In an earlier post, here, we examined the Global Magnitsky Human Rights Accountability Act (“GloMag”), which was formally implemented by an Executive Order that declared “serious human rights abuses and corruption globally” as an emergency threat to U.S. interests. The President delegated his authority under GloMag to the Global Targeting Office of the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and the U.S. Department of State to sanction human rights offenders or other persons who have materially assisted significant acts of corruption, freeze their assets, and ban them from entering the U.S.

OFAC recently used its authority under GloMag to designate a wealthy Indian family with significant business interests in South Africa in response to allegations of widespread bribery, corruption and misappropriation of state assets. As a result, the Guptas, their business associate Salim Essa, and all entities owned fifty percent or more by them individually, or by them and other designated persons in aggregate, now are barred from the U.S. financial system. U.S. persons are prohibited from dealing with them and must “block,” or seize, all property or interests in their possession or control.

GloMag

In the past few years, GloMag has been used to designate leaders and units of the Burmese military for their involvement in ethnic cleansing, leaders in Gambia for creating “terror and assassination squads” to murder political opponents, henchmen in Cambodia for repeatedly attacking innocent opposition lawmakers and supporters, and more. Treasury has now used the same GloMag authority to designate three brothers, Ajay Gupta, Atul Gupta, and Rajesh Gupta, as well as their business associate, Salim Essa, for alleged massive corruption involving public funds and public office.

State Capture

According to OFAC, the Guptas, aided by Salim Essa, leveraged close ties to prominent South African politicians—particularly former South African President Jacob Zuma—to expand the family’s business interests and misappropriate hundreds of millions of dollars through illicit dealings with the South African government. Specifically, the Guptas and Essa are alleged to have paid large sums of money or procured for others elevated government positions in exchange for valuable government contracts. OFAC also found that they have influenced the appointment or termination of government personnel based on apparent receptiveness or hostility to the Gupta’s business interests. The degree of influence exercised by the Gupta family over former President Zuma’s administration has seen these events reported in South Africa as “state capture.” OFAC further alleges that the Guptas and Essa utilized a network of shell companies and close associates to obfuscate their acts of corruption and launder the resultant proceeds.

According to Sigal Mandelker, Under Secretary of the United States Treasury for Terrorism and Financial Intelligence, “Treasury’s designation targets the Guptas’ pay-to-play political patronage, which was orchestrated at the expense of the South African people.” Further, “the Guptas and Essa used their influence with prominent politicians and parties to line their pockets with ill-gotten gains.” Finally, Ms. Mandelker confirms that Treasury “will continue to exclude from the U.S. financial system those who profit from corruption.”

As a result of these designations, the property or interests of all four individuals, as well as the property of any entities that are owned fifty percent or more by them, which are in the United States or the possession or control of a U.S. person, are now blocked. Additionally, the Guptas and their criminal network are now excluded from the U.S. financial system as U.S. persons, including U.S. correspondent banks, are prohibited from dealing with them.

Additional Considerations

 Processing transactions through the U.S. financial system on behalf of designated parties exposes financial institutions to potential serious financial penalties and reputational harm. Therefore, it is imperative that global financial institutions, particularly those in jurisdictions other than South Africa in which the Guptas are known or thought to operate, including South Asia and the Middle East, ensure they do not maintain any accounts for these designated parties or entities under their control and do not unwittingly process USD transactions for them in violation of U.S. sanctions.

Co-author: Patrick Fenior