Right before the holidays, President Trump and his Administration took significant steps toward using economic sanctions to tackle international human rights abuses and corruption. The Administration’s actions underline the ever-growing importance of know your customer (KYC) and anti-corruption due diligence and compliance procedures for international business. In particular, companies doing business in high-risk countries and in high-risk industries, such as mining and government contracts, should consider expanding KYC to include a review of any public reports of human rights abuses or corruption by customers and vendors alike.

On December 20, 2017, President Trump signed an Executive Order (EO 13818) that declared that the prevalence and severity of human rights abuse and corruption threatens the stability of international political and economic systems. EO 13818 blocked the assets of the 13 persons listed in the Annex of the Order, hailing from 13 different countries around the world, and laid the framework for applying blocking and US visa restrictions on additional persons in future. EO 13818 is based on the authority provided to the President under the International Emergency Economic Powers Act (IEEPA) and the Global Magnitsky Human Rights Accountability Act (Public Law 114-328), signed into law by President Obama On December 23, 2016 in his last days in office.

On December 21, the Treasury Department’s Office of Foreign Assets Control (OFAC) imposed sanctions on an additional 39 individuals and entities affiliated with the 13 designated in the newly issued Order, bringing the total sanctioned individuals and entities to 52 under the OFAC SDN designator [GLOMAG].[1] A Treasury Department press release details the reasons why these persons and entities were sanctioned. OFAC also published FAQs on the Executive Order and a webpage for the Global Magnitsky sanctions.

The same day, the Administration issued its fifth annual report on the US government’s actions to implement the Sergei Magnitsky Rule of Law Accountability Act[2] and added five names to the list of 49 Russian sanctioned under that Russia-specific law (under OFAC SDN designator [MAGNIT]).

In addition to adding many names to OFAC’s current list, the President’s signing of EO 13818 authorizes future blocking and US visa restrictions by OFAC (acting in consultation with the Secretary of State and the Attorney General). Pursuant to EO 13818, OFAC can sanction foreign persons:

  1. Who are responsible for or complicit in, or have directly or indirectly engaged in, serious human rights abuse;
  2. Who are current or former government officials, or persons acting for or on behalf of such an official, who is responsible for or complicit in, or has directly or indirectly engaged in (i)Corruption, including the misappropriation of state assets, the expropriation of private assets for personal gain, corruption related to government contracts or the extraction of natural resources, or bribery; or (ii) The transfer or the facilitation of the transfer of the proceeds of corruption;

The activities described in (1) and (2) – human rights abuses, corruption, and the transfer or facilitation of the proceeds of corruption by foreign persons – are the targeted activities at the heart of the Executive Order. However, the Executive Order reaches beyond those who are “responsible for,” “complicit in,” or “directly or indirectly engaged” in the targeted activities. It also authorizes the US Administration to block the assets and apply visa restrictions to:

  • Foreign persons who are part of the same government that conducted the targeted activities[3] and foreign persons who have attempted to commit the targeted activities.
  • Any person, US or foreign, who materially assists, sponsors, or provides financial, material, or technological support[4] for, or goods or services to, the targeted activities or designated persons.[5]

Under the Executive Order, the US Administration can sanction not only those directly involved in human rights abuses and corruption, but also those who materially assist, sponsor, or provide financial, material, or technological support for, or goods or services to, the targeted activities or designated persons.

The first GLOMAG targets were, understandably, the alleged bad actors themselves. A read of OFAC's press release explaining the actions for why the original 13 persons were in the EO Annex and added to the OFAC [GLOMAG] SDN list is informative, showing a wide range of misconduct in many countries. For example, Mukhtar Hamid Shah is a Pakistani surgeon who “Pakistani police believe to be involved in kidnapping, wrongful confinement, and the removal of and trafficking in human organs.”

One hopes that the international business community is not trafficking in human organs. But other [GLOMAG] designations are related to key global business sectors, such as Dan Gertler, an international businessman and billionaire who, according to OFAC, has “amassed his fortune through hundreds of millions of dollars’ worth of opaque and corrupt mining and oil deals in the Democratic Republic of the Congo (DRC).” OFAC designated no fewer than 18 affiliated entities and one individual together with Mr. Gertler.

Several others on the [GLOMAG] list are there for international corruption; one (Slobodan Tesic) is there for dealing arms and munitions in the Balkans, while Maung Maung Soe “oversaw the military operation in Burma’s Rakhine State responsible for widespread human rights abuse against Rohingya civilians.”

US persons (including US companies, US citizens and permanent residents, and anyone in the United States) are prohibited from engaging in transactions with a [GLOMAG] SDN, and with entities owned 50% or more by [GLOMAG] SDNs. Additionally, non-US persons who engage in transactions with a [GLOMAG] SDN risk also being designated as an SDN. This underlines the need to do due diligence on all customers, vendors, and business partners, and their beneficial owners, internationally. This alone is not new, as other laws and Executive Orders have authorized to imposition of blocking sanctions on those providing material assistance to SDNs.

But the Executive Order also authorizes blocking sanctions to those who materially assist, sponsor, or provide financial, material, or technological support for, or goods or services to, the targeted activities even absent the presence of an SDN. This means that companies or individuals involved with parties that may be engaged in human rights violations or corrupt activities, even if not designated an SDN, run the risk of potentially being designated themselves under this broad authorization. In order to mitigate this risk, in addition to checking for SDNs, KYC procedures, as well as vendor and other business partner diligence procedures, should also in appropriate cases check public records for evidence of (i) Human rights abuses; and (ii) Corruption, including the misappropriation of state assets, the expropriation of private assets for personal gain, corruption related to government contracts or the extraction of natural resources, or bribery; particularly in high risk countries and in high risk industries, such as mining and government contracts. The more involved the business relationship, the greater the level of diligence in this area should be conducted.[6] Multinational publicly-traded companies with best practice KYC, supply chain, and business partner due diligence programs were already doing this, but [GLOMAG] reinforces the need for this to become standard practice.