The committee's recommendations and the implications 6 min read
The Parliamentary Joint Standing Committee on Foreign Affairs, Defence and Trade has recommended that the Australian Government enact legislation to establish a worldwide human rights sanctions regime. We report on why the Committee's recommendations could have implications for your business's approach to sanctions risk management, as well as for Australia's broader sanctions framework.
- The Committee has recommended the introduction of an Australian 'Magnitsky law' to target individuals and entities responsible for human rights abuses and corruption.
- Unique features of the proposal include broad powers to sanction family members and associated entities of persons responsible for human rights abuses and corruption, and new procedural safeguards.
- The potential compliance implications of the Committee's recommended Australian Magnitsky regime are significant, and could affect the sanctions risk profile of a wide range of Australian businesses and organisations.
- The Australian Government will now consider the Committee's recommendations. This will occur in a context where other legislative reforms to increase Australian businesses' extraterritorial anti-corruption and human rights obligations are also under consideration.
Sanctions are economic, financial and trade restrictions that international organisations and states impose against other international actors in situations of international concern. Australia has in place two sanctions regimes: one that implements United Nations Security Council resolutions; and another that imposes additional restrictions as a matter of foreign policy.
As we reported last year, the Joint Standing Committee on Foreign Affairs, Defence and Trade has been conducting a parliamentary inquiry into whether Australia should implement a new human rights sanctions regime providing for the imposition of targeted financial sanctions and travel bans against serious human rights abusers, irrespective of where in the world their conduct occurs (often called 'Magnitsky sanctions'). Canada, the European Union, United Kingdom and United States have already adopted their own Magnitsky laws.
During the inquiry, Allens expressed broad support for the adoption of an Australian Magnitsky law, while observing that the proposal likely would increase Australian companies' sanctions compliance burden (see our earlier article and parliamentary submissions).
On 7 December 2020, the Committee issued its recommendation that the Australian Government enact legislation to establish an Australian Magnitsky regime. Several of the Committee's specific recommendations are noteworthy, and some have implications for Australia's broader sanctions framework.
- Standalone act: The Committee recommends enacting a standalone Australian Magnitsky Act, rather than amending the Autonomous Sanctions Act 2011 (Cth) to provide for 'thematic regulation' within Australia's existing autonomous sanctions framework. Provision for thematic regulation could have opened the door to Australian sanctions programs targeting other transnational issues, like cybercrime, drug trafficking and other forms of transnational crime. For now, that door seems closed.
- Targeted conduct: The Committee recommends that an Australian Magnitsky regime provide for the imposition of sanctions against persons involved in 'serious human rights abuses' and 'gross', 'serious' or 'systemic' corruption, with guidance on the meaning of these terms to be provided in the preamble to the Act. The Committee's recognition of the symbiosis between corruption and human rights violations accords with the Canadian, EU, UK and US Magnitsky laws, and underscores the interconnectedness of anti-corruption, anti-money laundering, human rights, sanctions and other compliance issues.
- Targeted persons: The Joint Standing Committee recommends that Australian Magnitsky sanctions should be able to be applied to family members and associated entities of persons involved in human rights abuses and corruption, as well as to persons directly involved in such misconduct. The Committee's recommendation does not specify whether this should occur only when a family member or associated entity is specifically designated as a sanctioned person by the Minister for Foreign Affairs, or whether it might also occur due to the operation of a default rule (like the US Office of Foreign Asset Control's '50% rule', under which any entity that is 50% or more owned or controlled by sanctioned persons is also itself sanctioned).
- Procedural safeguards: Cognisant that an Australian Magnitsky regime 'should lead global best practice in ensuring fairness and providing safeguards for individuals', the Committee recommends the establishment of an independent advisory body to receive and consider nominations for sanctions targets and make recommendations to the Minister for Foreign Affairs. The Committee also recommends that potential sanctions targets have a right to reply to a nomination before the Minister imposes sanctions, as well as a right to ministerial review after the Minister imposes sanctions. These procedural safeguards are not present within Australian's existing UN and autonomous sanctions regimes, and could be extended to those regimes if the Committee's recommendations are adopted.
The potential compliance implications of the Committee's proposed Australian Magnitsky law are significant, and could affect the sanctions risk profile of a wide range of Australian businesses and organisations.
As we observed last year, many Australian businesses assess their sanctions risk profile primarily with reference to the countries in which they operate. However, if Australia adopts a Magnitsky regime, they may need to refresh their approach to sanctions compliance to account for the fact that sanctions risk may materialise anywhere in the world, including in countries that themselves are not sanctioned. Businesses that have not adopted sanctions compliance systems on the basis that they do not operate in sanctioned jurisdictions may now need to do so. And companies that only screen counterparties and transactions with connections to sanctioned jurisdictions may need to apply these measures in a broader range of circumstances.
Of particular interest will be how an Australian Magnitsky Act applies sanctions to family members and associated entities of persons involved in human rights abuses and corruption. If this occurs only when a family member or associated entity is included in the Department of Foreign Affairs and Trade's Consolidated List of sanctioned persons, simple checks against the List may be adequate for sanctions compliance purposes. However, if an Australian Magnitsky Act applies sanctions to family members and associated entities under a default rule (like the aforementioned 50% rule applied in the US), sophisticated and intensive 'know your customer' checks may be required for sanctions compliance purposes.
Of course, the overall impact of an Australian Magnitsky law will depend on the use the Australian Government makes of it. While Canada and the UK have made relatively modest use of their Magnitsky laws, and the EU's Magnitsky law is only one week old, the US currently imposes Magnitsky sanctions against almost 300 individuals and entities, and, in the final months of the Trump administration, appears to be using Magnitsky designations, together with other novel export controls and sanctions, to impose a de facto sanctions program against China.
In light of feedback received from Allens and other respondents to the inquiry, the Committee acknowledges that the adoption of an Australian Magnitsky regime 'will require government to work closely with the private sector', and recommends the provision of 'guidance on how businesses can meet their obligations in terms of avoiding or managing their dealings with sanctions targets, and demonstrate their efforts to do so'.
- The Australian Government will now consider the Committee's recommendations; however, its timeline for doing so is unclear.
- This will occur in a context where other legislative reforms to increase Australian businesses' extraterritorial anti-corruption and human rights obligations are also under consideration. These include proposed changes to Australia's foreign bribery laws (see our report), proposed modern slavery reporting regimes in New South Wales and Tasmania that are additional to the Commonwealth reporting regime (see our report), and a private member's Bill to ban goods produced in the Xinjiang Uyghur Autonomous Region of China from entering Australia.1
- We will keep you updated as the parliamentary process progresses.
Customs Amendment (Banning Goods Produced By Uyghur Forced Labour) Bill 2020.