Earlier this year, Section 13 of the Criminal Finances Act 2017 (the “2017 Act”) went into force in the United Kingdom, significantly expanding the scope of corporate liability for companies doing business in areas of the world where human rights abuses may be prevalent. The new law effectively creates potential new corporate liability for human rights abuses by expanding civil asset forfeiture tools available to UK prosecutors to seize and recover assets held by companies that unknowingly benefit from, or assist, gross human rights abuses.
While the 2017 Act is intended to reflect UK foreign policy interests in supporting global efforts to improve human rights around the world, the new law also raises potential corporate liability concerns for both UK and foreign companies. Indeed, as financial crime enforcement and human rights remain top priorities for the UK government, prosecutors are expected to actively review business relationships with third parties alleged to have engaged in gross human rights abuses and use such information to identify and investigate companies connected with such violations.
Civil Asset Forfeiture as Human Rights Enforcement
The 2017 Act amends the Proceeds of Crime Act, which enables British prosecutors to recover property that is, or represents, proceeds of unlawful conduct in civil asset forfeiture proceedings before the High Court.
The new law amends the Proceeds of Crime Act’s definition of “unlawful conduct” by including conduct that is connected with the commission of a gross human rights abuse or violation. In particular, the 2017 Act provides that conduct “is connected with” the commission of a gross human rights abuse or violation if such conduct involves, among other things, “profiting from” or “materially assisting” such activities. Additionally, the 2017 Act broadly defines “gross human rights abuses or violations” as torture as well as cruel or degrading treatment carried out by a public official on a person who sought to expose illegal actions by a public official, or to obtain, exercise, defend or promote human rights and fundamental freedoms (e.g., whistleblowers and journalists), and as a consequence of such person’s activities.
Finally, in addition to imposing a 20-year statute of limitations on the filing of a civil asset forfeiture action, the new law specifically states that it applies to conduct that occurred, or property that was obtained, before the coming into force of the 2017 Act to the extent that such conduct consisted of torture.
Expanding Corporate Liability for Human Rights Abuses
As previously noted, the Proceeds of Crime Act currently empowers prosecutors to recover assets in the United Kingdom that are deemed to be the proceeds of unlawful conduct, including substitute assets that represent the benefit of the alleged violation as well as assets tainted by the unlawful conduct.
Thus, the 2017 Act raises significant corporate liability concerns for companies doing business in areas of the world where human rights abuses may be prevalent, as UK prosecuting authorities are expected to use the new law to pursue businesses that benefitted from or inadvertently assisted third parties’ gross human rights violations. Indeed, as the 2017 Act appears to impose a strict liability standard, companies may be exposed to significant corporate liability even where they unknowingly benefit from or assist such human rights violations. No intent to benefit or assist is required under the new law.
Hence, for instance, a multinational that sold merchandize containing components manufactured by a contractor that benefitted from gross human rights violations may be exposed to corporate liability as UK prosecutors might seek to freeze the multinational’s assets to recover sale proceeds as the product of gross human rights abuses. Similarly, for example, if a multinational defense contractor sold equipment to a third party which materially assisted such third party in committing gross human rights violations, the multinational’s sale proceeds or substitute assets in the United Kingdom might be subject to asset forfeiture.
Integrating Human Rights Compliance
Because of the 2017 Act’s apparent lack of an intent requirement, 20-year-long statute of limitations and potential significant impact on corporate assets and operations, companies doing business in countries where human rights violations are commonplace should consider incorporating human rights compliance into their own third-party due diligence processes and compliance framework, as well as those of their subsidiaries and controlled entities.
Moreover, as the new law’s retroactive application may raise significant corporate liability, companies should, among other things, proactively conduct an internal inquiry to identify high-risk countries and potentially problematic business relationships, and analyze facts and circumstances surrounding each allegation of human rights violations related to their operations.
In sum, because the 2017 Act is expected to significantly expand the scope of civil asset forfeiture litigation to address gross human rights abuses, companies should consider integrating human rights compliance with existing compliance programs, proactively perform an internal review to identify and remediate potential business relationships connected with gross human rights abuses, and conduct effective third-party human rights due diligence.