The US Department of Treasury’s Office of Foreign Assets Control (“OFAC”), the U.S. Department of State and the U.S. Coast Guard have on May 14, 2020 issued a Sanctions Advisory for the Maritime Industry, Energy and Metal Sectors, and Related Communities (the “Advisory”). The Advisory focuses on identifying illicit shipping practices, establishing best practices and providing specific guidance to various actors, with a specific focus on Iran, North Korea and Syria. This newsletter sets out the key take-aways from the Advisory.
The Advisory, which was issued on 14 May 2020, is the first comprehensive guidance document issued by OFAC, the U.S. Department of State and the U.S. Coast Guard to the maritime industry. Generally, the purpose of the Advisory is to provide information about emerging trends related to illicit shipping practices and sanctions evasions, and recommendations to combat these, with a specific focus on Iran, North Korea and Syria.
The Advisory identifies different ways that sanctions evasions are taking place within the maritime industry, such as: (i) disabling or manipulating the automatic identification system (“AIS“) on vessels, (ii) conducting illicit Ship-to-Ship (“STS”) Transfers, (iii) falsifying documents, and (iv) employing complex management structures. Furthermore, the Advisory contains a number of best practices and suggested approaches to aid in further due diligence and sanctions compliance policies and procedures. These include, among others, implementing “risk-based” sanctions compliance programs, establishing “AIS best practices” by i.e. including AIS clauses in contracts and encouraging flag registry managers and port state authorities to be more active in controlling compliance with sanctions.
The Advisory is relevant for 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.
The Advisory sets out examples of illicit practices that are used to circumvent sanctions within the maritime industry. Individuals and entities within the maritime industry are encouraged to be aware of such illicit practices taking place, in order to avoid being involved in illicit or sanctionable activities. The illicit practices identified by the US authorities in the Advisory, and which actors within the maritime industry are encouraged to be aware of, include:
The Advisory outlines best practices within sanctions compliance, which companies within the maritime industry are encouraged to employ. OFAC generally encourages companies – US as well as non-US – which are subject to US jurisdiction and US sanctions, to apply the best practices set out in the Framework for Compliance Commitments issued by OFAC on 2 May 2019 (the “Framework”). This Advisory builds on the principles of the Framework, but is different in that the recommendations and best practices contained herein are focused specifically on the maritime industry.
Below is a list of the best practices for actors within the maritime industry, which are highlighted in the Advisory:
The following recommended best practices specifically stands out:
The Advisory encourages actors within the maritime industry to promote broadcasting of AIS throughout the shipment, especially when passing through high-risk areas, and to investigate signs and reports of AIS disabling or manipulation before entering into new contracts.
Furthermore, the Advisory highlights that contractual language should be incorporated into contracts related to commercial trade, financial and other business relationships by i.e. prohibiting transfers of cargo to client vessels that are not broadcasting AIS or have an AIS history that indicates AIS manipulation inconsistent with SOLAS. Accordingly, an attempt to avoid sanctions by disabling or manipulating the AIS of a vessel could lead to a breach of contract.
In addition, port state control and other relevant authorities are encouraged to require tankers and bulk containers to maintain AIS broadcasts, when arriving in and leaving their jurisdictions, and port authorities are encouraged to investigate the underlying activity if a vessel cannot account for its AIS history.
The Advisory encourages actors within the maritime industry, i.e. ship owners, managers and charterers, to continuously monitor vessels, including those leased to third parties or placed in a pool, by supplementing AIS monitoring with Long Range Identification and Tracking.
The Advisory encourages actors within the maritime industry to raise awareness and share information about potential illicit practices. As an example, the Advisory highlights that P&I clubs could inform other P&I clubs of illicit and sanctionable activities and new sanctions evading tactics identified to increase industry awareness.
The Advisory also offers specific and detailed guidance to ensure sanctions compliance for the following actors within the maritime industry:
We have highlighted some of the main recommendations contained in the specific guidelines below.
Generally, both maritime insurance companies, flag registry managers, regional and global commodity trading, supplier and brokering companies, ship owners, operators and charterers (and to some extent also crewing companies) are advised to monitor AIS transmissions and conduct research on the AIS history of vessels, i.e. by identifying vessels which in the past two years have a pattern of AIS disablement or manipulation inconsistent with SOLAS, and are encouraged to adopt contractual language that incorporates an AIS specific clause. Port state control authorities are specifically advised to deny port entry for ships with a history of AIS disablement or manipulation inconsistent with SOLAS.
Flag registry managers, port state control authorities, regional and global commodity trading, supplier, and brokering companies, ship owners, operators, and charterers, classification societies and crewing companies are encouraged to ensure that employees who reveal illegal or sanctionable activities are protected from retaliation, and ensuring that there is a confidential mechanism to report suspected or actual violations of law or sanctionable conduct, i.e. a whistleblower hotline.
Maritime insurance companies, flag registry managers, regional and global commodity trading, supplier, and brokering companies, ship owners, operators, and charterers and classification societies are encouraged to incorporate data such as historical ship location, ship registry information, and ship flagging information, along with available information from the U.S. Department of the Treasury, the UN and the U.S. Coast Guard into due diligence practices.
The Advisory introduces a number of new sanctions compliance elements and initiatives for actors within the maritime industry – even for those actors, who already have a sophisticated sanction compliance program in place. With the Advisory, OFAC, the U.S. Department of State and the U.S. Coast Guard specifically outline best practices for actors within the maritime industry for establishing and maintaining an effective sanctions compliance program, which may be a signal of what factors the US authorities are looking at when assessing whether a sanctions compliance program is deemed sufficient from their perspective.
It is therefore Gorrissen Federspiel’s recommendation that Danish companies within the maritime industry, which may potentially be subject to US sanctions, conduct a gap analysis of their sanctions compliance program in its current form and ensure that it sufficiently addresses the recommendations contained in the Advisory. Gorrissen Federspiel can provide assistance to organizations wishing to conduct an in-depth risk and gap analysis of their sanctions compliance program.
You can read the full Advisory here.