This week a bevy of US Federal agencies comprised of the Office of Foreign Assets Control (OFAC), the Department of Justice (DOJ), the Department of Commerce’s Bureau of Industry and Security (BIS), the Department of Homeland Security’s Homeland Security Investigations (HSI) and the Department of State’s Directorate of Defense Trade Controls (DDTC) issued a joint guidance document (click here) aimed at entities involved in the maritime and other transportation industries, on best practices to ensure the proper control over goods, particularly those subject to export controls and sanctions. This follows on from recent announcements by OFAC regarding adherence to sanctions against Russia involving practices which disguise the true origin, destination, or nature of their cargoes. Alongside Russia, Iran and North Korea are also described as being “nefarious actors”.
The guidance is aimed at transportation companies, maintenance companies, insurance providers, other financial institutions and other entities involved in funding and facilitating the transport of cargo. It advises firms to institute or confirm the existence of appropriate compliance measures that protect against illicit cargo handling practices, especially when operating in “high-risk areas” - they describe these control practices as “Know Your Cargo”.
The malign practices outlined in the guidance are summarised as follows:
- Manipulating location or identification data: Obfuscating the location, origin, or destination of a carrier is a common means of evading legal restrictions;
- Falsifying cargo and vessel documents: Those attempting to disguise the origin or destination of their cargo may utilize falsified shipping documents, including, but not limited to, bills of lading, certificates of origin, invoices, packing lists, proof of insurance, and lists of last ports of call;
- Ship-to-ship transfers: While often conducted for legitimate purposes, ship-to-ship transfers are also a tactic used in illicit maritime trade to try to conceal the origin or destination of cargo;
- Voyage irregularities and the use of abnormal shipping routes: Persons involved in illicit trade may try to disguise the destination or origin of cargo or its recipients by using indirect routing, unscheduled detours, or transit or trans-shipment through third countries;
- Frequent registration changes: In an effort to evade certain management measures or national provisions persons may participate in “flag hopping,” which involves the repeated re-registration of the vessel under new states’ flags;
- Complex ownership or management: Illicit actors may take advantage of the inherent complexity of the maritime and other transportation industries by using shell companies or opaque ownership and management structures to disguise the ultimate beneficial owner of cargo, the end user, or other entities involved in the shipment process.
The guidance outlines the measure firms should implement in order to strengthen their compliance controls, particularly those operating near or in high-risk geographic areas, summarised as follows:
- Institutionalizing sanctions and export control compliance programmes - Private sector entities should develop, implement, and adhere to written standardized, risk-based operational compliance policies, procedures, standards of conduct, and safeguards;
- Establish location monitoring best practices and contractual requirements –Conduct risk-based due diligence on the location history of vessels, vehicles, and aircraft to identify prior manipulation or disabling of location or identification tracking data;
- Know your customer - Conduct appropriate risk-based due diligence on counterparties, based on their role in a transaction including screening transaction parties against government lists, such as the US Government’s Consolidated Screening List;
- Exercise supply chain due diligence - Conduct appropriate risk-based due diligence to ensure that recipients and counterparties to a transaction are not sending or receiving commodities in violation of US sanctions or export control laws;
- Industry information sharing - Entities should consider sharing information across industries and supply chains, as appropriate.
The remainder of the guidance is aimed at reminding firms about the consequences of getting this wrong, including criminal sanctions in some cases. The guidance contains a summary of a February 2023 enforcement case (click here) where the DOJ penalised the charterer of a crude oil tanker carrying contraband Iranian oil which included a deferred prosecution agreement for a second company that managed the operations of the vessel (see pages 6 and 7).
While the above lists are non-exhaustive, they should be closely reviewed and benchmarked against internal policies, processes and practices. The US authorities could not be clearer that they intend cracking down on sanctions evasion, particularly when involving Russian sanctions – firms operating in high risk areas are strongly advised to review their current practices and controls.