Skip to content
Human rights

Human rights sanction laws bring uncertainty and challenges to business community

Helen Chan  Regulatory Intelligence Expert

Helen Chan  Regulatory Intelligence Expert

The Global Magnitsky Act, which authorizes the U.S. government to sanction those who it sees as human rights offenders, was introduced by the United States in 2012 and has extra-territorial application around the world, including allowing the U.S. to freeze human rights violators’ assets, and ban them from entering the U.S.

Since the law’s passage, a handful of jurisdictions around the world have either introduced or intend to introduce their own versions of a human rights sanctions, each with their own criteria and most with worldwide application.

Based on the concept of levying sanctions against individuals for alleged human rights violations, Magnitsky-style sanctions have become extremely politicized amid a time of testy geopolitics, which has given rise to uncertainty and operational challenges for businesses.

Global developments

In late December, regulators in the European Union (E.U.) said that they had agreed to commence work on a global sanctions regime similar to the Magnitsky Act. The E.U. is expected to take at least several months to lay the groundwork for additional policy developments. However, fragmentation is already beginning to take shape even within the bloc jurisdiction. The Netherlands recently announced that it will begin implementing its own version of the Magnitsky Act by the end of January 2020 if the E.U. has not commenced implementation of a global human rights sanctions regime by then.

The United Kingdom also has said that it intends to introduce its own human rights sanctions regime after Brexit.

Australia has said that it is considering the implementation of a Magnitsky-style law that would target individuals accused of human rights abuses as well as those who assist in significant corruption. The main objective of the proposed regulations is to keep sanctioned individuals and their assets outside of Australian markets.

Based on the concept of levying sanctions against individuals for alleged human rights violations, Magnitsky-style sanctions have become extremely politicized amid a time of testy geopolitics, which has given rise to uncertainty and operational challenges for businesses.

Canada, which implemented the Justice for Victims of Corrupt Foreign Officials Act a few years ago, is under pressured to invoke sanctions under the Act against government officials in China who are accused of human rights abuses in Hong Kong and persons connected to the internment of Uighur Muslims in Xinjiang, China. The Act has significant extra-territorial applications. The law prohibits individuals in Canada and Canadian citizens outside of Canada from dealing with any assets of or providing any services to a sanctioned individual anywhere in the world. Financial institutions are also obligated to screen for designated names and freeze assets on an ongoing basis, similar to other sanctions requirements. Non-compliance with the Act and its monitoring requirements could expose Canadian individuals and businesses to significant penalties.

China has categorically denied allegations of any wrongdoing in Xinjiang and hotly contests the idea that its officials should be sanctioned for human rights violations. Chinese diplomats have said that China will enact “very firm countermeasures” in retaliation for any sanctions imposed by the Canadian government.

Although China does not have a formal global sanctions regime, some of the ad hoc actions taken against companies in the private sector last year offers a glimpse of what these countermeasures could look like. Industry regulators have previously threatened to revoke business licenses over actions perceived as unfavorable to China. The mere threat of cutting off access to the Chinese market has proven so effective that some businesses around the world take care not to invite scrutiny or otherwise offend.

Operational challenges

The growing number of human rights sanctions regimes with extra-territorial application and respective compliance nuances pose challenges for the business community. Organizations must invest in meticulous systems to ensure that they stay up-to-date with regulatory requirements in all relevant jurisdictions, which is no small feat in terms of resources. Companies that get it wrong expose themselves to significant regulatory risk, including monetary fines and even imprisonment. As seen in numerous enforcement actions in the United States against financial institutions, even violations that stem from inadvertent lapses in oversight can incur severe penalties.

The fragmented and hyper-politicized nature of human rights sanctions also exerts pressure on the business community to take sides in broader geopolitical disputes, such as the one between Canada and China. Companies could find themselves in scenarios where compliance with one country’s sanctions regime could incur penalties from another.

Preparing response plans, along with business continuity planning and operational agility could provide some cushioning. Having clear response plans in place may help businesses minimize further fallout from involvement in geopolitical disputes. When planning ahead, regional and global senior managers should work closely together to ensure that they understand the risks that they face in respective regions.

This knowledge can play a key role in formulating specific business continuity frameworks and mitigate some risks that are posed by human rights sanctions regimes.

More answers