Sanctions guidance: Best practices for maritime, energy, metals sectors

The advisory focuses on Iran, North Korea, and Syria. It’s intended primarily to provide guidance to the following: 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.

“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,” the advisory states, adding that this is especially important when operating near or in areas determined to be high-risk.

Companies 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 also encouraged to review the advisory and take appropriate action as deemed necessary or advisable.

Deceptive shipping practices

The guidance goes into significant detail about the following non-exhaustive list of common deceptive shipping practices:

• Disabling or manipulating the automatic identification system (AIS) on vessels;
• Physically altering vessel identification;
• Falsifying cargo and vessel documents;
• Ship-to-ship transfers;
• Voyage irregularities (e.g., disguise the ultimate destination or origin of cargo or recipients by using indirect routing, unscheduled detours, or transit or transshipment of cargo through third countries);
• False flags and flag hopping (e.g., falsify the flag of their vessels to mask illicit trade); and
• Complex ownership or management

“We recommend that persons conducting any transportation or trade involving the maritime sector continue to be vigilant against the following tactics in order to limit the risk of involvement with sanctionable or illicit activity and that they exercise heightened due diligence with respect to shipments that transit areas they determine to present high risk,” the guidance states.

Sanctions compliance best practices

The guidance also discusses seven best practices sanctions compliance teams can adopt to address red flags and other anomalies that may indicate illicit or sanctionable behavior, as summarized below.

Institutionalize a sanctions compliance program. The advisory recommends that, as appropriate, “private-sector entities assess their sanctions risk; implement sanctions compliance and due diligence programs; and provide training and resources to personnel in order to best execute those programs.” It also recommends to private-sector companies what to communicate to counterparts—including ship owners, managers, charterers, and operators—regarding the implementation of adequate and appropriate sanctions compliance policies and controls.

Establish AIS best practices and contractual requirements. “Entities in the maritime industry may wish to consider, based on their individual risk assessments, researching a ship’s history to identify previous AIS manipulation and monitoring AIS manipulation and disablement when cargo is in transit,” the advisory states. It further encourages private industry “to investigate signs and reports of AIS transponder manipulation before entering into new contracts involving problematic vessels or when engaging in ongoing business.” Additionally, financial institutions are encouraged to continue assessing this activity using a risk-based approach and, as appropriate, “implement relevant controls for their maritime-industry clients, particularly those that own, operate, and/or provide services to ships operating in areas determined to pose a high risk for sanctions evasion.”

Monitor ships throughout entire transaction lifecycle. “As appropriate, consistent with their risk assessments, ship owners, managers, and charter companies are encouraged to continuously monitor vessels, including those leased to third parties,” the advisory states. “This could include supplementing AIS with Long Range Identification and Tracking (LRIT) and receiving periodic LRIT signals on a frequency informed by the entity’s risk assessment.” Other potential red flags to watch for include “situations where ownership of a vessel is transferred between companies controlled by the same beneficial owner and where there is no discernable legitimate purpose for the transfer.”

Know your customer and counterparty. The advisory states that flag-registry administrations, insurers, financial institutions, managers, and charterers should continue to conduct risk-based due diligence as appropriate. Such due diligence might include, for example, maintaining the names, passport ID numbers, addresses, phone numbers, email addresses, and copies of photo identification of each customer’s beneficial owners.

Exercise supply chain due diligence. The advisory encourages exporters and entities across the maritime supply chain “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.”

“As appropriate, private-sector maritime entities are encouraged to review the details of the underlying voyage, including the vessel, cargo, origin, destination, and parties to the transaction,” the advisory continues. “In particular, and in line with their internal risk assessment, parties are encouraged to review the relevant documents in order to demonstrate that the underlying goods were delivered to the port listed in the documentation and not diverted in an illicit or sanctions-evading scheme.” Additionally, the guidance encourages industry members “to incorporate these best practices in contracts related to their commercial trade, financial, and other business relationships in the maritime industry.”

Contractual language. Industry members are encouraged to incorporate these best practices in contracts related to their commercial trade, financial, and other business relationships.

Industry information-sharing. The State Department, Treasury’s Office of Foreign Assets Control (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. They further encourage vessel owners and protection and indemnity insurance clubs to share information with the financial industry, potentially working through competent authorities where required. Additionally, flag administrations should routinely pass information to the International Maritime Organization and parties to the Registry Information Sharing Compact.