On May 14, 2020, 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 issued a joint advisory statement to address current and emerging trends related to illicit shipping and sanctions evasion practices affecting the maritime industry and the energy and metals sectors. Three countries noted for these deceptive activities were: Iran, North Korea and Syria.
The advisory provides further information to private sector participants in these specific industries, and to those who finance and insure the global shipping industry to reduce their potential sanctions risks from these three sanction evading countries. Seven deceptive practices were highlighted: Disabling/Manipulating Automatic Identification Systems (AIS), Physical Changes to a Ship’s IMO Number on its Hull, Unplanned Transfers of Cargo, Unannounced Changes in a Ship’s Routes or Destinations, Falsifying Cargo or a Vessel’s Documentation, Flag Flipping and Complex Beneficial Ownership Structures for the Cargo.
Specifically for financial institutions financing the maritime industry, the agencies provide the following suggestions for enhancing their risk assessments and customer due diligence (CDD): Firms should identify commodities and trade routes that have been vulnerable to transshipment and ship-to-ship transfers, perform additional detailed CDD or enhanced due diligence (EDD) on a customer’s services offered and its geographical customer base, compare the customer’s actual activity to their expected activity for inconsistencies, including acquiring new vessels, and verifying that a client’s sale or acquisition of a vessel does not include blocked property.
While many of these leading practices for reducing sanctions risk in this sector may come as no surprise, understanding in greater detail the current methods of illicit shipping activities to avoid U.S. sanctions is an important aspect for performing proper industry risk assessments, further enhancing CDD or EDD, monitoring actual transactions to what were the expected customer activities, and filing complete and accurate Suspicious Activities Reports (SARs). Further, the advisory is a necessary reminder of the importance of developing and maintaining a strong OFAC compliance program, especially when customers or counterparties are operating in higher-risk industries or geographies.
 Sanctions Advisory for the Maritime Industry, Energy and Metals Sectors and Related Communities - Guidance to Address Illicit Shipping and Sanctions Evasion Practices, by the U.S. Department of State, U.S. Department of the Treasury’s Office of Foreign Assets Control and the U.S. Coast Guard, May 14, 2020.
A Framework for OFAC Compliance Commitments, U.S. Department of the Treasury’s Office of Foreign Assets Control, May 2, 2019