On 21 December 2017, “the Trump Administration announced the launch of a new sanctions regime targeting human rights abusers and corrupt actors around the world.” Such an objective has been pursued through the issuance of a new presidential executive order, which is a legal instrument through which the President of the United States manages the operations of the Executive branch of Government.
This post has been co-authored with Emmanuel K. Nartey, Head of Business and Economics at Sabis International School, legal researcher, business consultant, and Ph.D. candidate at the School of Business and Law of the University of East London.
Specifically, Executive Order 13818 of 20 December 2017 has implemented the Global Magnitsky Human Rights Accountability Act of 2016 (hereinafter “The Act”). It is included in “Human Rights Sanctions” Subtitle of the National Defense Authorization Act For Fiscal Year 2017 (Sec. 1261 to Sec. 1265).
As specified by Sec. 1263(a)(1-4), the Act aims at targeting serious human rights abusers and corrupt actors across the globe. Accordingly, the President of the United States may impose economic sanctions against foreign persons (individuals or entities) involved in extrajudicial killings, torture, or other gross violations of internationally recognized human rights, or acts of significant corruption.
Under Sec. 1263(b) of the Act, the President has the power to impose a wide range of economic sanctions, which fall within the two following categories: inadmissibility to the United States (i.e., ineligibility to receive a visa or visa revocation); and blocking of property (i.e., blocking of all transactions in all property and interests in property if such property and interests in property are in the United States, come within the United States, or are or come within the possession or control of a United States person).
To this end, as it happens in the case of the imposition of U.S. economic sanctions, the designated individuals or entities are included by the Department of the Treasury’s Office of Foreign Assets Control (OFAC) in a blacklist. The names are published in the Federal Register and incorporated into OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List).
By means of Executive Order 13818, President Trump has not only designated several persons but also given the Secretary of the Treasury (in consultation with the Secretary of State and the Attorney General) the power to include other persons to be blacklisted where their criminal activities have “reached such scope and gravity that they threaten the stability of international political and economic systems.” As a result, OFAC has obtained a broad targeting authority to designate entities and individuals for human rights violations or corruption anywhere in the world. Although such authority is vested in the Treasury Secretary, the Department of Justice will most likely play a significant role proposing, for instance, designations of individuals or entities implicated in FCPA investigations that may fall outside the prosecutors’ jurisdiction.
In the Annex to the executive order, the President has included a class of thirteen serious human rights abusers and corrupt actors all over the world, from Latin America to Africa and Eastern Europe, several of whom are designated for conducts at the center of recent corporate FCPA enforcement actions. Simultaneously, the Treasury Department has designated thirty-nine related individuals and entities.
Although the Act specifies that sanctions should be imposed only if “based on credible evidence,” it fails to clarify the legal procedure that should be followed to gather such evidence; it also does not seem to guarantee the transparency of evidential process, the role of rule of law and how the rights of the individual can be protected in front of a judiciary.
Global Magnitsky is the continuation of two recent trends concerning U.S. economic sanctions: the transition towards sanctioning individuals, entities, and industries rather than banning commerce with an entire country; and the increased involvement of the Congress in the listing and delisting process.
Even if the rationale behind the economic sanctions regime is to safeguard national security, foreign policy, or economy of the United States, this statutory mechanism has also the potential to foster the protection of human rights and to fight corruption worldwide.
In particular, the Act appears to have an important potential value from a corporate social responsibility perspective. Civil society organizations may use this new channel to advocate for decisive U.S. action against corporations who are involved in corrupt activities or violations of human rights. As a matter of fact, members of appropriate congressional committees may submit a request to the President of the United States with respect to alleged sanctionable practices undertaken by a foreign corporation.
To this end, Sec. 1263(j) of the Act identifies as “appropriate” congressional committees the Committee on Banking, Housing, and Urban Affairs; the Committee on Foreign Relations of the Senate; the Committee on Financial Services; and the Committee on Foreign Affairs of the House of Representatives. Moreover, under Sec. 1263(i) it is established that the Assistant Secretary of State for Democracy, Human Rights, and Labor, in consultation with the Assistant Secretary of State for Consular Affairs and other appropriate bureaus of the Department of State is authorized to submit to the Secretary of State the names of potentially sanctionable foreign persons.
As a result, notwithstanding the Act and the related executive order are characterized by a high level of vagueness, and the entire process of designation appears to be inherently discretionary, they can become innovative and effective instruments to promote responsible corporate behavior worldwide. This not only because foreign corporations can be directly sanctioned but also because U.S. companies, which are excluded from the direct applicability of the economic sanctions, will have to be particularly careful in selecting their foreign business partners or operating with governments that are knowingly prone to corruption or violation of human rights. As a matter of fact, a U.S. firm carrying out its business operations overseas will have to cease all commercial and financial dealings with partners that OFAC adds to the SDN List. In addition, the designation of business partners may open a new pipeline for investigations by prosecutors and regulators in the U.S. and elsewhere, and accordingly, following such designations, companies will have to respond to government inquiries.
Consequently, a possible implication for corporations will be the necessity of reviewing their compliance programs in light of the breadth of this new U.S. sanctions regime, harmonizing internal compliance measures in the different areas of regulation: sanctions, export control, anti-corruption and anti-money laundering. As a matter of fact, a coherent, integrated compliance function should allow corporations to evaluate the totality of the risks presented by potential counterparties or transactions.
In conclusion, from a corporate social responsibility perspective, the adoption of the new sanctions regime has to be welcomed, in the awareness that, over time, its effectiveness and success will depend solely on the way in which the U.S. administration decides to use this legal instrument at its disposal.