“Catch me if you can” – new Chinese privacy law causes AIS disruption

“Catch me if you can” – new Chinese privacy law causes AIS disruption

At a Glance…

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.

Authors: Leigh Hansson, Alexander Brandt, William Young, Tan Albayrak, Athina Douni, and Maria Zermasli

Capability: International Trade & National Security; Shipping; Shipping Sanctions

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.

Potential mitigation measures

The long-term effect of PIPL remains to be seen – however, there are a number of potential mitigation measures that may provide some relief to the additional uncertainty it has brought.

There has been discussion of guidance from the Chinese authorities that clarifies the obligations of Chinese AIS data providers and permits use of this data for certain limited purposes. This would certainly be welcomed by the maritime industry – although given a stated motivation of PIPL is to stop foreign parties using AIS to track Chinese economic activity, it is uncertain what practical impact such guidance may have.

Alternatively, market-based solutions may prevail, with external data providers looking to other tools and resources to maintain vessel tracking services. This may include other (offshore) AIS stations, increased usage of human intelligence based reporting or, perhaps as a longer-term solution, use of other technologies to complement AIS data, such as satellite imagery and radio frequency tracking.

In the meantime, any parties acting within Chinese markets are advised to stay vigilant and leverage other due diligence measures to ensure sanctions compliance.

If you have questions or would like additional information on the material covered in this Alert, please contact one of the authors – listed below – or the Reed Smith lawyer with whom you regularly work.

	Leigh Hansson Partner, London & Washington, D.C. L: +44 (0)20 3116 3394 D.C.: +1 202 414 9394 lhansson@reedsmith.com		Alexander Brandt Associate, London +44 (0)20 3116 3733 abrandt@reedsmith.com

	William Young Associate, London +44 (0)20 3116 3766 wyoung@reedsmith.com		Tan Albayrak Associate, London +44 (0)20 3116 3481 talbayrak@reedsmith.com