The Magnitsky Act is an important piece of legislation in the global fight against money laundering and corruption across borders. It was enacted in the US in 2012, after the death in Russian police custody of lawyer and auditor Sergei Magnitsky, who worked with political activist Bill Browder in an investigation into the raid on the Moscow offices of Browder’s asset management company Hermitage and the Moscow branch of the law firm for which Magnitsky worked.
Magnitsky uncovered a large-scale tax fraud involving unauthorised ownership of Hermitage’s investment holding companies, whose illegal owners applied for a fraudulent tax refund estimated at some $230-million. The police, judiciary, tax officials, bankers, and members of the Russian mafia were all implicated. For his efforts Magnitsky was arrested and imprisoned for 11 months without a trial. He died in prison in November 2009, aged 37, after being denied medical treatment for complications that arose/were deliberately caused during his incarceration.
Browder refused to let such an injustice slide. He became one of President Vladimir Putin’s most vociferous opponents and lobbied for the development of legislation that would sanction those believed to be responsible for Magnitsky’s death, arguing that while they could not be touched within Russian borders, the assets that they moved out of that country into the West could be frozen and they could be denied entry into the US. After passing through the US Senate and House of Representatives with minimal resistance, it became a federal law in December 2012.
The Global Magnitsky Human Rights Accountability Act (GMA) followed four years later, increasing the scope of action against the corrupt to allow the US president to impose economic sanctions on human rights abusers and corrupt government officials wherever they lurked in the world.
Since then other countries have enacted so-called Magnitsky legislation, including the EU, Estonia, Canada, Lithuania, Latvia, Gibraltar, Jersey, Kosovo, Australia, Iceland, Norway, and Czechia, among others. In 2018 the UK Parliament amended the Criminal Finances Bill to allow the British government to freeze the assets of international human rights violators in the UK. In the same year the UK Sanctions and Anti-Money Laundering Bill was enhanced with the Magnitsky amendment, which would allow the government to sanction people who commit serious human rights violations.
For South Africa, this could be a big deal – so why don’t we have a Magnitsky law?
Why no SA Magnitsky?
One immediate reason comes to mind – the diplomatic friendship between South Africa and Russia, which was arguably at its strongest during the state capture years of former president Jacob Zuma’s tenure. Any form of sanctions against Russian comrades would have been unthinkable then, and even today the South African government is hard pressed to act sternly against Russia, for instance scrambling like mad to find ways around an International Criminal Court warrant of arrest for Putin when the BRICS bloc met in this country in 2023. It refused to condemn Putin’s unwarranted war against Ukraine and abstained from a UN General Assembly vote that did so.
Introducing a Magnitsky Act here might be seen (by the government) as inappropriate, given that the two countries have close ties that go back decades.
But Bill Browder thinks we should have one – at the 2024 Daily Maverick think tank The Gathering in March, Browder urged lawmakers to address this deficiency.
“We know that there are some people in the South African government that are chummy with Putin and with Russia, and Putin probably wouldn’t be happy that South Africa has a Magnitsky Act,” said Browder during his video address.
Such legislation might certainly displease the wealthy Russians who are investing their rubles into property in South Africa, notably in Cape Town. People from other nations have also shown interest in buying local property.
It might also pose a stumbling block to political party donations worth millions from Russian supporters of the ANC. This, and other investment opportunities, is potentially another reason for keeping on Russia’s sweet side.
This should not be the case, Browder argues.
“South Africa prides itself on being a country with an independent judiciary, a country with an established rule of law. But anybody who’s on any of these Magnitsky lists in the rest of the world can freely travel to South Africa and they can go on vacation in Cape Town, they can keep their money in South African banks.”
He mentioned South Africa’s upcoming election and noted that the audience at The Gathering 2024 included political candidates and other politically connected people. “My main message to you is that South Africa should have a Magnitsky Act, and it should be called the Magnitsky Act.”
Browder arguably voiced the thoughts of millions of South Africans when he said: “I don’t think that people in the South African government should be chummy with Putin … my hope is that we’ll push forward on something which will be good for South Africa, bad for Russia, and of course, bad for other corrupt kleptocrats and dictators around the world.”
Countering financial crime
How would a Magnitsky help South Africa? Let us cast our minds back to the embarrassment that was the state’s Nulane money laundering trial, an attempt to prove that Atul and Rajesh Gupta were part of a dastardly plot to defraud the Free State government out of millions, and that Nulane Investments, owned by Gupta ally Iqbal Sharma, was a shell company through which money had been diverted.
The National Prosecuting Authority found itself on the losing side after failing to prove its case of intention to commit fraud. This in turn flattened the government’s attempt to extradite the two Guptas from Dubai, where they had been living, since the extradition request was founded on the Nulane charges. The coup de grâce was the discovery that the Guptas had stealthily moved to Vanuatu after buying citizenship there some time before.
Meanwhile, the US Treasury added the brothers Atul, Ajay, and Rajesh Gupta, with another crony Salim Essa, to its list of people sanctioned in terms of the GMA.
“The Office of Foreign Assets Control (OFAC) sanctioned members of a significant corruption network in South Africa that leveraged overpayments on government contracts, bribery, and other corrupt acts to fund political contributions and influence government actions.”
This was done in terms of Executive Order 13818, which builds on and implements the GMA. Essentially, all US-located property and interests in property of the four, as well as any entities that are 50% owned, directly or indirectly, by them as individuals or with other designated persons, are blocked and must be reported to OFAC, said the Treasury. “Unless authorised by a general or specific license issued by OFAC or otherwise exempt, OFAC’s regulations generally prohibit all transactions by US persons or within (or transiting) the US that involve any property or interests in property of designated or otherwise blocked persons.”
Blocked persons or anyone acting on their behalf are also prohibited from other financial transactions within the US. This is a significant sanction.
“The Gupta family leveraged its political connections to engage in widespread corruption and bribery, capture government contracts, and misappropriate state assets … used their influence with prominent politicians and parties to line their pockets with ill-gotten gains. We will continue to exclude from the US financial system those who profit from corruption,” said the US Treasury.
Furthermore, it said, “we commend the extraordinary work by South Africa’s civil society activists, investigative journalists, and whistleblowers, who have exposed the breadth and depth of the Gupta family’s corruption.”
Thus, application of the GMA has closed the US to the Guptas in one fell swoop. South Africa, on the other hand, has spent years and large amounts of taxpayers’ money pursuing the family and making various attempts to freeze Gupta assets – those that are known, that is – within its borders, all while the family has moved billions out of the country under the noses of authorities.
Promoting human rights
Also speaking at The Gathering 2024, Daily Maverick editor Branko Brkic noted that where there is a Magnitsky Act in effect, countries are able to respond swiftly to proven human rights abuses and corruption anywhere in the world, while executive authorities must be completely transparent about their actions in this regard.
“None of these points violates any of the tenets of the South African Constitution – quite the opposite. It speaks of a global effort to promote accountability and close avenues for human rights abuse, money laundering, and influence peddling,” said Brkic.
Illicit financial flows take their toll on South Africa’s fragile economy and the Guptas are not the only ones ensuring their money is untouchable. The link between corruption and human rights abuses is well established and with a domestic Magnitsky Act in place, those engaging in corrupt activities that impinge on human rights would think twice – provided the legislation is effectively and efficiently applied.
Furthermore, international criminal networks, whether for drugs, weapons, animal parts, or people, rely on the secretive movement of money to fund their illegal activities – these crimes are often linked to human rights abuses. A judiciously used Magnitsky Act would help to disrupt those channels, cutting that money off from the global financial system where it would disappear without trace. South Africa is currently on the Financial Action Task Force’s global grey list because of deficiencies in its anti-money laundering and anti-terrorist financing regime, but is making progress in addressing those gaps.
“The Global Magnitsky Act is the strongest tool anywhere that can help promote human rights and fight corruption. So, why would the South African government not actively promote and ask our Parliament to pass it with great haste?” Brkic said.
For a country that claims to value human rights so highly, South Africa is strangely hesitant about developing and passing a Magnitsky Act. “What is stopping us?,” Brkic asked. “What are we afraid of?”
