Failure to comply with the complex web of US sanctions laws and regulations carries significant risks both in terms of exposure to civil fines and penalties and reputational harm. To help maritime sector stakeholders navigate these regulations, the US Department of Treasury’s Office of Foreign Assets Control (OFAC) has published scenario-based sanctions compliance guidance on October 31, 2024, to aid commodities brokers, insurers, ship management service providers, shipbroking companies, port authorities and other industry participants to identify attempts at sanctions evasion, address due diligence issues and implement best practices. This guidance supplements OFAC’s previously published guidance related to the maritime sector, including the May 14, 2020 “Sanctions Advisory for the Maritime Industry, Energy and Metal Sectors, and Related Communities.”
OFAC administers and enforces US economic sanctions against targeted foreign countries, regions, entities and individuals. In recent years, OFAC and other US government agencies involved in trade regulation and enforcement have focused increasingly on “intermediaries” or “facilitators” of potentially illicit transactions, such as shipping companies, logistics service providers, freight forwarders and transport intermediaries, as well as insurance companies. For example, in December 2023, Treasury and four other US agencies issued a joint “Quint-Seal Compliance Guidance” entitled “Know Your Cargo: Reinforcing Best Practices to Ensure the Safe and Compliant Transport of Goods in Maritime and Other Forms of Transportation,” which set out best practices for maritime transportation of cargo. The US Department of Commerce, Bureau of Industry and Security (BIS) had also issued guidance specifically for freight forwarders on steps that should be taken to protect against export control and sanctions violations. BIS recently, in July 2024, updated an older publication that highlights the consequences of violating US export controls and sanctions, with multiple case studies involving freight forwarders, shippers or logistics companies.
The recurring themes in all these compliance guidance communiques and publications are:
Responsibility for compliance lies not just with the
buyers or sellers in a transaction, but with all the services
intermediaries – particularly the transportation and logistics
companies, and others that support marine transportation,
including freight forwarders and insurance companies
It is essential that participants in the maritime and shipping
industry have compliance policies and procedures that
mitigate the risk of violations
There will be an increasing enforcement focus by the US
government regulatory agencies involved, that targets
violations by transportation intermediaries or facilitators
This most recent OFAC compliance guidance further clarifies steps that key stakeholders in the maritime shipping sector should take to avoid sanctions violations. OFAC also highlights a number of the more sensitive areas or scenarios, which we outline below.
Deceptive Shipping Practices to Conceal Sanctions Nexus
The OFAC guidance highlights situations in which buyers or sellers in transactions, or even the charterer of a vessel, may engage in deceptive practices to conceal sanctions violations. In one case study presented, other parties became aware of falsified certificates of origin and inconsistencies between the automatic identification system (AIS) data and the ship’s logs. OFAC goes on to note the responsibilities of the ship operator, the port agent and the protection and indemnity insurer (P&I club) to identify, investigate and report such irregularities.
For example, OFAC notes that insurers which provide insurance coverage for shipments using a falsified certificate of origin could themselves be in violation of sanctions laws, if the false documents were used to conceal the involvement of a sanctioned country in the transaction. To protect themselves, OFAC recommends that P&I clubs and other maritime stakeholders conduct rigorous transaction due diligence to ensure shipping documentation accurately reflects the origin and destination of the cargo, particularly when facilitating transactions that involve areas known for potential sanctions evasion (e.g., jurisdictions commonly listed on falsified documentation or waters known for frequent ship-to-ship transfer operations of sanctioned oil).
Finally, OFAC also warns about deceptive practices involving the manipulation of a vessel’s location via its AIS to conceal the origin of certain oil cargoes. OFAC explains that if there are AIS abnormalities, insurers should stay vigilant for (1) a potential misclassification of the vessel and class of trade, (2) extended periods without AIS transmission, (3) abnormal traffic or voyage patterns and (4) instances of Maritime Mobile Service Identity manipulation to disguise the ship’s name or location.
Read the full insight to learn more about this guidance.
