Mariners along with the energy and metal sectors were alerted Thursday to watch for “deceptive shipping practices” intended for Iran, North Korea and Syria to evade sanctions as “malign actors constantly seek novel ways to exploit global supply chains for their benefit” and 90 percent of trade involves the maritime industry.
The 35-page guidance was issued by the State Department, the Treasury Department’s Office of Foreign Assets Control, and the U.S. Coast Guard and lays out best practices industry can apply to mitigate exposure to sanctions risk along with a list of activities that could land the maritime industry and associated sectors in hot water.
The global advisory is geared toward ship owners, managers, operators, brokers, ship chandlers, flag registries, port operators, shipping companies, freight forwarders, classification service providers, commodity traders, insurance companies, and financial institutions.
Entities and individuals involved in “the supply chains of trade in the energy and metals sectors, including trade in crude oil, refined petroleum, petrochemicals, steel, iron, aluminum, copper, sand, and coal” are encouraged “to review this advisory and take appropriate action as deemed necessary or advisable.”
“It is critical that private sector entities appropriately assess their sanctions risk and, as necessary, implement compliance controls to address any identified gaps in their compliance programs. This is especially important when operating near or in areas they determine to be high-risk, which may include areas frequently used for potentially sanctionable transportation-related activities,” says the advisory.
Parties are advised to watch for disabling or manipulating the Automatic Identification System (AIS) on vessels, or “spoofing” in order to broadcast a different name, International Maritime Organization (IMO) number, Maritime Mobile Service Identity (MMSI), or other identifying information; physical alteration of vessel identification such as painting over the name on the ship’s hull; falsifying vessel documentation and cargo documents including bills of lading, certificates of origin, invoices, packing lists, proof of insurance, and lists of last ports of call; ship-to-ship transfers particularly in high-risk areas or at night; voyage irregularities such as indirect routing, unscheduled detours, or transit or transshipment of cargo through third countries; flying false flags or “flag hopping” by repeatedly registering with new flag states; and utilizing complex ownership structures such as shell companies, multiple levels of ownership and management, and a pattern of changes in the ownership or management of companies.
“As industry actors implement appropriate due diligence and compliance programs based on their risk assessments, we recommend that they continually adopt business practices to address red flags and other anomalies that may indicate illicit or sanctionable behavior,” recommends the advisory.
This includes institutionalizing sanctions compliance programs that may “establish that engaging in sanctionable conduct is cause for immediate termination of business or employment, or could determine that appropriate controls have been adopted that adequately mitigate potential risks associated with the activity.” Employees who flag potential sanctions violations should also be protected from retaliation.
Parties should also establish AIS best practices and contractual requirements, monitor ships through the entire life cycle of a transaction, and know customers and counterparties, which could include requesting documentation to confirm the ultimate beneficial owner of the vessel.
“As appropriate, exporters and entities across the maritime supply chain are encouraged to conduct appropriate due diligence as relevant to ensure that recipients and counterparties to a transaction are not sending or receiving commodities that may trigger sanctions, such as Iranian petroleum or North Korea-origin coal,” the guidance continues. “They may also consider implementing controls that allow for verification of origin and recipient checks for ships that conduct STS transfers, particularly in high-risk areas. As necessary, they should consider requesting copies of export licenses (where applicable) and complete, accurate shipping documentation, including bills of lading that identify the origin or destination of cargo.”
Best practices should be incorporated into contractual language and information sharing within industry.
“Successful sanctions compliance programs often rely on fostering industry-wide awareness of challenges, threats, and risk mitigation measures,” says the advisory. “The Department of State, OFAC, and the U.S. Coast Guard recommend that industry groups encourage members to provide relevant information and share it broadly with partners, other members, and colleagues consistent with applicable laws and regulations.”
Additionally, “vessel owners and clubs are encouraged to share information with the financial industry, potentially working though competent authorities where required, and flag administrations should routinely pass information to the IMO and parties to the Registry Information Sharing Compact.”
The State Department said the advisory, which expands upon previous U.S. government alerts, aims to empower industry with “information on and tools to counter current and emerging trends in sanctions evasion related to shipping and associated services.”