Reed Smith Client Alerts

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 further, long-awaited guidance to the maritime industry and energy and metals sectors pertaining to illicit shipping and sanctions evasion (the Guidance).

Auteurs: Alexander Brandt Eli Rymland-Kelly Claire E. Don William Young Deena Smith

The Guidance is addressed to the maritime industry at large, as well as those actors specifically identified including shipowners, brokers, chandlers, flag registries, port operators, freight forwarders, classification service providers, commodity traders, insurance companies, vessel captains, and financial institutions.

This relatively weighty document consists of a general analysis of deceptive shipping practices and guidance as to how such practices can be detected and prevented by the industry. The guidance is followed by two annexes, the first of which provides tailored advice to specific service providers and operators in the maritime sector, and the second, which specifically addresses North Korea, Iran and Syria related sanctions.

The Guidance first discusses deceptive shipping practices that OFAC has identified over the years. These include; AIS manipulation; physical alteration a vessel’s identification; falsification of documents; STS operations (particularly at night); voyage irregularities; flag hopping, and complex ownership structures.

The Guidance then sets out suggestions as to how best tailor a company’s due diligence and sanctions compliance policies as part of a risk-based approach to sanctions compliance. Consistent with the U.S. approach to date, adopting a sanctions compliance program is not a mandatory requirement, nor will adherence to the Guidance absolve an entity of sanctions breaches. Clearly, however, adopting an effective compliance policy will both reduce the risk of violations and act as a powerful mitigating factor in the event a violation occurs.

The Guidance identifies five essential components of a sanctions compliance program, while leaving it to the private sector to operationalize these facets: (1) management commitment, (2) risk assessment, (3) internal controls, (4) testing and auditing, and (5) training. Additionally, counterparties, partners, subsidiaries, and affiliates should be informed of a company’s compliance standards.