The U.S. Government remains hard at work through the COVID-19 pandemic. Recently the Office of Foreign Assets Control (“OFAC”) at the Department of the Treasury, the Department of State, and U.S. Coast Guard issued their long-awaited Guidance to Address Illicit Shipping and Sanctions Evasion Practices (the “Guidance”).
This effort must have taken quite a few Zoom conferences! But it will be worth it. Together, the government agencies, probably led by OFAC, have put together 35 pages of valuable guidance for the maritime industry, energy and metal sectors, commodity trading companies, ship owners, crewing companies, and other members of the logistics and shipping industries. OFAC and its partner government agencies expect everyone to take sanctions evasion very seriously. They have even included guidance apparently intended for actors of other sovereign states – flag registry managers and port state control authorities.
I am not going to recount the details of the Guidance here. It is quite detailed and specific. But it is worthwhile to briefly summarize the deceptive shipping practices identified in the Guidance, and the sanctions evasion risk mitigation measures the U.S. government generally recommends: The deceptive shipping practices include:
- Disabling or Manipulating the Automatic Identification System (AIS) on Vessels
- Physically Altering Vessel Identification
- Falsifying Cargo and Vessel Documents
- Ship-to-Ship (STS) Transfers
- Voyage Irregularities
- False Flags and Flag Hopping
- Complex Ownership or Management
Next, the Guidance lists specific practices that may assist industry actors in identifying potential sanctions evasion and mitigating compliance risk. The primary sanctions at issue are the U.S. and UN sanctions on North Korea, including prohibitions on North Korean exports of coal and sand, and imports of refined petroleum products; the extensive U.S. sanctions on Iran, including the embargo on Iranian petroleum and petrochemical products, as well as metals and other sectors of the Iranian economy, and services to Iranian-flagged vessels; and the U.S. sanctions on Syria, including restrictions on petroleum-related shipments to Syria. The U.S. government agencies recommend the following sanctions risk mitigation measures for the maritime industry:
- Institutionalize Sanctions Compliance Programs
- Establish AIS Best Practices and Contractual Requirements
- Monitor Ships Throughout the Entire Transaction Lifecycle
- Know Your Customer and Counterparty
- Exercise Supply Chain Due Diligence
- Contractual Language
- Industry Information Sharing
In Appendix A the guidance document provides specific recommendations for 10 categories of organizations involved in the maritime shipping industry: maritime insurance companies, flag registry managers, port state control authorities, shipping industry associations, regional and global commodity trading, supplier, and brokering companies, financial institutions, ship owners, operators, and charterers, classification societies, vessel captains, and crewing companies.
Much of the specific guidance is focused on ensuring the integrity of AIS data, which records vessel routes. Consistent and uninterrupted route data can serve to verify that a vessel did not engage in any sanctionable activities, while evidence of manipulation of AIS data would be a red flag for sanctions evasion.
There are, however, several “soft,” less data-driven best practices for sanctions risk mitigation. These include establishing sanctions compliance programs, in accordance with the Framework for OFAC Compliance Commitments, conducting customer, counterparty, and supply chain due diligence, managing risk with appropriate contractual language, and industry information sharing.
Finally, what is clear from the Guidance document is that the U.S. government not only intends it for a wide range of maritime industry actors, but also that it expects organizations to use the Guidance as a first step, and customize sanctions risk mitigation measures to their specific risks. (A footnote in every section of the document points out that “ guidance is not intended to be, nor should it be interpreted as, comprehensive or as imposing requirements under U.S. law”). This means that from the point of view of the U.S. government, implementation of sanctions risk management should take some work and continuous improvement for the maritime industry. An experienced sanctions compliance professional can be a valuable partner in these efforts to maritime industry members.