This week in Washington, David Peyman, Deputy Assistant Secretary of State for Counter Threat Finance and Sanctions, outlined details relating to a forthcoming advisory that will see the U.S. State Department and the Office of Foreign Asset Control (OFAC) now focusing on all areas of maritime trade and shipping.
Peyman stated that “the maritime industry is the key artery for sanctions evasion globally”. Gone are the days when regulators focused almost entirely on financial institutions. The maritime industry has now become a regulatory focal point due to its potential to facilitate trade and fund terrorism for states whose banking sectors are excluded from the global economy.
As such, regulators are bearing down heavily on particular groups within the maritime industry. These include flag registries, ship owners and operators, ships (in particular ship types carrying specific cargoes under strategic sanctions programs), chartering, insurance, ports, shipping service providers and the maritime supply chain as a whole.
He reiterated the need for those involved in the wider shipping industry to further develop their sanctions compliance programmes, and announced the upcoming issuing of a new global maritime sanctions advisory. 
Who should be paying attention?
The shipping industry contains a vast web of different businesses and services that stand at risk of transacting with sanctioned vessels or parties. These include:
- Ship Owners
- Ship Operators
- Ship Managers
- Ship Brokers
- Charterers
- Port Agencies
- Classification Societies
- Freight Forwarders
- NVOCCs
- Bunkering providers
- Ancillary service providers
- Insurers
- Financial institutions financing the shipping industry
The upcoming OFAC advisories are expected to go into depth regarding these key players and why they need to be on high alert.
Key Takeaways
1. No one is shielded from sanctions
No organisation is too large or too safe to elude sanctions. The recent OFAC sanctions imposed on subsidiaries of COSCO, the world’s largest shipping company, for violating US sanctions on Iran is a good example of this. With regard to OFAC sanctions, “no company is too big to fail […] and no company is too safe.”
2. OFAC is focusing on strategic sanctions
As seen with the COSCO example, OFAC is focusing on sanctions that have an impact beyond the designated target itself, an impact across industries and across sectors, and send a message to similar companies that they are being watched and will be caught if they are in breach of sanctions.
3. Knowing where a vessel has been is essential
Knowledge of where a vessel has been operating including ports, regions, and jurisdictions, while implementing effective tools for ship tracking with continuity (which includes AIS transponders to be switched on at all times) is crucial. Moreover, the ongoing monitoring of sanctions, risk, and ship movements over the course of a maritime transaction is needed to ensure compliance. This is expected to be included in the upcoming advisory.
4. The ship screening process is not sufficient
It is essential as part of the screening process to investigate all associated companies commercially and operationally engaged with the ship, including the ship’s Beneficial Ownership, Registered Owner, Operator, and Managers, its flag registry, and the associated companies’ country of registration, domicile, and control.
5. Suspicions of false documentation should not be taken lightly
If any suspicion of false documents occurs, including Bills of Lading, contact regulators immediately to determine guidance and support to validate whether the documentation is demonstrating fraud and fraudulent activity.
6. Ensure full investigations are done prior to engaging in ship-to-ship (STS) transfers
Be aware of the location of STS transfers; there are high risk regions including the Persian Gulf, UAE, Iraq, Malaysia, Hong Kong, off the Coast of China, and the South China Sea. Be extra vigilant with STS transfers in these areas of operation by screening all parties associated with the ship and ensuring appropriate ship tracking service availability.
Which areas of operation should you be looking at?
To ensure that all associated ownership and management, as well as any other areas of regulatory risk, are screened and recorded, ship owners, operators, and other parties involved must consider the following areas of operation.
Ship Owners
When vetting ships prior to purchase, ship owners should engage in:
- Pre-engagement risk assessments and sanctions screening of the ship and its associated owners, operators, flag, current and historical trading routes, and operations.
- Examination of whether the ship is identified in published regulatory advisories and whether this could pose a reputational risk to the ownership portfolio.
- IMO screening of the ship.
With regards to their current asset portfolio, ship owners should monitor their ships and operators’ activities and movements to ensure that they are remaining compliant.
Ship Managers, Operators, and Charterers
- Ship pre-engagement risk assessment on sanctions and risks related to the ship, its associated companies, prior and proposed trading activities, flag status, and the associated company risk in relation to high risk jurisdictions or sanctioned countries.
- Who are the owners, managers, and beneficiaries of the ship and where are they located? Ultimate beneficial ownership should be continuously monitored.
- Implementing effective satellite ship tracking technology (such as the use of AIS/ Inmarsat/ LRIT combined capabilities) to monitor and track ship movements and trading patterns. Ensuring the continuity of ship tracking at all times as well as active notification of alerts from any AIS/ Inmarsat/ LRIT terminal switch off or stationary vessel in high jurisdiction.
- Implementing enhanced due diligence programs on ships that are legitimately operating in high risk areas.
- Ongoing effective monitoring of the regulatory status of the ownership, management, and beneficiaries of a ship.
- IMO screening of ships.
Port Agencies and Port Operators
- Screening and monitoring all ships that are entering and operating within a port area.
- Ownership, operator structure, and previous trading and port call activity needs to be monitored while tracking ship movement and regulatory status of the ship and its associated companies during the port limit engagement.
- IMO screening of ships.
- Knowing exactly what goods are being transported to, through, and from the ports in terms of strategic and dual-use type application, which could be in breach of sanctions.
Bunkering
- Prior to ship engagement, a risk assessment and sanctions screening check should be conducted on all ships including their associated beneficiaries and operators, the ship’s flag, the previous trading routes and port calls and, potentially, the intended route and next port of call or destination.
- Understanding the origin of the cargoes and whether any STS transfers occurred and in what location.
- Post bunkering operations, track the ship’s movement, as well as the regulatory status of the ship and its beneficiaries, up to and including, the invoice period of the transaction.
Ancillary shipping service providers
- Conduct pre due-diligence and sanctions screening checks on ships, their beneficiaries, and the ship’s previous trading routes prior to engagement.
More to come in the coming weeks from OFAC in their upcoming maritime sanctions advisory.
For the time being, contact us via [email protected] to learn more about how we can help ensure that you are staying on the right side of regulators.