Administration Comments on S.

1039 Sergey Magnitskiy Rule of Law Executive Summary We share your concerns about the tragic death of Sergey Magnitskiy and have issued public statements condemning this tragedy and demanding Russian government action. We have raised this case privately at numerous meetings with senior Russian officials. Consistent with the aims of S. 1039 and under existing law which already bars admission to the United States to aliens who have engaged in torture and extrajudicial killings, Secretary Clinton has taken steps to ban individuals associated with the wrongful death of Sergey Magnitskiy from traveling to the United States. The Administration, therefore, does not see the need for this additional legislation. Among our concerns with the legislation as drafted are: The threshold for naming names is ambiguous and would set a precedent for how the United States deals with human rights cases around the world; The legislation imposes quasi-judicial requirements on the State Department that are outside of our normal mandate, to include hearings that would have to be conducted by visa officers to determine whether the allegations made against an applicant are credible and whether they would affect an applicants eligibility to enter the United States, that we are not equipped to meet. The bill is overly burdensome in that it requires an audit and report by all U.S. financial institutions regarding assets belonging to sanctioned persons; The bill is ambiguous as to whether it applies only to individuals connected to the Magnitskiy case or to any person responsible for gross violations of human rights; The bill does not include a provision for appeal, a normal part of due process, for a sanctioned person who is the subject of an asset freeze; and The passage of the legislation as written could have foreign policy implications that could hurt our international sanctions efforts on countries like Iran, North Korea and Libya, and jeopardize other areas of cooperation including transit to Afghanistan Our specific concerns are detailed below: General Observations The Administration is firmly committed to advancing democracy and human rights worldwide and to calling out human rights violations wherever they occur. President Obama, Secretary Clinton and other senior Administration officials have publicly and privately raised matters of concern in Russia, from human rights violations to the erosion of democracy, and legal injustices and will continue to do so. Senior Administration officials have issued over 75 public statements about Russian human rights violations and transgressions of the rule of law and democratic principles. These statements can be found at: http://www.state.gov/p/eur/ci/rs/c41670.htm. The Administration also has initiated a number of affirmative measures to support democracy, human rights, and the rule of law in Russia. Regarding the specific case of the wrongful death of Sergey Magnitskiy, the Administration has issued public statements condemning this tragedy and demanding Russian government action; has raised this injustice in private meetings, most recently during Foreign Minister Lavrovs visit; met with Sergei Magnitskys mother and his former colleagues to express our solidarity 1

with their efforts to seek justice in his case; and participated in public events, including those organized by Senator Cardin. In the spirit of the aims of S. 1039, Secretary Clinton has applied existing laws and authorities to implement the visa limitations on multiple individuals associated with the wrongful death of Sergey Magnitsky, based on the standards of evidence required for such restrictions. However, the Administration believes there is insufficient independentlysourced information available on most of the potential targets to meet the higher evidentiary standard needed to defend the required asset freezes that S. 1039 seeks to execute, should they result in legal challenges by those on the list. Indeed, such evidence is unlikely to become available. The Administration, therefore, does not see the need for this additional legislation. In addition, we have some specific concerns about this particular legislation: Previous U.S. visa bans and asset freezes have targeted the perpetrators of genocide or mass killings, or a countrys political leadership in cases where it has been linked to gross repressive measures against the civilian population, but this case is different in that it most immediately involves persons implicated in the wrongful death of one individual. Furthermore, the bill is overly burdensome in that it requires an audit and report to the Treasury Secretary by all U.S. financial institutions regarding assets belonging to sanctioned persons. Finally, the bill is ambiguous on whether the sanctions covered apply only to those persons credibly linked to the Magnitskiy case, or, as language in 4(a)(2)(B) suggests, applies to all persons responsible for gross human rights violations, without limitation to Russia or the Magnitskiy matter. Senior Russian government officials have warned us that they will respond asymmetrically if this legislation passes. Their argument is that we cannot expect them to be our partner in supporting sanctions against countries like Iran, North Korea, and Libya, and sanction them at the same time. Russian officials have said that other areas of bilateral cooperation, including on transit to Afghanistan, could be jeopardized if this legislation passes. The Russian Duma has already proposed legislation that would institute similar travel bans and asset freezes for U.S. officials whose actions Russia deems in violations of the rights of Russian citizens arrested abroad and brought to the United States for trial. We have no way to judge the scope of these actions, but note that other U.S. national security interests will be affected by the passage of the S. 1039. One worry we have in particular is that the Russian government would begin to prohibit Russian civil society groups from receiving U.S. financial assistance. Specific Concerns Section 4 Comments Identification of Persons Sections 4(a)(1) and 4(a)(2) The legislation seeks to impose travel bans and asset freezes on individuals involved with Magnitskiys detention and death in prison as well as individuals involved in the tax fraud conspiracy allegedly perpetrated using Hermitage Capital companies (Sec 4(a)(1)). The legislation also contains a broad catch-all provision that would apply the punitive travel ban and

asset freezes to any individual who is responsible for other gross violations of human rights (Sec 4(a)(2)). Section 212(a)(3)(E) of the Immigration and Nationality Act already bars admission to the United States to aliens who have engaged in torture and extrajudicial killings. These provisions of the INA are sufficient to cover persons involved in the death and detention of Mr. Magnitskiy. Presidential Proclamation 7750 bars entry into the United States to government officials involved in corrupt activities. Individuals included on the list generated by Hermitage Capital as having been involved in Magnitskiys detention and death in prison are already flagged in the visa adjudication (known as CLASS) system used by visa officers. The bills visa restrictions are therefore unnecessary. Section 4(c) Requires the Secretary to provide, when practical, notice and an opportunity for hearing to a person before the person is added to the list. The legislation imposes quasi-judicial requirements on the State that are outside of our normal mandate and that we are not equipped to meet. If visa officers were to hold hearings, as mandated by S. 1039, to determine eligibility to enter the United States, they would be offering a form of due process that would be different from that offered to all other visa applicants, who currently do not enjoy any form of hearing other than the visa interview. At a minimum, additional resources would be needed for State to be able to implement these provisions. The mechanism for providing notice would need to be established and procedures for hearing would need to be promulgated through rule making which would need to be included in the legislation. Section 4(d) Provides that Members of Congress can submit individual names to the Secretary, who is required to respond within 30 days as to whether or not the individual meets the criteria set forth in the act. Given the broad coverage of the legislation noted above, Members of Congress could submit names of senior Russian officials, thereby placing the Secretary in an untenable position vis--vis her Russian interlocutors in advancing U.S. national security goals. When also coupled with the notice and hearing provision noted in the preceding point, otherwise confidential deliberations and decisions about the visa eligibility of a Russian official would likely become public. Thirty days would likely prove insufficient time to gather evidence and hold the hearing. Section 5 Comments Inadmissibility of Certain Aliens and Waiver Mandates that persons identified in section 4(a) are inadmissible to receive visa entry into the United States and revokes current visas of listed persons. Allows for a national interest waiver provided the Secretary of State report to Congress on the justification. Although section 5(c) does provide for waiver of inadmissibility of objectionable persons on the grounds of national interest, the legislation does not provide a termination and 3

there is no explicit waiver for UN-sanctioned travel. Even with remedial Russian action to punish individuals responsible for Magnitskiys detention and death and/or strides in promoting and protecting human rights, Russia would still be subject to provisions of the Act. Section 6 Comments Financial Measures Mandates the imposition of asset freezes on individuals involved with Magnitskiys detention and death in prison as well as individuals involved in the tax fraud conspiracy allegedly perpetrated using Hermitage Capital companies (Sec 4(a)(1)). The legislation also contains a broad provision that would apply the asset freezes to any individual who is responsible for other gross violations of human rights (Sec 4(a)(2)). These sanctions are not bounded by time, and appear permanent. Although there is a national interest wavier provision, because the sanctions address completed past conduct, there is otherwise no basis by which sanctions could be removed. In this respect, the proposed sanctions are far different from those normally imposed by the Department of the Treasury under the International Emergency Economic Powers Act and the National Emergencies Act, which provide for the imposition of conduct-based sanctions against persons actively contributing to current national emergencies identified by the President, and the removal of such persons from sanctions once the undesired conduct changes and/or the threat to the United States ends. Using sanctions as a permanent, punitive measure based on an allegation that a crime has been committed invites a legal challenge that the sanctions are a form of criminal punishment without the protections of criminal due process, and could imperil not only the other measures in this legislation but the many other IEEPA sanctions programs OFAC administers. An initial inter-agency review of about 60 targets proposed in connection with the bill shows that there is insufficient information to meet the high evidentiary standard required to establish the responsibility of specific individuals for the harms alleged in the bill relating to Magnitsky and Hermitage Capital, which is a serious issue in particular with respect to economic sanctions that are vulnerable to legal challenge. Section 6(b) indicates that financial institutions would be required to search for assets of non-listed individuals or entities who act as agents for or on behalf of a listed person. If this is the case, the audit requirement would be a massively burdensome undertaking for State, Treasury and financial institutions. Typically in economic sanctions programs, all the targets are specifically identified and listed publically following the completion of an exhaustive evidentiary process. As a result, financial institutions know precisely who or what to look for when screening transactions and reviewing their customer databases to look for assets that can be blocked. Failing to list all the targets for which financial institutions need to search will be problematic for the financial institutions, State, and Treasury. Lacking a comprehensive list, the financial institutions will scour public source reporting for associates of the listed targets. As there does not appear to be a hold-harmless clause in the legislation, and fearing legal action from the non-listed parties whose assets they are 4

contemplating blocking, the financial institutions will then contact State and Treasury requesting guidance about whether to block. State and Treasury will (1) either have to develop listing criteria for the agents and those acting on behalf of the listed party in order to ensure the financial institutions actions are legal, or (2) advise the financial institutions to use their best judgment in blocking. In the first scenario, developing evidentiary criteria is a very time- and labor-intensive process. In the second scenario, we are placing financial institutions in the position of potentially receiving a penalty from the USG for failing to block due to a fear of being sued or being a defendant in a lawsuit for having blocked inappropriately.