Complying with sanctions regulations associated with the maritime shipping industry involves many factors. Similar to the compliance environment with all sectors, a risk assessment includes answering the who, where, when, why, what and how questions. However, with shipping, the answers to those questions are not easily captured in a single dimension.
“Sanctions compliance in the shipping industry is also about what is being shipped,” says Jan Verloop, Consultant and former Trade Control Officer at Shell International. “Many commodities represent different levels of risk.”
Examples of commodities include:
- Military items
- Dual-use items, including nuclear, biochemical, WMD, missile technology
- Drug precursors and certain general chemicals
- Otherwise bulk standard generic items that become an issue because of a targeted sanction on a single country.
He adds that you also have to consider the length and complexity of the end-to-end supply chain that is further complicated by the involvement of agencies, dealers, joint-venture partners, and other companies associated with maritime shipping.
“All together this creates a very complex playing field, where most people involved are soon lost, with or without guidance,” Verloop says. “The primary question may well be, ‘How well do you know your customer’s business and processes?’”
A recent US Office of Foreign Assets Control enforcement action against MID-SHIP Group LLC affirms this sentiment. While the settlement agreement itself was with the global shipping company, the details of the violations highlight the inadequacies of financial institutions’ compliance programs that focus just on screening against sanctions lists.
MID-SHIP, in its role as a shipbroker and charter party agreement negotiator, fascilitated payments to blocked vessels owned or controlled by the Islamic Republic of Iran Shipping Lines (IRISL), an OFAC specially designated entity. Since one of the vessel’s name changed several times, a financial institution might not have blocked the electronic funds transfers were it not for the listed International Maritime Organization (IMO) number. This provides a clear example of how ownership and IMO number (an identification number that stays with the vessel regardless of any name changes) research is vital for assessing sanctions risk with respect to vessels.
A risk matrix for the shipping industry
OFAC and the United Nations released several documents that provide guidance on behavior that might indicate red flags for maritime sanctions evasion and offer clues as to what information should be gathered to “know your shipping customer.” The organizations advise institutions to look for and mitigate risks associated with business lines, high-risk areas, and shipping practices such as record-keeping and ship-to-ship transfers.
While certainly not exhaustive, the overview below adapted from their guidance is intended as a first line of sight for people in the US-centred financial services industry.
|Customer can produce all transport documents (i.e. bills of lading, air waybills) including:
· shipping companies
· notify parties
· forwarding agents
· ports of loading
· ports of discharge
· ports of transshipment
· final destinations
· shipping vessels
· air carriers
|Customer can produce most transport documents.||Customer can produce little to no transport documents.|
|The customer has robust document record-keeping practices that include
· Customer account information
· End-user statements, or similar language
· Export licenses, if applicable
· Shipping/freight forwarder documentation
|The customer has robust record-keeping methods that include customer account information.||Customer does not have record-keeping practices.|
|Customer does not conduct business in “high-risk” areas such as Syria or North Korea.||Customer may conduct business in high-risk areas but has strong record-keeping practices.||Conducts business in “high-risk areas” and near “suspicious ports.”|
|Company does not conduct business in high-risk business lines.||Company conducts business in high-risk business lines but has all documentation and strong record-keeping practices.||Company conducts business in high-risk business lines and has lax documentation and record-keeping practices.|
|Vessels perform “ship to ship” transfer, do not do any high-risk business and has no gaps in Automated Information System (AIS)transmission data.||Vessels perform “ship to ship” transfers but do not do business in high- risk areas or business lines. Or, if they do, have clear business reasons to do so and has no gaps in AIS history.||Vesselsperform “ship to ship” transfers, company does business in high-risk areas or industries and has poor record-keeping practices.|
|Newer vessel with recent high scores on port control safety inspections and no fines for pollutions.||Older vessels with recent high scores on port control safety inspections and no fines for pollutions.||Older vessels with poor history of poor scores on port control safety inspections and/or fines for pollution.|
|No instances of vessel name changes or changes in registration (reflagging).||A couple of instances of “reflagging” with clear business reasons.||Frequent “reflagging” and/or changes in vessel name.|
|Clear and well documented IMO number history and AIS transmission data with no instances of “going dark” or lapses in location monitoring.||A few instances of “going dark” but not near suspicious ports or high-risk areas and with clear explanations as to why.||History of “going dark” in high-risk areas.|