Reed Smith Client Alerts

On August 20, 2021, China’s National People’s Congress passed a law to regulate the processing and collection – as well as the cross-border transfer – of personal information. Known as the Personal Information Protection Law (PIPL), the law came into force on November 1, 2021. The effects of PIPL were immediately felt in the maritime sector, where the number of Automatic Identification System (AIS) signals in Chinese waters initially dropped significantly as a result of China blocking public access to shipping location data. According to local reports, including those from Chinese state media, China views the data derived from AIS signals as a threat to the country’s national and economic security because foreign intelligence agencies and companies may use the system to keep tabs on China’s military vessels as well as analyze economic activity by surveying cargo traffic.

Potential sanctions implications

While AIS was developed as a collision avoidance tool and to support rescue operations in the event of a casualty, in recent years it has gained prominence in the sanctions space. Most notably, in its comprehensive “Guidance to Address Illicit Shipping and Sanctions Evasion Practices” document published on May 14, 2020, the U.S. Office of Foreign Assets Control (OFAC) identified AIS switch-offs or “gaps” as a red flag that may be an indicator of illicit activity.

As a result, AIS screening has been become a common feature of due diligence practices, particularly in relation to vessels involved in ship-to-ship (STS) transfers, trading in so-called “high risk areas” proximate to sanctioned jurisdictions. In such cases, AIS disablement may be used to conceal the movements of a vessel that has called at a sanctioned jurisdiction or been involved in a prior STS transfer with a sanctioned vessel (e.g., National Iranian Tanker Company tankers).

One such high risk area is the Yellow Sea, lying between mainland China and the Korean peninsula, which has been identified as high risk in relation to illicit STS transfers involving goods originating in North Korea – in particular coal and metal ore cargos – in violation of UN sanctions. Accordingly, there would seem to be a potential risk of abuse where “bad actors” may seek to blame AIS “dark periods” concealing sanctionable DPRK trade on the effects of PIPL rather than intentional switch-offs.

Furthermore, there is potential for contractual confusion for parties that have adopted BIMCO’s AIS Switch Off Clause. Following increased usage of ad hoc AIS clauses in the market that, in some cases, failed to recognize that AIS can be switched off for a legitimate purpose (or transmission lost through no fault of the owner), the clause aimed to achieve a unified and balanced approach by expressly aligning AIS obligations with SOLAS guidelines. However, parties may again have difficulty in distinguishing between legitimate gaps stemming from PIPL and gaps in violation of SOLAS.