Magnitsky: Changes to the Australian sanctions regime and why they matter to you

Geopolitical uncertainty and global insecurity play a major role in Australia’s recent adoption of a Magnitsky-style sanctions regime. The amendments to Australia’s Autonomous Sanctions 2011 Act expand government’s ability to target individuals and entities who are responsible for, or complicit in, egregious conduct such as serious human rights abuses, corruption and malicious cyber activity. These changes mean Australian businesses will need to be more aware of their obligations when engaging with international actors.

The what

In December 2021, the Autonomous Sanctions Amendment (Magnitsky-style and Other Thematic Sanctions) Bill 2021 commenced. The Act amends the existing Autonomous Sanctions 2011 Act by broadening its scope. Now, rather than focusing on foreign states, sanctions can also be thematic, allowing for a wider net to be cast for egregious conduct.

The Act sets out a non-exhaustive list of thematic areas that can be subject to sanctions:

  • 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 and
  • serious violations of international humanitarian law

The Minister for Foreign Affairs has the power to designate an individual or entity under the Act. When an individual or entity has been designated, it will become an offence to do business with that individual or entity, to make an asset available to them, or to deal with their assets, unless in accordance with a permit.

The why

Our current geopolitical context is one of volatility and a growing sense of insecurity, with tectonic shifts in power relations around the world. The move in our international economic system towards a ‘geoeconomic order’ in which economic policy is becoming increasingly securitised means economic policy is being used as tool for geopolitical advantage. The changing analysis of the threat environment means that ‘like-minded’ countries and actors with interests in protecting the status quo international order – like Australia, the US, the UK, and others – are seeking more ways to bind together and create strength in unity. At the same time, they are working to develop norms and institutions to deter those who are not of like mind, and who are seen to pose a threat to the status quo order. In meetings with US State Department officials in 2020, representatives were clear that Magnitsky sanctions are a tool of national security and foreign policy, with the goal of reinforcing liberal norms, and will be used as such.

There is considerable debate around the effectiveness of Magnitsky-style measures, and sanctions in general, including the politics behind when and where they are used to target ‘egregious acts’, and what constitutes using sanctions ‘in the right way’. When used well, applying Magnitsky-style sanctions could become a useful instrument to deter those who do not support the rules-based system, like transnational crime groups. If not used well, Magnitsky-style sanctions could be used as a tool to target foreign nationals both of themselves and as a proxy for countries with which Australia (or other like-minded partners) does not see eye-to-eye, and make normative statements about how countries and individuals should be conducting themselves.

For several years, the US has been encouraging the Australian government to expand existing sanctions legislation in line with its own Magnitsky Act, passed in 2012 and named after Russian tax accountant Sergei Magnitsky who died in prison after exposing corruption and misconduct by Russian officials. The United Kingdom, the EU and Canada have also passed similar laws.

The so what for business

There is no doubt that business has a strong interest in sanctions. In some instances where business sees a combined industry-government response as necessary to address risk, it lobbies government to shape sanctions regimes. And when sanctions regimes change, it is essential for businesses operating with foreign individuals and entities – basically anyone with a supply chain outside national borders – to keep up to date with which entities and individuals have been designated, not only by Australia, but by other countries as well.

Organisations operating in ‘high risk’ jurisdictions will need to carefully review their business operations to ensure they are compliant with how these revised sanctions laws could impact their value chains. As the Magnitsky-style regimes target individuals and entities beyond (and within) the nation-state, avoiding business in targeted countries will no longer be sufficient for compliance.

Multinationals will need to ensure they undertake sophisticated forensic due diligence that not only scrutinises the client, but also second and third-level connections for potential violations in supply chains, such as forced labour. Business relationships with individuals will need to be closely investigated. Many Australian companies are already required to do some sort of due diligence, for example, under the Modern Slavery Act. The Modern Slavery Act is predominantly aimed at capturing upstream business relationships, although many businesses include downstream relationships in their risk assessments. The Magnitsky-style amendments predominantly focus on downstream relationships, including customers. Noting that the two overlap, companies will need to engage with their first-tier suppliers to ensure they have visibility further along the supply chain.

As it is anticipated that more countries will introduce Magnitsky-style sanctions regimes, businesses could find themselves facing contradictory regulations and overlapping rules when doing business in high-risk areas. Businesses may also have an obligation to report and provide information to the government, further to what already exists under the Modern Slavery Act.

All up

The volatile geopolitical environment we are in is not a flash-in-the-pan aberration, it will be the operating environment for at least the rest of this decade. Within this context, the regulatory trend will continue to require business to have greater oversight and understanding of their values chain.

Ensure your business is well-informed, well-prepared, and resilient.

With thanks to Rose Burbury and Andy Symington.

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