The Australian Parliament Enacts Magnitsky-style Laws

Australia's Existing Autonomous Sanctions Regime

Australia's existing autonomous sanctions regime is set out in the Autonomous Sanctions Act 2011 (Cth) ("Act"). Under the Act, the Australian Government has broad powers to establish sanctions under the Autonomous Regulations 2011 (Cth) ("Regulations") independent of the UN Security Council sanctions regime and in accordance with Australian government policy in order to facilitate the conduct of Australia's relations with other countries or with entities or persons outside Australia, or otherwise deal with matters, things or relationships outside Australia. 

Under the Act, the Australian Government has powers to establish autonomous sanctions under the Regulations on foreign entities and individuals, including restrictions on financial transactions and commercial activities, asset freezes and travel bans. Australian autonomous sanctions apply to activities in Australia and to activities undertaken overseas by Australian citizens and Australian‐registered bodies corporate. Current Australian sanctions are detailed on the Consolidated List coordinated by the Department of Foreign Affairs and Trade ("DFAT") and overseen by the Australian Sanctions Office ("ASO"), Australia's dedicated sanctions regulator which was established on 1 January 2020. 

At the date of the commencement of the Amendment Act, Australia had imposed autonomous sanctions on the Former Federal Republic of Yugoslavia, Myanmar, Russia, Ukraine, Zimbabwe, the Democratic People's Republic of Korea, Iran, Libya and Syria, and designated individuals and entities from those countries. 

The Government's Consideration of Targeted Sanctions in Australia

Whether Australia's existing autonomous sanctions regime under the Act should be expanded to allow for more targeted sanctions to address thematic categories of conduct has been the subject of significant parliamentary and public debate in recent years.  

In December 2019, the Minister for Foreign Affairs asked the Joint Standing Committee on Foreign Affairs, Defence and Trade Human Rights Sub-committee ("Committee") to inquire into the use of targeted sanctions to specifically address human rights abuses ("Inquiry"). The Inquiry's Terms of Reference included consideration of the introduction of a new thematic regulation within Australia's existing autonomous sanctions regime for human rights abuses resembling those of other jurisdictions, including the U.S. Magnitsky Act of 2012, which was later expanded and strengthened by the Global Magnitsky Human Rights Accountability Act of 2016 and subsequent Presidential Executive Orders 13818 and 13936 (together, "U.S. Magnitsky Laws"). These initiatives reflect a bipartisan consensus in Washington that, as stated in Executive Order 13818, "serious human rights abuse and corruption around the world constitute an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States."

The U.S. Magnitsky Laws authorise the President of the United States to block or revoke visas, or to impose property sanctions on foreign individuals and entities where there is credible evidence that the person is: (i) responsible for, or acted as an agent for someone responsible for serious human rights abuses; or (ii) a government official, or a senior associate of an official, who is responsible for or complicit in, acts of corruption. Since the adoption of the U.S. Magnitsky Laws, the U.S. Office of Foreign Assets Control ("OFAC") has used them to designate dozens of individuals and entities on multiple continents for sanctions. The White House and OFAC have also adopted thematic sanctions for narcotics trafficking, foreign interference in elections, cyber-crime and, more recently, political conditions in Hong Kong. The UK, EU, Canada, Estonia, Lithuania, Latvia, Kosovo and Gibraltar have also enacted Magnitsky-style laws.

In December 2020, the Committee tabled its Final Report setting out a number of recommendations, including (without limitation) that the Australian Government should enact stand-alone sanctions legislation to target human rights violations and corruption. In making this recommendation, the Committee acknowledged that country or sector-wide sanctions often impact innocent parties disproportionately, and a new approach to creating consequences for unacceptable behaviour was required. 

In August 2021, the Government issued their formal response to the Committee's Final Report, agreeing with the majority of the Committee's recommendations. The Amendment Act was then introduced to Parliament in November 2021 specifying for sanctions treatment a broad range of situations of international concern not limited to human rights violations and corruption, but also activities undermining good governance or the rule of law and the increasing threat to Australian's national security posed by malicious cyber activity. In this respect, the breadth of conduct which can lead to targeted sanctions in Australia appears to be even broader than in other jurisdictions who have enacted Magnitsky-style laws. 

The Reforms 

The Amendment Act will modify the Act to: 

1. Expressly provide that sanctions regimes established under the Regulations can be either country-specific or thematic (such as to address the proliferation of weapons of mass destruction, threats to international peace and security, malicious cyber activity, serious violations or serious abuses of human rights, and activities undermining good governance or the rule of law, including serious corruption);
2. Require that the Minister for Foreign Affairs obtain the agreement of the Attorney-General in writing and consult other Ministers as appropriate before designating a person or entity for targeted financial sanctions, or imposing a travel ban on a person; and
3. Require that the Committee commence a review of the operation of the Amendment Act as soon as possible after the end of three (3) years of the amendments' implementation. The Committee must prepare a written report of the review which must be tabled in each House of Parliament. 

The reforms introduced by the Amendment Act will be overseen by the ASO, which replaced DFAT as Australia's dedicated sanctions regulator on 1 January 2020 following findings made by the Financial Action Task Force in a Mutual Evaluation Report for Australia in 2015 that whilst DFAT has primary responsibility for compliance with sanction requirements, "DFAT does not adequately monitor or supervise the financial sector for compliance with the requirements of the FATF Recommendations, as would be expected of a supervisory authority."

Implications for Australian Companies and their Directors and Officers

The enactment of Magnitsky-style laws in Australia through the introduction of the Amendment Act and in other major economies, many of which have extra-territorial effect, will increase the global sanctions risk generally for Australian companies. The nature of targeted sanctions, including those contemplated by the Amendment Act, is that they result in more sanctions being imposed on individuals and entities identified as being involved in certain categories of conduct (separate from country-specific sanctions) which can often be more difficult to identify. This risk will be acute for financial institutions that are already exposed to much greater global sanctions risk by virtue of their product and service offerings (which can be used to store and move funds), their proportion of high-risk customers, and their exposure to foreign jurisdiction risk.

It is critical that Australian companies and their directors and officers take appropriate steps to manage this heightened risk, as a single contravention of the Act is a strict liability offence which for a body corporate carries a pecuniary penalty of the greater of 10,000 penalty units ($2.22 million) or three times the value of the transaction. To establish a defence, a company must be able to provide evidence that it took reasonable precautions and exercised due diligence to avoid contravening the Act.

For Australian companies, there is also a risk that:

• A contravention of the Act by the company could result in secondary or ‘stepping stone' liability for its directors and officers on the basis that, by failing to guard against foreseeable harm flowing from a contravention by the company, the directors and officers failed to discharge their duty of care and diligence required of them by section 180(1) of the Corporations Act 2001 (Cth). This could result in a director or officer being disqualified from involvement in the management of a corporation; and 
• Conduct that contravenes that Act could also violate foreign sanctions laws, given perpetrators of human rights abuses, malicious cyber attackers and foreign corrupt officials will often be global targets. Companies therefore should expect to see enhanced global regulatory coordination and cooperation on the enforcement of targeted sanctions, particularly between countries (such as the US) whose foreign policy and national security interests are aligned with those of Australia. 

We invite Australian companies and their directors and officers to contact Jones Day to discuss the heightened global sanctions risk environment, including in the context of the adequacy and efficacy of testing and assurance of their governance and risk management frameworks. We anticipate that there will be significant commentary following the release of the Final Reports of the Victorian and Western Australian Royal Commissions into Crown Casino regarding the adequacy and efficacy of corporate governance and risk management frameworks, particularly in the context of a shared services model.