With the UK playing a major role in the global maritime industry and relying on containerised shipping to move 95% of its imports and exports, the importance of sanctions compliance for UK institutions cannot be understated.
In recent months, we have seen OFAC release a long-awaited advisory for the maritime industry, comprehensively expanding the regulatory focus and placing all maritime industry stakeholders under the microscope. Following in its footsteps, this month the UK’s Office of Financial Sanctions Implementation (OFSI) released a guidance document focussing on financial sanctions guidance for those operating within the maritime shipping sector.
As global law firm Clyde & Co. have said, “It is no coincidence that two of the world’s leading sanctions enforcement bodies have both issued guidance notes to the maritime industry within months of each other. Industry participants have been warned: there are now very clear expectations of what good sanctions compliance looks like –a failure to meet those expectations could prove costly.”
So, what does the OFSI guidance cover?
The guidance looks at methods commonly used to breach sanctions, including ship-to-ship (STS) transfers and switching off or manipulating AIS transmissions. OFSI also provides guidance on specific sanctions regimes relating to DPRK, Iran, Libya, and Syria, in terms of due diligence obligations, policy enforcement, and penalties.
Illicit & suspicious shipping practices
- STS transfers: A ship-to-ship transfer is the movement of cargo from one ship to another while at sea, rather than in port. While the majority of STS transfers are perfectly legal, they can also be used to conceal the origin or destination of the transferred cargo.
- AIS transmissions: Vessels conducting illicit ship-to-ship transfers will typically disable AIS to evade detection. Alternatively, vessels manipulate the data transmitted via AIS to conceal a vessel’s next port of call or other information regarding its voyage.
- False documentation: Complete and accurate shipping documentation is necessary to ensure that all those associated with a transaction understand the parties, goods, and vessels involved in a given shipment. Documents such as bills of lading and invoices can be falsified to conceal what is being shipped and shipment origin
- Financial system abuse: Bank accounts are often established with the primary purpose of engaging in and concealing illicit activities. These can be used as fronts to conduct transactions in violation of sanctions and facilitating illicit shipping practices. Bad actors also often set up complex corporate ownership and management structures to hide the ultimate beneficiary.
- Concealment: Those seeking to evade sanctions will often employ tactics that physically conceal illicit cargo onboard a vessel.
While the above practices do not automatically indicate a sanctions violation, OFSI specifies that they should be viewed as red flags that require further investigation, particularly around where these activities took place. Specific regions may present a high risk with respect to financial sanctions compliance, as such due diligence should be carried out as part of a risk-based approach. When dealing with such regions, or when passing through or near waters where non-compliant actors are known to operate, enhanced due diligence should be considered.
Much like the recent OFAC advisory, OFSI’s guidance stresses the fact that no company is too big to fail, and how it is no longer just financial institutions that need to be concerned with sanctions. All entities across the maritime sector and related supply chains must significantly improve their due diligence and compliance programmes to avoid breaching global sanctions. In the guidance, certain industry players are highlighted:
- Maritime insurance companies
- Classification societies
- Petroleum companies and refineries
- Customs and port state controls
- Flag registries
- Shipping industry associations
Compliance risk, however, is not only confined to the above industries, so global operators need to take a risk-based approach when deciding whether to conduct business.
What should you be doing?
With the OFSI advisory coming so soon after the OFAC advisory, there is no longer an excuse for corporates who do not have appropriate systems in place to ensure proper risk-mitigation.
Yet again, the same weaknesses, such as AIS transmissions, have been highlighted as prime avenues for those seeking to flout sanctions programs.
Here at Pole Star, we have a suite of solutions to assist you in ensuring sanctions compliance across all aspects of the maritime supply chain.
PurpleTRAC is our award-winning revolutionary regulatory technology system for institutions with sanctions and risk management exposures in maritime trade, enabling users to screen and track vessels and their associated ownership and management in seconds, by entering only the vessel’s name or IMO number. Within 30 seconds, PurpleTRAC screens for the following:
- Ship Global Sanctions List: Screens a vessel’s IMO number against our comprehensive sanctions database
- Company Global Sanctions List: Screens a vessel’s ownership and management against our comprehensive list of sanctions, denied parties, and enforcement actions lists
- Country Sanctions List: Screens a vessel’s flag, its ownership and management, and countries of registration, domicile, and control
- Ship Movement History Check: Screens a vessel’s historic movements and trading patterns
- Port State Control Check: Screens a vessel’s entire port state control inspection history
Further in line with this advisory, PurpleTRAC now has a new extension: Bill of Lading Verification (BLV), which will allow customers to significantly extend their sanctions risk and compliance investigations by verifying bills of lading in real time.