Magnitsky and more: human rights abuses, malicious cyber crime and grand corruption based designations among major changes to Australia's sanctions framework

The Australian Government has committed to introducing amendments to the Autonomous Sanctions Act 2011

Last year, the Parliamentary Joint Standing Committee on Foreign Affairs, Defence and Trade (the Committee) recommended enacting legislation to establish a worldwide human rights sanctions regime. Last week, the Government's response was tabled in Parliament. While headlines have focused on the Government's acceptance of Australia's recommendation to establish a worldwide human rights sanctions regime, the Government's response portends major changes to Australia's sanctions laws that may significantly affect the compliance landscape.

Key takeaways

• The Australian Government has committed to introducing amendments to the Autonomous Sanctions Act 2011 (Cth) by the end of the year to allow for the adoption of 'thematic' sanctions programs targeting transnational issues.
• In addition to adopting a sanctions program targeting human rights violations, the Government has foreshadowed programs targeting grand corruption, malicious cyber activity and the proliferation of weapons of mass destruction. Other conceivable thematic programs include programs targeting foreign interference, transnational drug trafficking and other forms of transnational crime.
• The Government has also foreshadowed amendments to the Autonomous Sanctions Act 2011 (Cth) to clarify aspects of its operation, and committed to a major review of Australia's autonomous sanctions framework.
• Companies should prepare for the fact that sanctions risk will become increasingly disbursed, and consider how their sanctions compliance systems interact with their other risk management systems.

The Parliamentary inquiry

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: a 'United Nations sanctions regime' that implements Security Council resolutions; and an 'autonomous sanctions regime' that imposes additional restrictions as a matter of foreign policy. (For more information, see our overview of Australia's sanctions laws.)

As we reported in December 2019 and December 2020, the Joint Standing Committee completed a Parliamentary inquiry into whether Australia should establish 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'). The Committee recommended that the Australian Government do so by enacting a standalone Australian Magnitsky Act, separate to pre-existing legislation establishing Australia's United Nations and autonomous sanctions regimes. The Committee also recommended that  Australia adopt novel procedural safeguards for sanctions targets, on the basis that Australia 'should lead global best practice in ensuring fairness and providing safeguards for individuals'.

Allens voiced its support for an Australian worldwide human rights sanctions regime, while drawing the Committee's attention to potential compliance implications for Australian companies.

The Government's response

An Australian worldwide human rights sanctions program

As has been widely reported, the Australian Government accepted the Committee's recommendation that Australia establishes a worldwide human rights sanctions regime. The Government will do this by amending the pre-existing Autonomous Sanctions Act 2011 (Cth), rather than by enacting a key standalone Australian Magnitsky Act. The Government's response to the Committee's recommendations suggests that key features of Australia's worldwide human rights sanctions program will include the following.

• Targeted conduct: the Government comments that the program is a 'foreign policy tool designed to respond to the most egregious situations of international concern', and as such, Australia's worldwide human rights sanctions program will provide for the imposition of sanctions in relation to violations of:
  • the right to life;
  • the right to be free from slavery, and not to be held in servitude or required to perform compulsory labour; and
  • the right to not be subjected to torture or cruel, inhuman or degrading treatment or punishment.

This is a disappointing outcome, inasmuch as foreign Magnitsky Acts do not impose limitations precluding the imposition of sanctions in relation to violations of other civil and political rights.  

• Targeted persons: the Government has accepted the Committee's recommendation that human rights sanctions should be applied to family members and associated entities of persons involved in human rights violations, as well as to persons directly involved in such misconduct.
• Procedural safeguards: the Government has rejected the committee's recommendation that novel procedural safeguards, including an independent advisory body to receive and consider nominations for sanctions targets, and a right of reply for nominated sanctions targets, be adopted. The Government reasons that the existence of such mechanisms could undermine the efficacy of sanctions as a foreign policy tool by warning targets of impending sanctions.

Other major changes to Australia's autonomous sanctions framework

In addition to committing to establishing a worldwide human rights sanctions program, the Government says it has 'closely scrutin[ised] Australia's existing sanctions posture, and whether broader reforms are warranted', and appears to have concluded that the time is ripe. The Government's response to the Committee portends major changes to sanctions laws that extend well beyond the Committee's recommendations, including the following.

• Thematic sanctions programs: Australia's existing sanctions programs are state-focused. To establish a worldwide human rights program, instead of adopting a standalone Australian Magnitsky Act, the Government will amend the existing Autonomous Sanctions Act 2011 (Cth) to provide for issue-focused 'thematic' sanctions programs, as well as state-focused programs—an outcome Allens predicted in our December 2019 article.

In addition to establishing a human rights sanctions program pursuant to this reform, the Government has indicated that it may also establish sanctions programs targeting grand corruption, malicious cyber activity and the proliferation of weapons of mass destruction. Other conceivable thematic sanctions programs include programs targeting foreign interference, transnational drug trafficking and other forms of transnational crime, given these are already targets of US sanctions programs.

• Refinements to existing sanctions laws: the Government comments that reforms to the Autonomous Sanctions Act 2011 (Cth) and underlying regulations will 'provide the opportunity to address inconsistent and ambiguous phraseology in the existing legislation'. While the Government does not identify the sanctions law concepts that will be clarified, there is potential for these clarifications to affect companies' compliance burdens. For example, further clarification of what constitutes a prohibited 'dealing' with a sanctioned person, or when a sanctioned person 'controls' an asset, could help crystalise compliance expectations and would be welcomed.
• Review of Australia's sanctions framework: the Government has undertaken to conduct a comprehensive review of Australia's autonomous sanctions framework within 12 months of the foreshadowed amendments to the Autonomous Sanctions Act 2011 (Cth) commencing, 'to ensure the framework is aligned with contemporary foreign policy objectives' and to 'achieve efficiencies in existing sanctions processes and ensure that the sanctions regulatory, compliance and enforcement toolkit remains fit-for-purpose'. While the government's response provides little detail as to what such a review would address, a review could provide opportunities for further alignment between Australia's sanctions framework and those of other key sanctions jurisdictions (particularly the European Union, United Kingdom and United States). Notably, the Biden Administration is currently completing a major review of US sanctions policy, which could inform any Australian review.
• Regulatory guidance: in light of feedback received from Allens and other respondents to the inquiry, the Committee recommended 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 Government has accepted this recommendation, commenting that 'close consideration will be given to minimising the compliance burden on industry', and committing that 'guidance [will be provided] to business on how they can meet their obligations under the new regime'.

What does this mean for your business?

The Government's foreshadowed revisions to Australia's sanctions laws could significantly affect the compliance landscape in a number of ways.

• More dispersed sanctions risk: as we have observed in prior publications on this topic, the adoption of thematic sanctions programs could affect the sanctions risk profile of various Australian businesses. Because Australia's existing sanctions programs are state-focused, sanctions risks currently are most likely to materialise in countries and regions subject to comprehensive sanctions. However, once Australia adopts sanctions that are issued-focused, sanctions risks will be more likely to materialise in countries not subject to comprehensive sanctions. For example, the US has imposed Magnitsky sanctions against individuals in a wide range of countries, including Bulgaria, Cambodia, China, Latvia, Russia, Turkey, Saudi Arabia and South Africa.

In addition, sanctions risks may be more likely to materialise within Australia. For example, industries not subject to anti-money laundering regulatory obligations that receive inbound foreign investment from countries with high levels of corruption or organised crime may need conduct additional 'know your customer' due diligence if sanctions programs targeting grand corruption and transnational organised crime are adopted.

The upshot of all of this is that organisations 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 organisations that only screen counterparties and transactions with connections to sanctioned jurisdictions may need to apply screening measures in a broader set of circumstances.

• Clarification of sanctions law concepts: as we noted above, the Government intends to address 'inconsistent and ambiguous phraseology in the existing legislation'. Businesses should pay close attention to any amendments to the Autonomous Sanction Act 2011 (Cth), and consider whether such amendments have implications for key sanctions controls, like third party diligence processes and contractual controls.
• Integration of risk and compliance systems: as we have previously observed, the adoption of thematic sanctions programs targeting corruption, human rights violations, cybercrime and other forms of transnational crime demonstrate the interconnectedness of anti-corruption, anti-money laundering, business and human rights, cybersecurity, sanctions and other compliance risks. Businesses should consider the extent to which their systems for managing these risks are integrated.
• Opportunities for consultation: businesses are likely to have the opportunity to participate in consultations relating to reforms to Australia's autonomous sanctions framework and any wholesale review of Australia's autonomous sanctions framework. In particular, businesses are likely to have valuable perspectives on how compliance burdens could be eased, sanctions authorisation processes could be streamlined, and regulatory guidance could be improved. Based on our experience, these perspectives are highly valued by Government, and business should consider reflecting on and sharing their experiences engaging with Australia's autonomous sanctions framework.

How can we help?

• Keeping you updated: the Australian Government has committed to introducing amendments to the Autonomous Sanctions Act 2011 (Cth) by the end of the year. We will keep you updated as the Parliamentary process progresses.
• Navigating a complex regime: we can advise you, and assist with, the design and implementation of a robust sanctions compliance framework that is tailored to you and the risks you face, with a weather eye to changes on the horizon. This can include us advising on the application of sanctions laws, conducting risk assessments, preparing a sanctions compliance program, conducting training and providing 'on-tap' external legal advice on complex issues.
• Responding to incidents: we have experience assisting clients with all aspects of an investigation in response to a potential incident, engaging with regulators and providing advice on compliance measures to address the incident, and preventing further incidents occurring in the future.