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How The Global Magnitsky Act Interacts With The FCPA And Other Corruption Prevention Tools

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A guest post from the following lawyers at Dentons: Jason Silverman, Michelle Shapiro, Peter Feldman and Michael Zolandz.

On December 20, 2017, President Trump signed an executive order implementing a new tool to combat international corruption: the Global Magnitsky Human Rights Accountability Act (“Global Magnitsky Act”).  The Global Magnitsky Act was passed in December 2016, and it authorized the United States to impose sanctions on any foreign (i.e., non-US) person who – as the name of the statute suggests – has engaged in gross violations of human rights, or acted as an agent on behalf of a foreign person engaged in such violations.

In addition to targeting human rights violations, the Global Magnitsky Act also authorized sanctions on any foreign person who (1) as a government official or associate of a government official has engaged in acts of “significant corruption,” or (2) has materially assisted or supported such activity.  The president’s December 2017 order both initiated the sanctions program and included a first round of Global Magnitsky sanctions designations.

United States sanctions programs are administered and enforced by the Office of Foreign Assets Control (“OFAC”) within the Treasury Department.  They are designed to advance US foreign policy and national security goals using an array of restrictive measures including trade embargoes, asset freezes, and immigration restrictions, and are often implemented in consultation and coordination with other US agencies, such as the State Department, Justice Department, and Commerce Department.  Most US sanctions programs address issues related to the political situation in specific countries or regions – the most prominent being Iran, Cuba, Syria, North Korea, and Russia / Ukraine.  There are also sanctions programs to address certain types of conduct without regard to geographic location, such as international terrorism, narcotics trafficking, and transnational criminal enterprises.  Some country-linked or country-based sanctions programs (for example, Iran, North Korea, and Russia) authorize or require the imposition of sanctions due to human rights violations or participation in corruption.  The Global Magnitsky sanctions are the only US program currently in effect that target human rights violations and corruption occurring anywhere in the world (outside of the United States).

As with other sanctions programs, Global Magnitsky targets are added to OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”).  The assets of SDNs (as well as entities in which they hold a 50% or greater interest) that come within the jurisdiction of the United States or the possession of a US person are blocked, US persons are broadly prohibited from transacting with SDNs, and SDNs are ineligible to be admitted to the US.

As has been discussed previously FCPA Professor, under Presidential Proclamation 7750 (2004), the US government already had the authority to bar entry to persons involved in significant international corruption.  The extent to which that authority has been used in the past is unclear, as visa issuances and denials are typically confidential under the Immigration and Nationality Act (“INA”). The Global Magnitsky sanctions go beyond Proclamation 7750 in that they allow imposition of the far more punitive measure of asset blocking.  Also unlike Proclamation 7750, designations under the Global Magnitsky Act are public, the president must report annually to Congress regarding the prior year’s designation activity, and that report is expressly excluded from the INA’s confidentiality provisions relating to visas.  As implementation of the Global Magnitsky sanctions continues, we may see greater transparency with regard to entry bars imposed because of concerns about corruption.

The first round of Global Magnitsky designations included a cross-section of targets who participated in alleged human rights violations and international corruption.  A natural question, given the newness of these sanctions, is: what’s next?

While the Global Magnitsky sanctions address conduct that is similar to that covered by the FCPA, they have the potential to have a far greater reach.  First, they apply to a broader class of targets.  Unlike the FCPA, which does not reach foreign government officials who receive bribes, the Global Magnitsky sanctions expressly can be — and have already been — levied against current and former foreign government officials.

More significantly, jurisdiction under the FCPA’s anti-bribery provisions requires that a foreign defendant have some US nexus, and due process considerations require personal jurisdiction, including over foreign defendants .  Designations under the Global Magnitsky sanctions face none of these hurdles.  They can be imposed on non-US persons for engaging in conduct that occurs wholly outside of the United States, with no requirement that the target be subject to personal jurisdiction in the United States.  Thus, the Global Magnitsky sanctions can be applied against those the FCPA cannot reach.

But what if the US government could reach a target under the FCPA, but instead opts for an “easier” route?  Like other sanctions, Global Magnitsky sanctions have a much lower evidentiary and procedural bar to their imposition than criminal or even civil enforcement actions.  Sanctions designations occur in an interagency process, which typically provides a target with no advance notice or opportunity to respond before sanctions are imposed.  While sanctions designations may be challenged before OFAC and, ultimately, in court, no remedy is available until sanctions have been imposed and the target’s assets have been blocked.  Unlike a civil or criminal enforcement action under the FCPA, therefore, imposition of sanctions does not require court involvement.  And, because Global Magnitsky sanctions are a new program and significantly expand OFAC’s authority to address corruption, it remains unclear whether existing FCPA jurisprudence would even be considered relevant in Global Magnitsky cases predicated on corruption.

The availability of this new powerful tool raises the question whether the US government will, in certain instances, forego the complexity of a potential enforcement action under the FCPA in favor of a designation under the Global Magnitsky sanctions.  Or perhaps the government will use the prospect of a sanctions designation, in addition to civil or criminal liability, as tool for negotiating FCPA resolutions with non-US persons.

While there are more questions than answers at this point about how the Global Magnitsky sanctions will be implemented, they are yet another aspect of the increasingly complex and diverse landscape of international corruption risks.

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