1.Sanctions prohibiting trade/transactions have been imposed on certain countries by USA & UN. In this regard, 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 have issued advisory dated 14 May 2020 providing information and guidance to counter illicit shipping and sanctions evasion.
2.The advisory provides sanctions risks and contains information on common deceptive shipping practices and general approaches to aid in further tailoring due diligence and sanctions compliance policies and procedures.
3. Accordingly, ship owners/operators, ship’s captains, crewing companies, classification societies, commodity traders and others have been advised to exercise due diligence in transactions and implement compliance controls to address any identified gaps in their compliance programs. This is especially important when operating near or in areas they determine to be high-risk, which may include areas frequently used for potentially sanctionable transportation-related activities.
4. Some of the deceptive shipping practices utilized to facilitate sanctionable or illicit maritime trade are;
• Disabling or Manipulating the Automatic Identification System (AIS) on Vessels
• Physically Altering Vessel Identification
• Falsifying Cargo and Vessel Documents
• Ship-to-Ship (STS) Transfers
• Voyage Irregularities
• False Flags and Flag Hopping
• Complex Ownership or Management
5. While adoption of business practices to address anomalies indicating illicit or sanctionable behavior have been recommended, some of the specific practices that may assist in more effectively identifying potential sanctions evasion are as follows;
• Institutionalize Sanctions Compliance Programs.
• Establish AIS Best Practices and Contractual Requirements.
• Monitor Ships throughout the Entire Transaction Lifecycle.
• Know Your Customer and Counterparty.
• Exercise Supply Chain Due Diligence.
• Contractual Language.
• Industry Information Sharing.
6. Ship owners, operators, and charterers can consider implementing the due diligence practices as follows to the extent they deem such practices are appropriate and helpful in assessing and mitigating sanctions risks.
• Ensuring that deck officers are aware of, the IMO required AIS regulations, which include consistently broadcasting AIS transmissions consistent with SOLAS.
• As appropriate, continuously monitoring ships, including ships leased to third parties, and ensuring that the AIS is continuously operated consistent with SOLAS and not manipulated. Parties could also consider using LRIT in addition to AIS and receiving LRIT signals every 3 hours.
• Monitoring AIS transmissions of vessels, especially in the case of vessels capable of transporting cargoes and that are susceptible to ship-to-ship transfers that are known to be used in the evasion of sanctions (e.g., coal, petroleum and petroleum products, and petrochemical products).
• Emphasizing to clients that all ships will be monitored for AIS manipulation, and instances of AIS disablement inconsistent with SOLAS will be investigated and reported.
• Identifying the vessels which, in the past two years, have a pattern of AIS manipulation not consistent with SOLAS and terminate business relationships with clients that continue to use those vessels.
• Assessing the AIS history of all new clients and refusing to conduct business with vessels that have a history of AIS manipulation not consistent with SOLAS.
• Adopting contractual language with clients, in the form of an “AIS switch-off” clause, allowing ship owners, charterers and operators to terminate work with any clients that demonstrate a pattern of multiple instances of AIS manipulation that is inconsistent with SOLAS.
• Keeping and analyzing records, including, where possible, photographs, of delivery and recipient vessels and/or recipients located at ports when possible, to enhance end-use verification.
• Providing regular case studies and updates regarding illicit activity in industry-wide circulars, particularly in relation to shipping and chartering oil and petroleum products.
• Communicating to counterparts as necessary and appropriate (e.g., ship owners, managers, charterers, operators) an expectation that they have adequate and appropriate compliance policies, which could include;
i. Conducting their activities in a manner consistent with U.S. and UN sanctions, as applicable;
ii. Having sufficient resources in place to ensure execution of and compliance with their own sanctions policies by their personnel, e.g., direct hires, contractors, and staff;
iii. To the extent applicable, ensuring subsidiaries and affiliates comply with the relevant policies;
iv. Having relevant controls in place to monitor AIS;
v. Having controls in place to screen and assess on boarding or offloading cargo in areas they determine to present a high risk;
vi. Having controls to assess authenticity of bills of lading, as necessary ;and
vii. Having controls in place consistent with this guidance.
• Ensuring employees who reveal illegal or sanctionable behavior are protected from retaliation, and ensure there is a confidential mechanism to report suspected or actual sanctionable conduct.
• As shipping business arrangements may involve parties subject to the laws of different jurisdictions, communicating relevant restrictions under U.S. and UN sanctions regimes to parties involved in a transaction can facilitate more effective compliance.
• Requiring explicit contractual language that describes AIS disablement and manipulation inconsistent with SOLAS and sanctionable activity as of the contract date as grounds for termination of the contract and removal and denial of services. Additionally, parties could incorporate contractual language that prohibits transfers of cargo to clients that are not broadcasting AIS or have an AIS history that indicates manipulation inconsistent with SOLAS.
7. Crewing companies can consider implementing the following due diligence practices to the extent they deem such practices are appropriate and helpful in assessing and mitigating sanctions risks.
• Being aware of, and ensuring that their crewmembers are aware of, the IMO circulated guidance in relation to illicit shipping and why these practices are unsafe.
• Communicating to clients that the ships their crews will be operating will be monitored for AIS disablement and manipulation, and that such instances will be investigated.
• Researching their prospective vessel’s AIS history to help determine whether the vessel may be involved in illicit activities.
• Ensuring employees who reveal illegal or sanctionable behavior are protected from retaliation, and ensuring there is a confidential mechanism to report suspected or actual violations of law or sanctionable conduct.
8. Accordingly, stake holders are expected to have adequate and appropriate compliance policies, which could include:
• conducting their activities in a manner consistent with U.S. and UN sanctions, as applicable;
• having sufficient resources in place to ensure execution of and compliance with their own sanctions policies by their personnel, e.g., direct hires, contractors, and staff;
• to the extent applicable, ensuring subsidiaries and affiliates comply with the relevant policies;
• having relevant controls in place to monitor AIS;
• having controls in place to screen and assess on boarding or offloading cargo in areas they determine to present a high risk;
• having controls to assess authenticity of bills of lading, as necessary; and
• having controls in place consistent with the guidance.
9. Based on above, IRS will be taking a Declaration from ship Owners/ operators in respect of compliance to the above guidelines. Where it comes to the knowledge of IRS that any classed ship is involved with activities in a manner that is not consistent with U.N./ U.S. sanction regimes, in exercising due diligence IRS will be compelled to take action as considered appropriate including suspension of the Class and sending relevant information to the U.S., relevant UN body and the Flag Administration.
10. Ship owners/ operators, Ship’s Captains, Crewing Company and other concerned stake holders are advised to be guided by above.
USCG Advisory dated 14 May 2020 Regarding Guidance to Address Illicit Shipping and Sanctions Evasion Practices.
This Technical Circular and the material contained in it is provided only for the purpose of supplying current information to the reader and not as an advice to be relied upon by any person. While we have taken utmost care to be as factual as possible, readers/ users are advised to verify the exact text and content of the Regulation from the original source/ issuing Authority.