Are You Prepared to Detect Illicit Shipping and Sanctions Evasion?


Published Jun 1, 2020 2:02 PM by Pole Star

Following over a year of consultations with a broad swathe of the maritime industry, the U.S. Department of State, U.S. Department of Treasury, and the U.S. Coast Guard have issued the long-awaited sanctions advisory for the maritime industry. The advisory reflects the U.S. government’s commitment to work with the private sector to prevent illicit shipping and sanctions evasion.

This new 35-page guidance comprehensively expands the regulatory focus, placing firmly in the sights of the U.S. and international regulators, all maritime industry stakeholders including; ship owners, operators, managers, charterers, brokers, flags, ports, shippers, freight forwarders, commodity traders, insurers, and financial institutions. Whilst the advisory guidance is non-binding, the message is very clear that all entities across the maritime sector and related supply chains must significantly improve their compliance programmes to avoid breaching U.S. sanctions.

As an industry leader in the provision of maritime KYC and sanctions compliance, Pole Star was an active participant in these consultations and have ensured that our PurpleTRAC and MDA solutions enable clients to quickly and efficiently comply with much of the issued guidance. Our experts have reviewed the advisory, with the key points summarised below.

Who is the advisory aimed at?

Earlier this year, David Peyman, Deputy Assistant Secretary of State for Counter Threat Finance and Sanctions, stated that “the maritime industry is the key artery for sanctions evasion globally."

The advisory aims to provide all those involved in the maritime industry with the necessary tools to counter current sanctions threats and alert the industry to common deceptive shipping practices, used in relation to countries such as Syria, North Korea, and Iran.

It includes best practice advice for different sectors within the maritime and energy industries, providing extensive guidance specifically for:

  • Maritime insurance companies 
  • Flag registry managers
  • Port state control authorities
  • Shipping industry associations
  • Regional and global commodity trading, supplier, and brokering companies
  • Financial institutions
  • Ship owners, operators, and charterers
  • Classification societies
  • Vessel captains
  • Crewing companies

Deceptive Shipping Practices

The advisory begins by emphasising the key deceptive shipping practices used to facilitate sanctionable and illicit maritime trade linked to Iran, North Korea, and Syria:

  • Disabling or Manipulating the Automatic Identification System (AIS) on Vessels: Vessels conducting illicit ship-to-ship transfers will typically disable AIS to evade detection. Alternatively, vessels manipulate the data transmitted via AIS to conceal a vessel’s next port of call or other information regarding its voyage.
  • Physically Altering Vessel Identification: Passenger ships of 100 Gross Tonnage (GT) and upwards, and cargo ships of 300 GT, are required to display their name and IMO number in a visible location. A vessel’s IMO number is permanent, regardless of name or ownership changes. Vessels involved in illicit activities often paint over vessel names and IMO numbers to obscure their identities and pose as different vessels.
  • Falsifying Cargo and Vessel Documents: Documents such as bills of lading and invoices can be falsified to conceal what is being shipped and shipment origin.
  • Ship-to-Ship (STS) Transfers
  • Voyage Irregularities: The ultimate destination or origin, of cargo or recipients, may be concealed by using indirect routing, unscheduled detours, or transit or transshipment of cargo through third countries.
  • False Flags and Flag Hopping: Bad actors may falsify the flag of their vessels to mask illicit trade. They may also repeatedly register with new flag states (“flag hopping”) to avoid detection.
  • Complex Ownership or Management: Bad actors attempt to take advantage of the complexity of global shipping through the use of complex business structures, including shell companies or multiple levels of ownership, to disguise the ultimate beneficial owner of cargo to avoid sanctions or other enforcement action.

Going forward, the above practices, save for physically altering vessel information, constitute the essential focal points that need to underpin the due diligence processes undertaken by ship owners, maritime insurance companies, and all those now under the regulatory microscope.

There has never been a greater emphasis on monitoring both historic and current AIS transmissions. As such, it should now be basic due diligence to ensure the continuous transmission of AIS, alongside the monitoring of potential manipulation and route deviations. Moreover, the importance of focussing on IMO numbers, as the sole unique identifier of vessels, over vessel names is finally being reinforced. Prior to engaging in STS transfers, which are also now under scrutiny due to their repeated use by sanctioned countries, AIS transmissions, vessel names, and IMO numbers are key elements that should be thoroughly and repeatedly reviewed and inspected.

In conjunction, the paper-based nature of the maritime industry has long been a weak point - opening the industry up to a heightened risk of fraud. Consequently, OFAC is now calling for the stringent review and investigation of all relevant documentation, particularly for those involved in transshipments.

General Practices for Effective Identification of Sanctions Evasion

OFAC stresses the importance of having appropriate due diligence and compliance programs that are continuously adapting to the current sanctions landscape. The advisory highlights general practices for the effective identification of potential sanctions evasion.

  • Institutionalise Sanctions Compliance Programs: private sector entities should assess their sanctions risk, implement sanctions compliance and due diligence programs, and provide training and resources to personnel.
  • Establish AIS Best Practices and Contractual Requirements: understanding AIS and its drawbacks is essential. AIS manipulation and disruption may indicate potential illicit or sanctionable activities - this should be included in ship risk assessments.
  • Monitor Ships Throughout the Entire Transaction Lifecycle.
  • Know Your Customer and Counterparty: risk-based due diligence can include maintaining the names, passport ID numbers, address(es), phone number(s), email address(es), and copies of photo identification of each customer’s beneficial owner(s).
  • Exercise Supply Chain Due Diligence: entities across the maritime supply chain are encouraged to conduct appropriate due diligence to ensure that recipients and counterparties to a transaction are not sending or receiving commodities that may trigger sanctions, such as Iranian petroleum or North Korea-origin coal. 
  • Contractual Language
  • Industry Information Sharing

What can you be doing right now?

This advisory is one of the most holistic regulatory documents to be published regarding the maritime industry. It has raised well known weaknesses that have long been used by those seeking to flout sanctions programs.

To safeguard individual businesses and ultimately the industry as a whole from sanctions breaches   going forwards, technology is crucial. These technologies  must streamline & automate complex compliance processes, be configurable to individual risk parameters, record processes in immutable formats, and most importantly protect businesses, their staff, and their reputation.

Here at Pole Star, we have a suite of solutions to assist your business’ sanctions compliance across all aspects of the maritime supply chain.

PurpleTRAC is our award-winning revolutionary regulatory technology system for institutions with sanctions and risk management exposures in maritime trade, enabling users to screen and track vessels and their associated ownership and management in seconds, by entering only the vessel name or IMO number. Within 30 seconds, PurpleTRAC screens for the following:

  • Ship Global Sanctions List
  • Company Global Sanctions List
  • Country Sanctions List
  • Ship Movement History Check
  • Port State Control Check

Further in line with this advisory, PurpleTRAC now has a new extension:  Bill of Lading Verification (BLV), which will allow customers to significantly extend their sanctions risk and compliance investigations.

PurpleTRAC has already been adopted by a number of flags, and can be operated alongside our Maritime Domain Awareness solution for full visibility of your maritime domain.

Get in touch with us now at [email protected] to learn more about how we can assist you in staying on the right side of regulators in light of this new advisory.

This post is sponsored by Pole Star

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.