Global Magnitsky movement Upcoming reforms to Australias sanctions laws

What you need to know

• The Australian Government proposes to amend Australia's autonomous sanctions laws by the end of the year.
• Draft legislation has not yet been made publicly available, but the reforms will be aimed at ensuring that the Autonomous Sanctions Act 2011 (Cth) (the Autonomous Act) responds effectively to situations of international concern, and to safeguard the economy from the proceeds of the 'most egregious human rights violations and abuses and corruption'.
• The proposed reforms include establishing criteria to impose sanctions on individuals and/or entities that commit serious human rights violations and abuses, or serious corruption, beyond the scope of Australia's current jurisdiction-focused regime.
• The Autonomous Act is to be amended to provide broad examples of sanctioned conduct such as proliferation of weapons of destruction, threats to international peace and security, and activities that undermine the rule of law and good governance.
• The Government will commence a broader review of Australian sanctions laws within 12 months of the commencement of the amended Autonomous Act to ensure it aligns closely with contemporary foreign policy objectives and legislation, including the Global Magnitsky Human Rights Accountability Act 2016 (US) (the Magnitsky Act).

What you need to do

• Australian companies should monitor the amendments and assess their impact on intended transactions.
• Companies should keep their risk assessments constantly updated, including being alive to the fact that entities and/or individuals may move assets to keep them beyond the ambit of Australian sanctions. Companies should conduct thorough due diligence and assess whether they should incorporate sanctions-related exit clauses in their contracts. 
• The amended Autonomous Act will be retrospective. Conduct before the amendments will be captured, so companies will need to consider the implications of continuing certain commercial relationships and transactions, particularly with high-risk jurisdictions.

Magnitsky Act sanctions

Sanctions provide restrictions on economic activities that relate to certain countries, goods and services, individuals and entities. The use of targeted sanctions continues to be a persuasive tool in limiting the adverse consequences of activities of international concern.

Following the case of Sergei Magnitsky, a Russian tax advisor allegedly subjected to humans rights abuses, the US implemented the Magnitsky Act to expand the focus from sanctioning countries to also target foreign persons or entities responsible for human rights abuses and serious corruption. The Magnitsky Act sanctions primarily serve as a deterrent by limiting human rights abusers' ability to derive any benefit from the abuse or corruption. Travel bans, trade restrictions and asset freezes are imposed on individuals and entities. Since its inception, the Magnitsky Act approach has been broadly followed in other states and countries, including the United Kingdom, Canada and the European Union.

Australia's current sanctions laws

Australia's current sanctions laws implement the United Nations Security Council sanctions regime via the Charter of the United Nations Act 1945 (Cth) and the Australian autonomous sanctions regime via the Autonomous Act. There are varied sanctions measures under these regimes, including general prohibitions on providing a sanctioned service, engaging in a sanctioned commercial activity, and dealing with a designated person or entity. Both regimes are focused on imposing sanctions in relation to specific countries and sectors, rather than types of misconduct more broadly.

There has been a growing recognition that Australia's country-specific or sector-based sanctions require recalibration, with a sharper focus on malicious actors and conduct like cyber threat activity that does not correspond to any national borders. Accordingly, on 3 December 2019, the Minister for Foreign Affairs asked the Joint Standing Committee on Foreign Affairs, Defence and Trade to investigate and report on Australia's use of targeted sanctions to address human rights abusers, regardless of where in the world the conduct occurred. The Sub-committee considered this issue having regard to: the current Australian sanctions legislation; the use of sanctions alongside other tools to enable Australia to promote human rights overseas; the current advantages and disadvantages of using human rights sanctions (including the experience of other jurisdictions); and whether Australia should introduce a new "thematic" regulation within the existing Autonomous Act by adopting a Magnitsky-style program.

In December 2020, the Sub-committee provided its report with accompanying recommendations. This included a recommendation that the Government should enact a stand-alone targeted sanctions legislation similar to the Magnitsky Act, and that sanctioned conduct should include serious human rights abuse and serious corruption.

Government response to the Report

The Government agreed that a majority of the recommendations will assist with modernising the Australian autonomous sanctions regime. Accordingly, the Government has indicated that it will adopt a wide range of reforms and recommendations, including the following:

• Introducing a thematic sanction regime that targets serious human rights violations and abuses and serious corruptions. However, instead of enacting a stand-alone sanctions legislation, this will be achieved through broader reforms and amendments to the Australian autonomous sanctions regime. 
• The focus of the reforms will expand from country-based sanctions to include broad categories of events of international concern to which sanctions should be applied, including 'the proliferation of weapons of mass destruction, gross human rights violations, malicious cyber activity and serious corruption'. 
• Amending the autonomous sanctions framework to include guidance on thresholds that apply to assessing serious human rights violations and abuses, and serious corruption. For human rights, the considerations will focus on: the right to life; the right to be free from slavery, not to be in servitude or require to perform forced or compulsory labour; and the right not to be subjected to torture, cruel, inhumane or degrading treatment or punishment. 
• Subject to the Minister's discretion, sanctions will extend to the immediate family, direct beneficiaries and/or associated entities of the individual engaging in the human rights violation. This will be assessed on a case-by-case basis, having regard to the overall incident, Australia's national interests, and considerations of procedural fairness.

While a number of recommendations were accepted (either wholly or in part), the Government rejected the recommendation to establish an independent advisory board to assess nominations for sanctions targets. The Government highlighted that sanction decisions are based on a careful assessment of all foreign policy considerations, and it is it important that the Government continues to have 'appropriate flexibility in the application of sanctions'.

What to expect next 

The Government plans to introduce amendments to the Act by the end of this year. As observed with the inclusion of Magnitsky-style amendments to the UK sanctions framework, we expect the immediate impact will be imposing targeted sanctions on additional entities and/or individuals.

It is anticipated that the Government will soon communicate the objectives and application of the reforms, including through consultations with industry and non-government organisations. The Australian Sanctions Office will also issue separate guidance to businesses to help determine and comply with their obligations under the new regime. Ashurst is monitoring this process and will continue to keep you updated.

A subsequent broader review of Australia's sanctions framework will follow within 12 months of the amendments to determine their efficacy, alignment to foreign policy objectives, and whether any further legislative reform is required.

Going forward, corporate risk responses will need to take into account the retrospective nature of the changes and adapt to the wider reach of thematic regulation. Companies will need to update their compliance monitoring systems and documents to capture these amendments. This includes updating internal sanctions policies, checklists, training materials, and exit clauses in contracts. Ashurst can assist with this review and provide advice on changes to the Australian sanctions framework.

Authors: James Clarke, Partner; Hazel Brasington, Consultant; and Luke Thiagarajah, Lawyer.