The Magnitsky Clause Part 1: Profiting from the suppression of whistleblowers – what does it mean for business?
In our previous blog we examined how the new Magnitsky Clause might affect those businesses and individuals who profit from, or assist, directly or indirectly, the suppression of whistle-blowers seeking to expose public sector corruption or illegal activity abroad. In this, our second blog on the Magnitsky Clause, we explore the second category of abuse stipulated in s.13 Criminal Finances Act 2017 (see s.241A2(a)(ii)), namely the suppression of those seeking to assert human rights or fundamental freedoms.
Whilst the amendments proposed by s.13 received Royal Assent in April 2017, at the time of writing, these amendments have not yet been implemented, nor has a date been set by when the amendments will come into force.
Our previous blog sets out in detail a number of the definitions relevant to what property the new amendment is likely to catch. We rehearse it here in summary only.
What property does the new amendment catch?
The new amendment allows the enforcement authority to recover property obtained through conduct which either (i) constitutes or (ii) is connected with the commission of a gross human rights abuse.
(i) constitutes the commission of a gross human rights abuse
Conduct will (i) constitute the commission of a gross human rights abuse (in the context of the suppression of those seeking to assert human rights or fundamental freedoms rather than in the context of the suppression of whistle-blowers) if it meets the three conditions set out in s.13 of the 2017 Act, which inserts 241A(1) – (4) into the Proceeds of Crime Act 2002 (POCA). Those conditions are, broadly, that:
(ii) connected with the commission of a gross human rights abuse
Conduct will (ii) be connected with the commission of a gross human rights abuse of this particular category if it is conduct that involves, amongst other things, directing or sponsoring, profiting from, or materially assisting “activities relating to conduct constituting the commission of a gross human rights abuse or violation” as defined by the Act (see above). A person will have materially assisted these activities where he or she “provides goods or services in support of the carrying out of the activities or otherwise provides any financial or technological support in connection with their carrying out.”
Whose property is most likely to be caught?
Whilst it is easy to imagine scenarios in which the property of public officials becomes liable for seizure as a result of either conduct that (i) constitutes the commission of a gross human rights abuse or (ii) is connected with the commission of a gross human rights abuse, in the case of businesses and investors it is far more likely that the basis upon which property will become liable for seizure is as a result of the second nexus identified in the Act, namely a business’s alleged connection to gross human rights abuses.
Whom, other than whistleblowers, does the Magnitsky Clause protect? What does it mean – to seek to obtain, exercise, defend or promote human rights and fundamental freedoms?
Whilst the same points we made at the end of our last blog remain (the lack of clarity regarding the proximity of the nexus between the conduct and the gross human rights abuse said to have occurred and the absence of any requirement of knowledge of potential human rights abuse) there is an additional difficulty with the clause under scrutiny in this blog which, until further guidance is given by the Courts, should be of concern to business in particular.
As outlined above, per s.241A2(a)(ii) set out in s.13 CFA 2017, the subject of the torture / treatment which leads to the obtaining of the property which then becomes liable to seizure must have “sought to obtain, exercise, defend or promote human rights and fundamental freedoms.” What does that mean? Which human rights and fundamental freedoms are caught by that clause? And what does it mean to seek to obtain, exercise, defend or promote said human rights and fundamental freedoms? A version of the bill debated by the House of Commons in February 2017 limited the rights and freedoms by reference to s.1 of the Human Rights Act 1998 but the draft that ultimately received Royal Assent 2017 Act does not include such a limitation.
At its narrowest reading, it might have been intended that the subject of this section of the Clause was to be Human Rights Defenders (‘HRDs’)s. These are a category of people recognised internationally as requiring particular protection. The inclusion of this group of people into the Magnitsky Clause supports the UK’s commitment to HRDs as stated in its Updated Report on the Implementation of the UN Guiding Principles on Business and Human Rights. This commitment additionally ties into the EU’s 2016 Guidelines on Human Rights Defenders, which defines HRDs as:
“…those individuals, groups and organs of society that promote and protect universally recognised human rights and fundamental freedoms. Human rights defenders seek the promotion and protection of civil and political rights as well as the promotion, protection and realisation of economic, social and cultural rights. Human rights defenders also promote and protect the rights of members of groups such as indigenous communities. The definition does not include those individuals or groups who commit or propagate violence.”
Interestingly, the Magnitsky Clause appears to go further, including those who “sought to obtain and exercise” human rights and fundamental freedoms in addition to those campaigning individuals or groups who seek to promote and protect such rights. This inclusion of those who seek simply to exercise their own rights apparently outside any campaigning capacity brings within the ambit of the Act those “normal” citizens who in the course of their day to day life try to exercise their human rights.
As mentioned above, the biggest concern for business is avoiding conduct connected with such abuse. What this means is that a business not only needs to consider those directly and indirectly exercising their human rights in relation to their own business, such as employees, trade union members, local minorities and inhabitants, but the impact of its stakeholders and clients as well. If they are providing services to public authorities abroad, then businesses would be well advised to carefully consider the authorities’ human rights policies and practices.
Much like the whistleblowing provision mentioned in our previous blog, it is still unclear how connected or knowledgeable one has to be about the gross human rights abuse to be caught by the act.
Case studies once again best demonstrate the difficulty in establishing what property would be liable for seizure under these new amendments.
Consider investors in a mining company operating abroad. The company was granted a mining licence (legally) in a national park. The necessary prior consultation and environmental checks were undertaken and the company has local political support. However, environmental NGO’s and indigenous groups are protesting that the prior consultation was not adequate and that the mining is detrimental to the environment. The groups are also asserting that the destruction of the environment in which an indigenous group lives constitutes an Article 8 interference. In order to ensure that the development goes ahead government officials suppress the protests and protesters are taken away and subjected to cruel, inhuman and degrading treatment or punishment. As a result of this suppression the protests stop and the company is able to keep operating and making profits. In such a situation, does Article 8 fall within the definition of “human rights and fundamental freedoms” at s.241A2(a)(ii)? Even if the company knew nothing about the protests / suppression are the company’s assets vulnerable? What about the investor’s dividends etc?
X works on the production line for a tech company, making phones in one of its factories abroad. X is unhappy with his working conditions and tries to join a trade union and form a protest group. The company (or, its subsidiary) prevents him from doing so. X is quickly joined by others who complain that their rights of freedom of assembly and association has been breached (Article 11 ECHR). They go on strike shortly before the launch of the tech company’s latest phone and in so doing jeopardise the company’s ability to meet demand. At the behest of the company (or its subsidiary) X and others are swiftly removed from the factory by public officials and X is subjected to a beating amounting to torture. As a result of the actions of the public officials the company does not lose a single day of work and is able to meet its sales commitments on time. Does X fall within the definition of someone seeking to exercise his human rights and fundamental freedoms? Has the company profited from X’s torture? Could it be liable to proceedings under the new amendments?
What does this mean for business?
As is apparent, there are as many grey areas that the Courts have yet to clarify. In the meantime it is hard to say exactly how much this will affect businesses. Given the incredibly wide ambit of this legislation, companies are well advised to consider their impact and the risk of human rights abuses in the widest sense: they must consider the impact they have directly on a wider range of stakeholders; how they relate to these stakeholders; and the conduct of any companies / public bodies with whom they work. In the same way that companies must have mechanisms and polices in place to hear complaints from within the company, they must also be open to receiving and adequately investigating complaints from outside. Whilst undertaking robust human rights due diligence will not, without more, defeat an application under the new amendments it will, at least highlight areas of potential risk.
For further information on human rights due diligence and the possible advent of a criminal offence for failing to prevent human rights abuses please see here.
For Kingsley Napley’s blog on the Criminal Finances Act please see here.
This blog was co-authored by Sophia Kerridge.
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