Sanctions and the Shipping Industry

by Costas Frangeskides and Olubi Adejobi, Wordley Partnership Solicitors

Sanction measures are a means by which a Country or coalition of Countries, for instance NATO, EU or UN, apply restrictive measures against another Country, Countries or Persons in order to compel it or them to take a particular cause of action or seek to deter it or them from taking a particular cause of action.

The Sanctions and Money Laundering Act, 2018 is the UK applicable law. The law applies to UK “persons” (individual and corporate) in their dealings with others. Sanction measures include trade embargos, financial sanctions (including asset freezes), travel bans, trade bans and shipping sanctions (including vessel movement, ownership and registration ban). UK government maintains a list of sanctioned persons and entities which is subject to review, updating and variation.

90 per cent of World trade takes place by sea. The maritime industry is therefore exposed to the risk of sanction bursting measures, smuggling and terrorism and piracy financing facilitation. With the expanding sanctions regime, maritime operators such as shipowners, charterers, insurers, brokers, crewing agents, suppliers and commodity traders and ship repairers, would be well advised to review their risk assessment procedures to avoid exposure to sanction-bursting activities or penalties.Below are some Red-Flag activities and suggested counter measures which maritime operators and professionals may incorporate into their operational, manning and risk assessment procedures.

Potential Red Flag Activities.
• Sudden change of vessel beneficial ownership for minimal financial consideration, particularly, if the ‘new’ owner retains much of the previous owner’s personnel, management and office infrastructure.
• Unplanned ship to ship cargo transfers (STS) in risk prone waters and outside of a pre-planned passage route.
• Turning off or Spoofing the Vessel’s Automatic Identification System (AIS) to disguise the vessel’s name, identity or location.
• Obscuring or painting-over the vessel’s name and IMO number.
• Multiple State Flag Registrations or retention of flag status even after the vessel has been de-registered.
• Multiple, unsigned or undated shipping documents such as bills of lading in respect of suspected embargoed cargo, sanctioned persons or ports. Failure to provide satisfactory explanations as to missing original shipping documents in respect of the above.
• Last minute or un-explained request by a trade counter-party to change the contract payment currency.

Sanctions Mitigation Measures.
• Providing maritime operators’ staff and management with an up-to-date list of embargoed cargo, entities and ports. Having an effective organisational whistle blower reporting procedure for suspect or irregular activities.
• Enhanced AIS monitoring procedures, supplemented by Long Range Identification and Tracking (LRIT) system. Monitoring and frequent reporting of transponder performance or apparent malfunctions.
• Surveillance system to check and report on any STS operations especially in risk prone waters.
• Formalise and constantly monitor the procedures for authorising the issuance and executing shipping and contractual documents, such as bills of lading.
• Reporting flagging and registration anomalies to Flag State authorities.
• Effective information sharing with relevant authorities such as Port State Control, insurance companies, trade associations, sanction monitoring and enforcement authorities.
• Constant monitoring and comparing the vessel’s actual movement with the pre-voyage passage plans. Departures from the passage routes should be reported, reasons investigated and verified.
• Investigating and checking the identities of trade counterparties, their references and trading history. Enhance procedures to identify real cargo source, for instance, embargoed cargo may be transported by road or barges to a “clean” port for sea shipment.

Wordley Partnership Solicitors provide advice and guidance on Sanctions Law, Anti-Piracy and Shipping matters.  For Further Enquires please email: olubi.adejobi@wordleylaw.com or costas.frangeskides@wordleylaw.com