky Act. Thirty-four countries including those in the EU, UK and Canada have all implemented Magnitsky-syle legislation.

Why are Magnitsky’s laws important?

Under the Australian Commonwealth legislation, the Magnitsky-style laws will make it easier for the relevant Minister to impose sanctions on human rights abusers, cyber attackers and corrupt officials and prevent them from entering the country.

Such people often get rich and avoid taxes by exploiting weaknesses, corruption and the lack of enforcement in their own countries. They then like to move their money, invest, holiday, and educate their families in other countries, like Australia. However, designating a person under Magnitsky-style laws imposes significant impediments on such people, their families and their companies. Magnitsky-style laws may also have a deterrent effect, as many will not want to be subject to such restrictions and impediments.

The current sanctions regime is limited mainly to countries and only permits targeted bans on foreigners “in situations of international concern”, including “grave repression of human rights”, but not for corruption. Many of those targeted to date have been Syrian commanders or intelligence officers. The new revised legislation expands its scope.

Sanctions legislation

On 2 December 2021 the Commonwealth Parliament passed the Autonomous Sanctions Amendment (Magnitsky-style and Other Thematic Sanctions) Act 2021. The Act revises and clarifies that autonomous sanctions may be implemented to address particular issues, complementing the current country-based sanctions regime.

The Act sets out the process for the implementation of targeted financial sanctions and travel bans on designated persons and entities.

An entity or individual can be declared a designated person or entity if it is determined that they were involved in any one or more of the following:

• The proliferation of weapons of mass destruction
• Threats to international peace and security
• Malicious cyber activity
• Serious violations or serious abuses of human rights
• Activities undermining good governance or the rule of law, including serious corruption, or
• Serious violations of international humanitarian law.

The Minister for Foreign Affairs and Trade is able to designate a person or entity under the above categories, following a consultation and decision process. Any person or entity listed by the Minister will be subject to considerable restrictions, including travel, asset seizures, restrictions on investments including with respect to bank accounts, and the supply of services. These restrictions extend to family members of designated persons.

Under the Act, other than in accordance with a permit, it is an offence to:

• Directly or indirectly make an asset available to, or benefit, a designated person or entity, or
• Deal with a designated person’s or entity’s assets.

Criticisms

Whilst the Act received bi-partisan support, it did not implement all the recommendations of the relevant committee. This included establishing an independent body to make recommendations regarding the designation of persons and conducting public hearings (as was recommended by the International Bar Association).

Geoffrey Robertson in his book “Bad People & How to be Rid of Them, a Plan B for Human Rights” indicated that, with this structure, “due process and proportionality would be satisfied and there would be as much transparency as possible.”

Further, the Act doesn’t specifically cover violations of the rules and norms of armed conflict and other conventions, including the crime of genocide or other crimes against humanity. Nor does it specifically cover rights violations of media freedoms and protections for journalists.

What happens next?

Once the Act receives assent, the Minister can consider applications to impose designations of persons or entities.

Just as many businesses need to be aware of, and audit, their supply chains with respect to the implications of the Modern Slavery Act, businesses will need to ensure that their clients, suppliers, contractors and subcontractors are not subject to the new sanctions regime.

Further information / assistance regarding the issues raised in this article is available from the author Bill Fragos, Special Counsel or your usual contact at Moray & Agnew.