Compliance Alert - View Blog

View Blog

USA Address Global Maritime Advisory Illicit Shipping and Sanctions Evasion Practices

18th May 2020 Bachir El Nakib (CAMS) Senior Consultant Compliance Alert LLC

On May 14th the Department of the Treasury; Department of State and United States Coast Guard has published the following Sanctions  Advisory to Address Illicit Shipping and Sanctions Evasion Practices

The U.S. Departments of State and Treasury, and the U.S. Coast Guard, issued a global advisory​ to alert the maritime industry, and those active in the energy and metals sectors, to deceptive shipping practices used to evade sanctions, with a focus on Iran, North Korea, and Syria.  The advisory includes a detailed set of best practices for private industry to consider adopting to mitigate exposure to sanctions risk. 

 According to the advisory, 90 percent of global trade involves maritime transportation and “malign actors” are always seeking illicit ways to exploit this global supply chain.  The advisory is intended primarily to provide guidance to 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.  The advisory is also recommended for entities and persons 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, to ensure that necessary appropriate actions can be taken.

This advisory discusses Sanctions Risks and describe information on common deceptive shipping practices, such as: 

Ø  Disabling the Automatic Identification  System (AIS) on Vessels

Ø  Physically Altering Vessel identification : Ships now are required to display their name and IMO in a visible location on the Vessel’s hull or supervision

Ø  Falsifying Cargo and Vessel Documents

Ø  Ship-to-Ship (STS) Transfers at open sea

Ø  False Flags and Flag

The advisory updates and expands upon previous advisories issued by the U.S. government. It is intended to provide actors that utilize the maritime industry for trade with information on and tools to counter current and emerging trends in sanctions evasion related to shipping and associated services.  The advisory highlights common deceptive shipping practices used with respect to countries like Iran, North Korea, and Syria.​


False Flags and Flag

Iran has become increasingly adept at illicit trafficking in oil since the United States re-imposed economic sanctions in November 2018. Tehran has used its fleet of 54 oil tankers—the second largest state-owned fleet in the world—as a tool to game sanctions to continue selling its oil. Iran has employed several deceptive tactics such as disguising its ships by renaming and reflagging them, disabling or manipulating the ships’ transponders used for international monitoring, and conducting offshore ship-to-ship transfers of oil to foreign buyers. The following is an excerpt of the maritime advisory.

Related MaterialIran's Tankers and Its Smuggling Tactics

 

U.S. Global Maritime Advisory

The U.S. Department of State, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), and the U.S. Coast Guard are issuing this advisory to provide those engaged or involved in trade in the maritime industry and energy and metals sectors with further information and tools to counter current and emerging trends related to illicit shipping and sanctions evasion. This advisory reflects the U.S. government’s commitment to work with the private sector to prevent sanctions evasion, smuggling, criminal activity, facilitation of terrorist activities, and proliferation of weapons of mass destruction (WMD), with a focus on Iran, North Korea, and Syria. Combined with Annexes A and B, this advisory updates and expands on the North Korea-related shipping advisories OFAC issued on February 23, 2018, and March 21, 2019; the Iran-related shipping advisory OFAC issued on September 4, 2019; and the Syria-related shipping advisories OFAC issued on November 20, 2018, and March 25, 2019. At a later date, OFAC may issue further updates to this advisory, including with respect to the vessel lists that have appeared in previous shipping advisories.

This advisory discusses sanctions risks and contains information on common deceptive shipping practices and general approaches to aid in further tailoring due diligence and sanctions compliance policies and procedures. It is 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.1,2 This advisory includes both updated information on the deceptive practices used to evade sanctions and policies and procedures that entities operating in the specific maritime sectors enumerated above may wish to consider adopting as part of a risk-based sanctions compliance program. 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. This is especially important when operating near or in areas they determine to be high-risk, which may include areas frequently used for potentially sanctionable transportation-related activities. The United States also encourages entities 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, to review this advisory and take appropriate action as deemed necessary or advisable.

Deceptive Shipping Practices

Approximately 90 percent of global trade involves maritime transportation. Malign actors constantly seek novel ways to exploit global supply chains for their benefit. The following list, while not exhaustive, summarizes several tactics utilized to facilitate sanctionable or illicit maritime trade linked to Iran, North Korea, and Syria. 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.

1) Disabling or Manipulating the Automatic Identification System (AIS) on Vessels

AIS is an internationally mandated system that transmits a vessel’s identification and navigational positional data via high frequency radio waves. The International Convention for the Safety of Life at Sea (SOLAS) requires that certain classes of vessels traveling on international voyages operate AIS at all times with few exceptions. Although safety issues may at times prompt legitimate disablement of AIS transmission, and poor transmission may otherwise occur, vessels engaged in illicit activities may also intentionally disable their AIS transponders or manipulate the data transmitted in order to mask their movement. The practice of manipulating AIS data, referred to as “spoofing,” allows ships to broadcast a different name, International Maritime Organization (IMO) number (a unique, seven digit vessel identification code), Maritime Mobile Service Identity (MMSI), or other identifying information. This tactic can also conceal a vessel’s next port of call or other information regarding its voyage.

2) Physically Altering Vessel Identification

Passenger ships of 100 Gross Tonnage (GT) and upwards and cargo ships of 300 GT and upwards are required to display their name and IMO number in a visible location on the vessel’s hull or superstructure. A vessel’s IMO number is intended to be permanent regardless of a change in a vessel’s ownership or name. Vessels involved in illicit activities have often painted over vessel names and IMO numbers to obscure their identities and pass themselves off as different vessels.

3) Falsifying Cargo and Vessel Documents

Complete and accurate shipping documentation is critical to ensure all parties to a transaction understand the entities, recipients, goods, and vessels involved in a given shipment. Bills of lading, certificates of origin, invoices, packing lists, proof of insurance, and lists of last ports of call are examples of documentation that typically accompanies a shipping transaction. Authorities have found that sanctions evaders have falsified shipping documentation pertaining to petrochemicals, petroleum, petroleum products, or metals (steel, iron) or sand in order to disguise their origin. Falsifying certain documents (including customs and export control documents) is illegal in most countries, and irregularities may provide a basis to hold a shipment until its contents are validated. In addition, persons conducting transportation or trade involving the maritime sector are encouraged to conduct due diligence, as necessary, on documents that indicate or suggest that cargo is from an area they determine to be high-risk for sanctions evasion, notwithstanding any purported low-risk place of origin. 

4) Ship-to-Ship (STS) Transfers

While ship-to-ship transfers (the transfer of cargo between ships at sea) can be conducted for legitimate purposes, STS transfers—especially at night or in areas determined to be high-risk for sanctions evasion or other illicit activity—are frequently used to evade sanctions by concealing the origin or destination of surreptitiously transferred petroleum, coal, and other material.

5) Voyage Irregularities

Malign actors may attempt to 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. Although transit and transshipment are common in the global movement of goods, private sector entities, including flag registry management companies, port operators, shipping industry associations, ship owners, operators, and charterers, ship captains, and crewing companies are encouraged to scrutinize routes and destinations that deviate from normal business practices, as appropriate.

6) False Flags and Flag Hopping

Bad actors may falsify the flag of their vessels to mask illicit trade. They may also repeatedly register with new flag states (“flag hopping”) to avoid detection. We recommend that the private sector be aware of and report to competent authorities any instances of a vessel owner or manager who continues to use a country’s flag after it has been removed from a registry (i.e., “deregistered”), occurrences of a ship claiming a country flag without proper authorization, or instances when a vessel has changed flags frequently in a short period of time in a suspicious manner consistent with flag hopping. Specific measures for different parts of the private sector are included in the industry guidance accompanying this report as Annex A.

7) Complex Ownership or Management

Global shipping is inherently complex and involves multiple interactions with both government and private sector entities. Bad actors attempt to take advantage of this complexity through the use of complex business structures, including those involving shell companies and/or multiple levels of ownership and management, to disguise the ultimate beneficial owner of cargo or commodities in order to avoid sanctions or other enforcement action, among other reasons. Bad actors also may engage in a pattern of changes in the ownership or management of companies or in the International Safety Management Code (ISM) management companies used. If private sector entities are unable to reasonably identify the real parties in interest in a transaction, they may wish to consider performing additional due diligence to ensure it is not sanctionable or illicit.

ANNEX B: Information on North Korea-, Iran-, and Syria-related Sanctions Relevant to the Maritime Industry

IRAN

This section provides information about Iran-related U.S. sanctions relevant to the maritime industry, including a non-exhaustive list of bases for which persons could be sanctioned by the U.S. government. Combined with the other documents in this global maritime advisory, this annex updates and expands on the Iran-related shipping advisory issued by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) on September 4, 2019. This information is current as of the date of this advisory, but parties should regularly check OFAC’s website for comprehensive information on Iran-related sanctions programs. At a later date, OFAC may issue further updates to this advisory, including with respect to the vessel lists that have appeared in previous shipping advisories. OFAC maintains a comprehensive, consolidated, and searchable list of sanctioned persons, as well as vessels identified as blocked property, on the List of Specially Designated Nationals and Blocked Persons (SDN List).

U.S. Prohibitions on Iran-related Activities

OFAC administers and enforces comprehensive sanctions and a government blocking program against Iran, as set forth in the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR). The ITSR prohibits most direct and indirect transactions involving Iran or the Government of Iran by U.S. persons or U.S.-owned or -controlled foreign entities or within the United States, unless authorized by OFAC or exempted by statute. In addition, the ITSR blocks the property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person, of the Government of Iran, as defined in section 560.304 of the ITSR, including any entities owned or controlled by the Government of Iran. Further, absent an applicable exemption or OFAC authorization, foreign persons, including foreign financial institutions, are prohibited from processing transactions to or through the United States in violation of these prohibitions, including transactions through U.S. correspondent accounts for or on behalf of Iranian financial institutions, other persons located in Iran, or where the benefit of those services is otherwise received in Iran.

U.S. Government Sanctions Authorities

In addition, non-U.S. persons — including foreign financial institutions — risk exposure to U.S. sanctions for knowingly facilitating significant transactions for or providing certain material support to Iranian persons on the SDN List, such as the National Iranian Oil Company (NIOC), the National Iranian Tanker Company (NITC), and the Islamic Republic of Iran Shipping Lines (IRISL), with the exception of non-designated Iranian depository institutions.26 These authorities are generally subject to certain waivers and exceptions, including (i) an exception for the export to Iran of food, medicine, medical devices, and agricultural products, and (ii) an exception for reconstruction assistance and economic development for Afghanistan. Even if an exception or waiver applies, certain transactions involving Iran’s Islamic Revolutionary Guard Corps (IRGC) or any other person designated in connection with Iran’s support for international terrorism or its proliferation of weapons of mass destruction or their means of delivery may be exposed to U.S. sanctions.

Petroleum, Petroleum Products, and Petrochemical Products:

On or after November 5, 2018, persons knowingly engaged in a significant transaction for the purchase, acquisition, sale, transport, or marketing of petroleum, petroleum products (e.g., aviation gasoline, motor gasoline, distillate fuel oil), or petrochemical products from Iran, and certain persons affiliated with vessels that transport Iranian crude oil, risk being sanctioned under U.S. sanctions authorities relating to Iran, unless a waiver or an exception applies. For more information on the definitions of petroleum, petroleum products, and petrochemical products, please see Section 16 of E.O. 13846.

Metals and Additional Identified Sectors of Iran’s Economy:

Persons who operate in the iron, steel, aluminum, or copper sectors of Iran, or who knowingly engage in a significant transaction for the sale, supply, or transfer to Iran of significant goods or services used in connection with those sectors or for the purchase, acquisition, sale, or transport, or marketing of iron, steel, aluminum, or copper from Iran, risk being sanctioned pursuant to E.O. 13871, unless a waiver or an exception applies. Similarly, persons who knowingly sell, supply, or transfer, directly or indirectly, to or from Iran, precious metals or certain materials, including coal, graphite, or certain raw or semi-finished metals such as aluminum and steel, risk being sanctioned if such metals or materials are provided for certain end-uses or end-users. Additionally, persons who operate in the construction, mining, manufacturing, and textile sectors of the Iranian economy, or who knowingly engage in a significant transaction for the sale, supply, or transfer to or from Iran of significant goods or services used in connection with those sectors, risk being sanctioned pursuant to E.O. 13902, unless a waiver or exception applies.

The maritime industry is advised to review the Iranian Sector and Human Rights Abuses Sanctions Regulations, 31 C.F.R. part 562, as well as guidance on OFAC’s website pertaining to the iron, steel, aluminum, copper, construction, mining, manufacturing, and textile sectors of Iran for additional guidance on the scope of these new authorities. Of note, the wind-down period for activities described in E.O. 13871 expired on August 6, 2019; the wind-down period for activities described in E.O. 13902 expired on April 9, 2020. Failure to conclude, within the specific wind-down periods, any existing sanctionable transactions related to these sectors may result in sanctions exposure unless covered by an applicable waiver or exception.

Services to Vessels:

Persons risk exposure to sanctions if they knowingly provide certain bunkering services to Iranian vessels or to non-Iranian vessels transporting cargo, including petroleum or petroleum products from Iran, for Iranian persons on the SDN List, unless an applicable waiver or exception applies. In addition, persons risk exposure to sanctions if they knowingly provide underwriting services or insurance or reinsurance to or for Iranian persons on the SDN List, including IRISL, NIOC, NITC, or to or for any person with respect to or for the benefit of any activity in the energy, shipping, or shipbuilding sectors of Iran, for which certain U.S. sanctions against Iran have been imposed, unless a waiver or exception applies. For additional guidance, please review OFAC’s Frequently Asked Questions on the OFAC website.

Deceptive Shipping Practices

As the global community increases its pressure on the Iranian regime, some persons associated with the petroleum shipping industry continue to deploy deceptive practices to facilitate Iranian transactions. As evidenced by Treasury designations and actions taken by partners around the world, actors, such as Iran’s IRGC-QF, attempt to evade U.S. sanctions by obfuscating the origin, destination, and recipient of oil shipments. Note that the use of such deceptive tactics is unique neither to Iran nor to Iran’s petroleum industry. Please refer to the main text of the “Sanctions Advisory for Maritime Industry, Energy and Metals Sectors, and Related Communities” for descriptions of known sanctions evasion techniques, to “Annex A: Additional Guidance and Information to Assist Sanctions Compliance Efforts in the Maritime Industry” for potential due diligence practices to counter sanctions evasion in the shipping industry, and to “A Framework for OFAC Compliance Commitments,” a document provided by OFAC that provides industry with good overall practices regarding sanctions compliance, see attached USA Global Shipping Advisory file.



Files Related :

Share This Page On Social Network :