On May 14, 2020, the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”), along with the U.S. Department of State and the U.S. Coast Guard, announced a new sanctions advisory for the shipping industry titled “Guidance to Address Illicit Shipping and Sanctions Evasion Practices” (the “Shipping Advisory” or “Advisory”). The new Shipping Advisory cautions those involved in the maritime industry and provides best compliance practices in dealing with current and emerging sanctions trends, including the risks of illicit shipping activity and deceptive practices meant to facilitate sanctions evasion. The Shipping Advisory builds on prior shipping guidance issued by OFAC, including those relating to Iran, North Korea, and Syria.
The Shipping Advisory focuses on the following actors within the maritime industry: ship owners, managers, operators, brokers, ship handlers, flag registries, port operators, shipping companies, freight forwarders, classification service providers, commodity traders, insurance companies (and in particular, P&I clubs), and financial institutions. The Advisory cautions that it is critical that members of the shipping industry appropriately assess their sanctions risk, and as necessary, implement compliance controls to address gaps in their compliance programs. The Advisory recommends taking a risk-based approach, which is particularly important when companies and individuals are operating in or near high-risk jurisdictions. In addition, the Shipping Advisory notes that entities and individuals involved in the supply chains of trade in the energy and metals sector should exercise caution as well, including those that trade in crude oil, refined petroleum, petrochemicals, steel, iron, aluminum, copper, sand, and coal.
In addition, the Shipping Advisory identifies and addresses the following deceptive shipping practices, noting that those in the industry must be vigilant when confronted with these risks and should consider heightened due diligence, as necessary:
- 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 and Management
Furthermore, the Shipping Advisory details best practices that may assist in more effectively identifying potential sanctions evasion. These practices include institutionalizing sanctions compliance programs, establishing AIS best practices and contractual requirements, monitoring ships throughout the entire transaction lifecycle, know your customers (KYC) and counterparties, exercising supply chain due diligence, implementing appropriate contractual language, and information sharing within the industry (including between and amongst, for example, P&I clubs and vessel owners).
In short, OFAC and the U.S. Department of State have recently focused on the shipping industry and we expect that trend to continue in the near term. We will continue to closely monitor developments in this space. If you have any questions or concerns about U.S. sanctions, please contact Bruce G. Paulsen (212-574-1533), Andrew S. Jacobson (212-574-1477), or Noah S. Czarny (212-574-1642) at Seward & Kissel’s Sanctions Practice Group.