To date, seven countries have adopted justice and accountability sanction laws usually referred to as Magnitsky Acts. The United States has its own global version of the Magnitsky sanction regime. These laws are intended to discourage human rights abuses and corruption and to punish those involved in these activities. The number of countries with such laws is likely to expand greatly in the next year, particularly in light of the European Union’s decision to enact its own version. Australia and New Zealand are also likely to enact their own Magnitsky laws.
Not all Magnitsky laws are the same, and differences are often found in the scope of those parties subject to sanctions. Likewise, the use of these laws has varied among the countries that have enacted them, or even between national administrations responsible for enforcing them. The U.S. is an example where the last administration did not use the U.S. Global Magnitsky Act to issue sanctions, while the current administration has done so on a number of occasions.1 One thing that remains constant is that just the threat of sanctions can have a beneficial impact on how individuals and entities behave in many circumstances.
As the scope of these laws and the resulting sanctions expand, the difficult issues businesses will encounter in conducting international business will multiply. Businesses can suffer civil and criminal penalties or be included as a sanctioned party if they do business with an individual or entity subject to Magnitsky sanctions. What this means to international business is that due diligence on potential business partners and on entities in supply chains is at a premium. This does not just mean checking the list of those sanctioned; it also includes an analysis of what entities or people may be soon sanctioned. If a party involved in a project becomes sanctioned, the banks supplying project funds, and the companies providing insurance, may flee to avoid being penalized under a Magnitsky law — even if a significant amount of time and funds has already been committed to the project.
1 This administration’s use of the U.S. Global Magnitsky Act has impacted 107 individual and 107 entities located in 36 different countries.