On November 15, 2018, the US Government issued sanctions against 17 Saudi individuals for involvement in the killing of Washington Post contributing journalist Jamal Khashoggi. The sanctions, enacted pursuant to the 2016 Global Magnitsky Human Rights Accountability Act (the Act), highlight the US trend toward targeted sanctions for corruption and human rights abuses. Companies that conduct international business should adopt compliance procedures, including diligence programs that identify sanctioned individuals when corporate structures obscure ownership.
Global Magnitsky Act
The 2016 Global Magnitsky Act, which extends a 2012 version of the Act to all countries, permits the Treasury Department to issue sanctions against entities and individuals who commit, or materially assist, “acts of significant corruption” or “gross violations of internationally recognized human rights[.]” The consequences can be severe: assets of a designated entity or individual are frozen, and US persons within or outside the United States are generally prohibited from dealings with designees. After taking office, the Trump Administration pledged “robust and thorough enforcement” of the Act and, on December 21, 2017, issued Executive Order 13818, which implemented the Act and placed 13 individuals on the Specially Designated Nationals list (the SDN list) for activities targeted by the Act.
June 2018 Regulations
On June 28, 2018, the US Government issued expanded regulations. The regulations prohibit “US persons,” including US financial institutions, from providing financial, material, or technological assistance to SDN list designees. The bar applies to any asset 50 percent or more owned by one or more designees. The regulations complement a June 12, 2018 Financial Crimes Enforcement Network (FinCEN) Advisory Notice that cautions US financial institutions to monitor suspicious behavior by foreign political figures. FinCEN urges executives to look for Global Magnitsky Act violations, including misappropriation of state assets, usage of shell companies, and corruption in real estate sectors. It highlights several “red flags,” such as corporate structures that conceal ownership.
Recent Human Rights Sanctions
The killing of Jamal Khashoggi on October 2, 2018 tested the US Government’s commitment to the Global Magnitsky Act. On November 15, 2018, the Treasury Department’s Office of Foreign Assets Control (OFAC) issued sanctions against 17 Saudi individuals that it deemed “responsible for, or complicit in, or having directly or indirectly engaged in serious human rights abuse.”
The sanctions effectively require US persons to freeze any property or interests in property of the 17 individuals—whether in transit through a US territory or into possession of a US person, regardless of location. US persons are generally prohibited from engaging in dealings with these designated individuals. Canada, France, and Germany have also issued individual sanctions.
A bipartisan group of US senators has pressed the US Government to take further action. For the first time, on October 10, 2018, the Senate Foreign Relations Committee relied on the Act to require that the President issue a report within 120 days that determines responsibility for the killing. The Committee emphasized that the report should “specifically address whether Crown Prince Mohamed [sic] bin Salman is responsible for Mr. Khashoggi’s murder.” Senate Majority Leader Mitch McConnell has suggested that the US Congress may also take action, which could include additional sanctions.
A Growing Sanctions Trend?
The US Government’s decision to apply sanctions is the most recent example of targeted sanctions for human rights abuses. Since December 2017, the Treasury Department has sanctioned 101 entities and individuals under Executive Order 13818. Further, since January 2017, it has sanctioned 460 entities and individuals for corruption and/or human rights abuses, more generally. OFAC has simultaneously expanded county-specific human rights sanctions, including the Democratic Republic of the Congo program.
These recent actions highlight the growing link between sanctions, anti-bribery, and human rights enforcement. As US human rights sanctions regimes grow, companies should consider whether business dealings directly or indirectly involve sanctioned persons or persons who conduct activities that could result in sanctions. These actions should include risk mitigation procedures, including diligence programs that identify sanctioned individuals when corporate structures obscure ownership.