Alaco

09.12.2016 | New anti-corruption role for civil society mooted

On International Anti-Corruption Day, Alaco reviews an innovative bid by British parliamentarians to boost efforts to root out graft.

With more than £100 billion believed to be laundered through the UK every year, the government is under pressure to tackle the country’s reputation as a haven for money laundering.  The Criminal Finances bill, introduced in October, will bolster the authorities’ efforts to identify and recover the proceeds of crime and combat terror financing. And a newly proposed amendment, which will be debated in the Commons later this month, represents a paradigm shift in anti-corruption tactics.  

The Magnitsky Amendment departs from the old state of affairs where anti-corruption efforts were solely the job of the authorities, by creating a formal legal mechanism for civil society to have a direct role in the identification of assets belonging to gross human rights violators.

Named after a Russian lawyer, Sergei Magnitsky, who died in prison in Moscow after exposing an alleged multi-million fraud implicating Russian officials, the Magnitsky Amendment enjoys cross-party support. The clause, backed by the former Attorney-General Dominic Grieve, targets those deemed to have committed, or profited from, gross human rights abuses outside Britain, including retaliation against whistleblowers, journalists or human rights activists for uncovering corruption. It would allow the government and private parties to apply to the courts for an order to freeze the assets of those involved in such crimes. 

The amendment comes in the wake of similar legislation in the United States. Passed in 2012, the Magnitsky Act authorises the imposition of visa bans and asset freezes on Russian citizens linked to the lawyer’s death. The legislation followed a lengthy, high profile campaign for justice by Magnitsky’s client, Bill Browder, the co-founder of the investment fund Hermitage Capital. And now under the Global Magnitsky Act, passed in the US this week, the Magnitsky Act sanctions have been extended to officials anywhere in the world involved in human rights violations and corruption. 

Given the difficulty of identifying assets, it is very likely that one of the primary targets of the UK’s Magnitsky Amendment will be London real estate – a tangible, relatively unregulated asset much favoured by corrupt foreign officials as a means of laundering money.

At a time when the level of recovery of assets in Britain is minimal compared to the amount of money that is laundered through the country, the clause recognises that the task of clamping down on  human rights abusers, particularly members of repressive regimes and their associates, does not have to be tackled by the government alone.

The Magnitskiy Amendment also recognises the role that civil society can play in gathering evidence of venality in some of the worst human rights violating regimes. International NGOs, such as the anti-corruption campaigners Global Witness, have proved to be very adept at putting out well-researched investigative reports that dig deep into the corrupt practices of authorities and individuals around the world. Corrupt Central Asian and Nigerian officials are amongst those who have been targeted by NGOs, which see a strong connection between graft and human rights abuses. 

But while the weight of evidence from NGOs and private parties – which could include whistleblowers, dissidents and journalists – may persuade a court to issue a freezing order, the amendment does have some limitations and vulnerabilities. 

Unlike the US Global Magnitsky Act, the clause omits involvement in explicit corruption from its sanctionable offences, which is likely to restrict its reach: most UK real estate acquired using the proceeds of corruption is not beneficially owned by human rights violators. Moreover, proving ownership of real estate or any other kind of asset in Britain is not always straightforward. The trail often leads offshore, hidden behind opaque structures that do not disclose their ultimate owners.There is also the risk of the clause being used to settle commercial or political scores.

For financial institutions which deal with PEPs and overseas governments, the Magnitsky Amendment will create a level of uncertainty. As an immediate measure, banks would be able to search a list of individuals who are the subjects of freezing orders as part of their due diligence.   

Notwithstanding these issues, the amendment will send a strong signal to corrupt officials that Britain is clamping down on their laundering activities.  For the moment, the Magnitsky Amendment is merely a parliamentary proposal that will be up for debate. It might be watered down or even killed off, but its tabling signals that politicians are now prepared to embrace innovative approaches in the fight against corruption.