On December 11, the U.S. Department of Treasury ("Treasury")'s Office of Foreign Assets Control ("OFAC") announced sanctions against two former Afghan government officials, Mir Rahman Rahmani and his son, Ajmal Rahmani (collectively, "the Rahmanis"), as well as 44 associated entities. These individuals and entities were designated pursuant to Executive Order 13818, which builds upon and implements the Global Magnitsky Human Rights Accountability Act ("Global Magnitsky Act"), for their involvement in transnational corruption. The announcement is a strong signal of OFAC's continued commitment to pursuing action against individuals engaging in corruption and human rights abuses.
Background
First enacted in 2016, the Global Magnitsky Act gave the U.S. government novel authority to create a targeted sanctions program to hold accountable individuals and entities involved in human rights abuses and corruption around the world, regardless of their location. The legislation sparked global momentum to adopt similar targeted sanctions programs, and has since been adopted in Canada, the United Kingdom, the European Union, and Australia. On April 8, 2022, President Biden signed into law the permanent reauthorization of the Global Magnitsky Act.
OFAC's Designation
The Rahmanis' designation follows a months-long joint investigation between Treasury and the Office of the Special Inspector General for Afghanistan Reconstruction ("SIGAR"), that determined that Rahmanis, by way of 44 associated entities, carried out a complex procurement corruption scheme to misappropriate millions of dollars from U.S. government-funded contracts earmarked for Afghan security forces.
The scheme centered around U.S. government contracts for fuel intended to go towards the Afghan National Defense and Security Forces ("ANDSF"). The Rahmanis used their covert control of numerous companies to artificially inflate the price of fuel contracts they won, fraudulently import tax-free fuel, and under-deliver on its fuel contracts. To preempt scrutiny by local governing authorities, A. Rahmani was able to secure a seat in the Afghan Parliament by sending gifts to potential voters and bribing local officials to inflate election results.
Perhaps the most notable element of OFAC's designations is the scope and scale of the corruption, extending far beyond Afghan borders. Of the 44 companies sanctioned by Treasury, only two are Afghan companies; the majority of companies designated are German, Cypriot, and Emirati, with several Austrian, Dutch, and Bulgarian company receiving designation pursuant to E.O. 13818 as well.
OFAC's designation means that all property and interests in property of the Rahmanis–or the 44 designated associated entities–that are in the United States or in the possession or control of U.S persons are blocked and reported to OFAC. Additionally, any entities that are owned, directly or indirectly, individually or in the aggregate, 50% or more by one or more blocked persons are also blocked. Unless authorized by a general or specific license issued by OFAC, or exempt, OFAC's regulations prohibit all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons.
Key Takeaways
As Brian E. Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence, noted, the designations "underscore Treasury's commitment to holding accountable those who seek to exploit their privileged positions for personal benefit." Recent OFAC designations under the Global Magnitsky Act include individuals and entities from the Central African Republic, China, Haiti, Iran, and South Sudan for offenses ranging from gang activity and sexual violence to connections with forced labor.
Specifically, companies that provide goods or services to foreign governments that are "related to government contracts or the extraction of natural resources" must consider whether such activities involve corrupt practices, even if the company itself does not directly partake in the corruption. Furthermore, financial institutions that facilitate the transfer of funds in connection with corrupt practices, should also expect regulatory scrutiny, including possible designations or other OFAC enforcement actions. As is the case with other sanctions programs, OFAC need not find that persons "knowingly" engaged in the proscribed actions to enforce pursuant to its Magnitsky Act authorities.
As noted above, other countries have followed the United States' lead and adopted similar targeted sanctions programs. The UK is one such example, enacting the Global Human Rights Sanctions Regulations 2020 to target persons involved in serious human rights violations. In April 2021, the UK also implemented the Global Anti-Corruption Sanctions Regulations 2021, which is intended to target specific individuals who are involved in serious corruption. The UK has steadily targeted persons under such regimes, for instance it recently designated 9 individuals and 5 entities involved in labor operations in Southeast Asia, and 32 government-linked officials in Belarus, Haiti, Iran, and Syria complicit in repressing individual freedoms. The designations were made ahead of the 75th anniversary of the Universal Declaration of Human Rights and in coordination with the US and Canada (although the UK has not sanctioned the Rahmanis to date).
OFAC's (and other jurisdictions') continued willingness to use Magnitsky sanctions as a tool to combat corruption and human rights abuses underscores the need for both U.S. and non- U.S. businesses to integrate a broader set of risk flags and rating systems into compliance programs. Companies can no longer limit sanctions diligence to traditional high-risk jurisdictions, but must be vigilant of transacting with parties whose business implicates jurisdictions with elevated corruption or human rights risks. Additionally, the designations emphasize the need for companies to synchronize their sanctions, AML/CFT, and anti-corruption programs, where these programs may traditionally have fallen in separate organizational streams.
Read the official OFAC press release here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.