On 28 July 2020, the UK was the first jurisdiction to follow the path paved by the USA in delivering comprehensive guidance in respect of sanctions in maritime trade. In issuing The Maritime Guidance: Financial sanctions guidance for entities and individuals, the Office of Financial Sanctions Implementation (OFSI) is targeting all companies, banks, and individuals that are involved in maritime trade. The guidance highlights some of the key risks of sanctions evasion in maritime trade, sets out ‘red flags’ and gives its recommendations on how best to safeguard against these risks.
The following are some of the red flags, highlighted in the guidance, for potential sanctions evasion in the maritime sector:
Automatic Identification System (AIS) manipulation
Forged/tampered with documentation
Generally, the OFSI encourages individuals and companies taking part in maritime trade and transactions to adopt a risk-based approach to the due diligence they carry out, which ensures that they have a good understanding of the risk exposure across the supply chain. It urges a move away from a system of one time on-boarding ‘know your client’ checks on direct customers to a more sophisticated system whereby regular checks are carried out on other companies, individuals and vessels involved in any transaction. These checks should look to confirm that no party is a sanctioned entity but also to ensure no party has previously been caught evading sanctions.
Further, the OFSI names specific jurisdictions as threats to UK foreign police; these include North Korea, Iran, Libya and Syria. It is recommended that any individual or company that is to be a party to maritime trade in or around these areas conducts enhanced due diligence on all parties in the maritime supply chain and that this due diligence is ongoing.
Those involved in maritime transactions need to understand how sanction evaders use shipping practices to carry out their illegal activity. For example, financial institutions should be aware of the ways in which the financial system may be abused to evade sanctions; for example, through front and shell companies, the use of which makes it difficult for banks to link transactions and trades to sanctioned companies or individuals.
As the UK sanctions regime becomes independent from the EU regime as a result of Brexit, the publication of these guidelines can be taken as an indication that the OFSI regards the maritime trade sector (including the trade finance sector) as an area of specific interest and importance in sanctions compliance and enforcement. Although the recommendations are just that (ie recommendations) it would seem prudent for all companies and individuals in the maritime trade and trade finance sectors to note the interest of the OFSI. There is a growing trend across the trade sector to use enhanced due diligence and risk mitigation methods, such as maritime analytics technology. The OFSI indicates that this is to be encouraged and developed further. Such methods and analytical tools for enhanced due diligence will soon be considered ‘the norm’. Individuals and companies operating in the maritime trade sector that are unfortunate enough to find themselves caught up in a trade - part, or all, of which contravenes UK sanctions - will find it increasingly difficult to defend themselves if they cannot demonstrate that they made use of such methods and analytical tools to enhance their due diligence at the outset.