This is the first of two blogs considering section 13 of the Criminal Finances Act 2017 which was adopted to expand the scope of the existing civil asset recovery regime under Part 5 of the Proceeds of Crime Act 2002 specifically to capture the assets of those implicated in certain gross human rights abuses.

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.

The amendments target assets linked to abuses against two categories of people. The first (the subject of this blog) relates to the suppression of whistle-blowers, something that is particularly prescient given last week’s annual World Whistle-Blowing Day, and the second (which is the subject of our forthcoming second blog) relates to the suppression of those seeking to assert human rights and fundamental freedoms.

Magnitsky

Sergei Magnitsky, in whose name the amendment has been made, was a Russian lawyer and auditor who, in 2007, claimed to have uncovered a multi-million dollar fraud being perpetrated by Russian public officials. He reported his findings, was arrested for alleged tax evasion and imprisoned in Russia for a year without trial. During that time he was denied medical attention, full access to legal representation and was tortured. He died, reportedly as a result of untreated pancreatitis and acute heart failure. An independent investigation concluded that he had been tortured by eight prison guards on the day of his death.

Following his death, the US adopted the Magnitsky Act in 2012, denying visas and freezing the assets of those on the “Magnitsky list”. This list named the officials concerned in the corruption Magnitsky had uncovered, many of whom owned assets abroad, including in the UK. The UK’s Magnitsky Clause goes further than its US counterpart, drafted so as to catch all assets linked to gross human rights abuses (as defined by the Act).

What property is likely to be caught by the provision?

The new amendment allows the NCA to recover property obtained through conduct which “constitutes or is connected with” the commission of a gross human rights abuse or violation. The amendment applies to conduct abroad that would be an offence if it happened in the UK (importantly and in contrast to the other provisions under Part 5 it need not have been an offence in the state in which it occurred). At first blush the provision seems solely aimed at public officials or those acting in an official capacity but, in fact, its far-reaching provisions contain what could be serious implications for companies operating abroad, particularly in areas where there are unstable or unpredictable governments or where the suppression of anti-government activity is commonplace. This blog explains how businesses and/or investors may be caught by the Act and what they can do to try and avoid criminal liability.

As explained above, property will only be caught by the provision (and therefore become potentially recoverable by the NCA) if it is (or represents) property obtained through conduct which constitutes or is connected with the commission of a gross human rights abuse. The conduct must also have taken place abroad and be conduct that would be criminal if it took place in the UK. Much like the pre-existing civil recovery mechanisms, this amendment emphasises the recovery of the property in question, rather than the culpability of the individual who owns it and can apply to both funds and tangible items of property.

“Conduct that constitutes the commission of a gross human rights abuse”

Conduct will constitute the commission of a gross human rights abuse (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 s.241A(1) – (4) into POCA 2002 and are set out below:

  1. That the conduct involves the torture or cruel, inhuman or degrading treatment or punishment of somebody seeking to expose the illegal activity of a public official or someone acting in an official capacity;
  2. The torture or abuse is carried out in consequence of that person having sought to do anything to expose the illegal activity of a public official or a person acting in an official capacity e.g. the seeking to expose the illegal activity of a public official, the whistleblowing; and
  3. It is carried out by a public official or a person acting in an official capacity, in the performance or purported performance of his or her official duties, or someone acting at their behest.

Given this definition business should be able to avoid taking part directly in any conduct that itself constitutes a gross human rights abuse; what may prove more difficult, however, is avoiding conduct, as defined in the act, that is connected with such an abuse.

“Conduct that is connected with the commission of a gross human rights abuse”

Conduct will be connected with the commission of a gross human rights abuse if it is conduct that involves, amongst other things, profiting from or materially assistingactivities relating to conduct constituting the commission of a gross human rights abuse or violation” as defined by the Act (see above for conduct that constitutes the commission of a gross human rights abuse etc). A person will have materially assisted these activities where they “provide goods or services in support of the carrying out of the activities, or otherwise provide any financial or technological support in connection with their carrying out.”

There are two troubling aspects to this provision. The first is the lack of clarity regarding how “connected” or “related” the profiting or assistance must be to the gross human rights abuse. This is particularly concerning since, as a civil mechanism, the standard of proof is lower than for criminal cases, so the connection need only be proven on the balance of probabilities.

Secondly, and perhaps more troubling is the absence of any explicit requirement that the party taking part in the conduct “connected with a gross human rights abuse” does so knowingly. Indeed the provision seems to indicate quite the opposite stating that activities need only to relate to the conduct constituting the commission of a gross human rights abuse or violation in order to be caught by the Act and to render any property obtained as result liable to seizure. For business and for those investing in business this lack of clarity is particularly concerning. Take two examples:

  • Consider investors in a mining company operating abroad that obtains a contract through bribery. An attempt to expose the fact of the alleged bribery is suppressed through the cruel, inhuman or degrading treatment of those investigating the allegations, members of an NGO. As a result of this suppression the way in which the company obtained the contract is not exposed and as such the company is able to keep the contract and continue to profit from said contract. In such a situation, are the investors’ dividends seizable? Are the company’s assets vulnerable, even if it knew nothing about the suppression, and potentially nothing about the bribery either?
  • Assume that the members of the NGO mentioned above are tortured in an ad hoc detention centre because of their efforts to investigate the circumstances of the granting of the contract. Consider the company that provides transportation services for the detention centre officials or those doing the torturing and the detainees. Is that company materially assisting even if its officials know nothing about the human rights abuses taking place? Does it make a difference if they knew that there is torture or some kind of punishment taking place, but assume that it occurs as part of the legitimate punishment for criminal activities, rather than punishment for whistleblowing or investigative activities?

What does it mean for business?

The questions arising in the examples given above are not easy to answer and, in due course the Courts will doubtless be asked to define further the parameters of the new provisions. In the interim the pressing question is, what do these new developments mean for business? The honest answer is that at this stage it is difficult to say, but that perhaps this clause should be taken as yet another reason for companies to take their human rights due diligence obligations seriously and to ensure throughout the life of a project that they are satisfied as to the approach of those with whom they work. Companies must also ensure that in relation to this limb of the act, they have adequate mechanisms in place to hear complaints or whistleblowing reports, and policies that follow on from this that include protection of the whistle-blower, and credible, impartial investigations into the complaints.