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Friday, 05 June 20
U.S. SANCTIONS COMPLIANCE GUIDANCE RELEASED FOR THE GLOBAL MARITIME, ENERGY AND METALS SECTORS - AKIN GUMP
 Key Points
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On May 14, 2020, OFAC, the Department of State and the U.S. Coast Guard jointly released guidance for persons involved in the maritime industry regarding common deceptive shipping practices used to subvert U.S. and United Nations sanctions programs targeting Iran, North Korea and Syria.
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The guidance highlights certain deceptive practices employed in maritime activity that could signal sanctions evasion.
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The guidance also contains specific measures that the maritime industry and energy and metals sectors can take to tailor their sanctions compliance programs to avoid sanctions violations or otherwise supporting illicit shipping activities.
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This Guidance is part of a sustained focus on the international shipping industry, including the U.S. Government’s latest enforcement actions in the shipping sector on June 2, 2020.
The Guidance
On May 14, 2020, the Department of the Treasury’s Office of Foreign Assets Control (OFAC), the Department of State and the U.S. Coast Guard jointly released guidance (the “Guidance”) regarding common deceptive shipping practices in order to aid persons involved in the maritime industry, and energy and metals sectors, in tailoring their due diligence and sanctions compliance policies and procedures. The Guidance is particularly targeted towards ship owners, managers, operators, brokers, ship chandlers, flag registries, port operators, shipping companies, freight forwarders, classification service providers, commodity traders, insurance companies and financial institutions. The shipping industry continues to present particularly challenging issues associated with U.S. sanctions compliance, including the involvement of numerous parties in particular voyages all with different, yet overlapping risks.
The Guidance continues a further and concerted effort by OFAC to focus in particular on the shipping industry and builds on prior advisories that it has issued directed at the shipping industry, including one issued on September 4, 2019, entitled “Sanctions Risks Related to Shipping Petroleum and Petroleum Products from Iran” that also identified specific deceptive shipping practices and risk mitigation measures for the industry. As the U.S. Government’s latest enforcement actions on June 2, 2020 demonstrate, OFAC sanctions enforcement attention is squarely focused on the international shipping industry.
The Guidance also provides important insights for companies operating in the maritime sector regarding the criteria that OFAC applies when evaluating an effective sanctions compliance program for such companies.
Below we summarize key points from the Guidance that are relevant for the shipping sector, including a summary of deceptive practices highlighted in the Guidance, a summary of general practices for effective identification of potential sanctions evasion and summaries of guidance for certain actors in the maritime industry and country-specific guidance.
Deceptive Shipping Practices
The Guidance provides a summary of common tactics utilized to facilitate sanctionable or illicit maritime trade linked to Iran, North Korea and Syria, including:
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Disabling or manipulating the Automatic Identification System (AIS) on vessels to conceal a vessel’s port of call or other information regarding its voyage.
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Physically altering vessel identification to obscure the identities of sanctioned vessels or vessels engaging in sanctionable activities.
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Falsifying cargo and vessel documents, particularly with respect to shipments involving petrochemicals, petroleum, petroleum products, metals (steel, iron) or sand to disguise their origin.
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Ship-to-Ship (STS) Transfers used to conceal origin/destination of products.
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Voyage irregularities to disguise the ultimate destination or origin of cargo, including indirect routing, unscheduled detours or transit or transshipment of cargo through third countries.
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False flags and flag hopping (i.e., repeatedly registering vessels with new flag states).
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Use of complex ownership or management to disguise the ultimate beneficial owner of cargo or commodities in order to avoid sanctions or other enforcement actions.
General Practices for Effective Identification of Sanctions Evasion
The Guidance also highlights, and provides details regarding, the following practices for effective identification of potential sanctions evasion:
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Institutionalizing a sanctions compliance program, including through the implementation of written standardized operational compliance policies, procedures, standards of conduct and safeguards.
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Establishing AIS best practices and contractual requirements that make disabling/manipulating AIS for illegitimate reasons grounds for termination of contracts or investigations.
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Monitoring ships throughout the entire transaction lifecycle, including through supplementing AIS with Long Range Identification and Tracking (LRIT) and receiving periodic LRIT signals on a frequency informed by the entity’s risk assessment.
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Conducting “Know Your Customer” due diligence on customers and counterparties, which could 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).”
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Exercising supply chain due diligence, including, as appropriate, conducting 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, and implementing controls that allow for verification-of-origin and recipient checks for ships that conduct STS transfers.
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Incorporating the above “best practices” into contracts.
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Sharing information about sanctions evasion techniques and threats amongst industry groups.
Annex A: Actor-specific Guidance
In Annex A, the Guidance provides bulleted lists of guidance and information for particular actors within the maritime industry, including: 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 and crewing companies.
Below we summarize the guidance with respect to ship owners, operators and charterers, vessel captains and crewing companies.
Ship Owners, Operators, and Charterers:
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Identify vessels that, in the past two years, have a pattern of AIS manipulation not consistent with the International Convention for the Safety of Life at Sea and terminating business relationships with clients that continue to use those vessels.
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Keep and analyze records, including, where possible, photographs, of delivery and recipient vessels and/or recipients located at ports when possible, to enhance end-use verification.
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Protect employees who reveal illegal or sanctionable behavior from retaliation.
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Incorporate data into due diligence practices from organizations that provide commercial shipping data.
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Communicate to counterparts as necessary and appropriate (e.g., ship owners, managers, charterers, operators) an expectation that they have adequate and appropriate compliance policies.
Vessel Captains:
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Ensure deck officers are aware of the International Maritime Organization’s (IMO) AIS regulations, including the requirement to consistently broadcast AIS transmissions.
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Communicate to ship owners and charterers that vessels are monitored for AIS disablement and that any occurrences of AIS disablement will be investigated.
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Understand vessels’ AIS history to determine whether they may have been involved in illicit activities.
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Before engaging in ship-to-ship transfers, verify the other vessel’s name, IMO number and flag, and ensure there is a legitimate business purpose for the transfer.
Crewing Companies:
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Ensure crewmembers are aware of IMO guidance in relation to illicit shipping and the reasons why certain practices are unsafe.
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Communicate to clients that crews are monitored for AIS disablement and that any occurrences of AIS disablement will be investigated.
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Understand vessels’ AIS history to determine whether it may have been involved in illicit activities.
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Ensure that crewmembers who reveal illegal or sanctionable activity are protected from retaliation and providing a confidential mechanism for reporting sanctionable conduct.
Annex B: Country Guidance
In Annex B, the Guidance summarizes relevant provisions of U.S. and U.N. sanctions programs concerning North Korea, Iran and Syria and actions prohibited under said programs relevant to the maritime industry. It also highlights a few points with respect to recent deceptive practices to facilitate illicit shipping to North Korea, Syria, and Iran which are summarized below.
North Korea:
North Korea reportedly exported 3.7 million metric tons of coal between January and August 2019, in violation of U.N. sanctions. Further, while under United Nations Security Council Resolution 2397, North Korea is limited to importing a maximum of 500,000 barrels of petroleum per year, from January to October 2019. North Korea ports received 221 tanker deliveries, which, if fully laden, would result in approximately 3.89 million barrels of imports. According to the Guidance, these illicit exports and imports are primarily effectuated via ship-to-ship transfers in Chinese territorial seas. Image 1 below depicts the most common areas in which such ship-to-ship transfers take place.
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Common Locations of Ship-to-Ship Transfers subverting North Korean Sanctions1 |
North Korea is also reportedly acquiring vessels destined for scrapping and non-ocean-going barges that do not transmit AIS signals to engage in illicit import/export operations.
Syria:
The Guidance notes that “the supply chain and petroleum-related shipments [to Syria] create significant sanctions risk for those in the maritime industry.” As an example, it highlights the September 2019 OFAC action against Maritime Assistance LLC for facilitating the sale and delivery of jet fuel to Russian military forces operating in Syria. It also highlights the OFAC action in the November 2018 scheme in which Iranian and Russian entities engaged in a payment offsetting arrangement in which the sale and shipment of Iranian oil to Syria provided funding to Iran and proxy groups such as Hizballah, the Islamic Resistance Movement (HAMAS) and the Islamic Revolutionary Guard Corps-Quds Force (IRGC-QF).
Iran:
The Guidance did not provide specific guidance with respect to deceptive shipping practices used to subvert Iran-related sanctions—rather, it noted that the IRGC-QF continues to try to evade U.S. sanctions “by obfuscating the origin, destination, and recipient of oil shipments,” stating that “the use of such deceptive tactics is unique neither to Iran nor to Iran’s petroleum industry.”
Companies in the shipping industry or whose businesses intersect the shipping sector should assess their sanctions risk in light of this latest U.S. government guidance and make necessary modifications or enhancements to their compliance programs to mitigate this risk.
Source: Akin Gump, Strauss Hauer & Feld LLP
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- IEA Clean Coal Centre - UK
- Sical Logistics Limited - India
- Aboitiz Power Corporation - Philippines
- Aditya Birla Group - India
- Sojitz Corporation - Japan
- Formosa Plastics Group - Taiwan
- Coalindo Energy - Indonesia
- Singapore Mercantile Exchange
- Dalmia Cement Bharat India
- Therma Luzon, Inc, Philippines
- SN Aboitiz Power Inc, Philippines
- Planning Commission, India
- Bayan Resources Tbk. - Indonesia
- London Commodity Brokers - England
- Maheswari Brothers Coal Limited - India
- Riau Bara Harum - Indonesia
- Indogreen Group - Indonesia
- Independent Power Producers Association of India
- Gujarat Sidhee Cement - India
- Petron Corporation, Philippines
- The University of Queensland
- Chettinad Cement Corporation Ltd - India
- Electricity Generating Authority of Thailand
- Banpu Public Company Limited - Thailand
- Ministry of Finance - Indonesia
- Thai Mozambique Logistica
- Deloitte Consulting - India
- Petrochimia International Co. Ltd.- Taiwan
- Trasteel International SA, Italy
- Samtan Co., Ltd - South Korea
- Kepco SPC Power Corporation, Philippines
- Ambuja Cements Ltd - India
- Sindya Power Generating Company Private Ltd
- Carbofer General Trading SA - India
- Jindal Steel & Power Ltd - India
- Siam City Cement PLC, Thailand
- Bukit Makmur.PT - Indonesia
- Anglo American - United Kingdom
- Minerals Council of Australia
- Oldendorff Carriers - Singapore
- Meenaskhi Energy Private Limited - India
- Edison Trading Spa - Italy
- Sarangani Energy Corporation, Philippines
- Energy Development Corp, Philippines
- Chamber of Mines of South Africa
- ASAPP Information Group - India
- Australian Commodity Traders Exchange
- Barasentosa Lestari - Indonesia
- Jaiprakash Power Ventures ltd
- Rio Tinto Coal - Australia
- Miang Besar Coal Terminal - Indonesia
- Baramulti Group, Indonesia
- Parliament of New Zealand
- Agrawal Coal Company - India
- Cement Manufacturers Association - India
- Rashtriya Ispat Nigam Limited - India
- TeaM Sual Corporation - Philippines
- Bhoruka Overseas - Indonesia
- Central Java Power - Indonesia
- Antam Resourcindo - Indonesia
- Marubeni Corporation - India
- Manunggal Multi Energi - Indonesia
- Xindia Steels Limited - India
- Leighton Contractors Pty Ltd - Australia
- Merrill Lynch Commodities Europe
- Alfred C Toepfer International GmbH - Germany
- Vizag Seaport Private Limited - India
- Renaissance Capital - South Africa
- Mintek Dendrill Indonesia
- Sinarmas Energy and Mining - Indonesia
- Borneo Indobara - Indonesia
- Iligan Light & Power Inc, Philippines
- Coal and Oil Company - UAE
- Indonesian Coal Mining Association
- Australian Coal Association
- Medco Energi Mining Internasional
- Mjunction Services Limited - India
- Toyota Tsusho Corporation, Japan
- Cigading International Bulk Terminal - Indonesia
- Altura Mining Limited, Indonesia
- Wilmar Investment Holdings
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Heidelberg Cement - Germany
- Kohat Cement Company Ltd. - Pakistan
- White Energy Company Limited
- Karbindo Abesyapradhi - Indoneisa
- PetroVietnam Power Coal Import and Supply Company
- New Zealand Coal & Carbon
- Pipit Mutiara Jaya. PT, Indonesia
- GVK Power & Infra Limited - India
- Bukit Baiduri Energy - Indonesia
- India Bulls Power Limited - India
- Romanian Commodities Exchange
- Ministry of Mines - Canada
- Interocean Group of Companies - India
- OPG Power Generation Pvt Ltd - India
- Africa Commodities Group - South Africa
- Star Paper Mills Limited - India
- Vedanta Resources Plc - India
- TNB Fuel Sdn Bhd - Malaysia
- Indian Oil Corporation Limited
- The State Trading Corporation of India Ltd
- Thiess Contractors Indonesia
- Orica Mining Services - Indonesia
- Bulk Trading Sa - Switzerland
- PNOC Exploration Corporation - Philippines
- Kapuas Tunggal Persada - Indonesia
- Sakthi Sugars Limited - India
- Metalloyd Limited - United Kingdom
- PTC India Limited - India
- MS Steel International - UAE
- Power Finance Corporation Ltd., India
- Simpson Spence & Young - Indonesia
- Intertek Mineral Services - Indonesia
- Sree Jayajothi Cements Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Lanco Infratech Ltd - India
- Attock Cement Pakistan Limited
- IHS Mccloskey Coal Group - USA
- PowerSource Philippines DevCo
- Madhucon Powers Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- LBH Netherlands Bv - Netherlands
- Uttam Galva Steels Limited - India
- SMC Global Power, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Indian Energy Exchange, India
- Mercator Lines Limited - India
- Ceylon Electricity Board - Sri Lanka
- Georgia Ports Authority, United States
- Indo Tambangraya Megah - Indonesia
- Makarim & Taira - Indonesia
- Commonwealth Bank - Australia
- Pendopo Energi Batubara - Indonesia
- Semirara Mining Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- Port Waratah Coal Services - Australia
- Bhushan Steel Limited - India
- South Luzon Thermal Energy Corporation
- Bangladesh Power Developement Board
- McConnell Dowell - Australia
- Bhatia International Limited - India
- Indika Energy - Indonesia
- Videocon Industries ltd - India
- Eastern Coal Council - USA
- Straits Asia Resources Limited - Singapore
- Binh Thuan Hamico - Vietnam
- Energy Link Ltd, New Zealand
- Orica Australia Pty. Ltd.
- Posco Energy - South Korea
- CIMB Investment Bank - Malaysia
- Tata Chemicals Ltd - India
- Price Waterhouse Coopers - Russia
- Maharashtra Electricity Regulatory Commission - India
- Kalimantan Lumbung Energi - Indonesia
- San Jose City I Power Corp, Philippines
- Neyveli Lignite Corporation Ltd, - India
- GAC Shipping (India) Pvt Ltd
- SMG Consultants - Indonesia
- Goldman Sachs - Singapore
- International Coal Ventures Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Parry Sugars Refinery, India
- Directorate General of MIneral and Coal - Indonesia
- Electricity Authority, New Zealand
- Kobexindo Tractors - Indoneisa
- CNBM International Corporation - China
- Global Coal Blending Company Limited - Australia
- Gujarat Electricity Regulatory Commission - India
- Krishnapatnam Port Company Ltd. - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Meralco Power Generation, Philippines
- Essar Steel Hazira Ltd - India
- Karaikal Port Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Kartika Selabumi Mining - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Siam City Cement - Thailand
- Ind-Barath Power Infra Limited - India
- Salva Resources Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Asmin Koalindo Tuhup - Indonesia
- GMR Energy Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Mercuria Energy - Indonesia
- Wood Mackenzie - Singapore
- Eastern Energy - Thailand
- Larsen & Toubro Limited - India
- Ministry of Transport, Egypt
- European Bulk Services B.V. - Netherlands
- Global Business Power Corporation, Philippines
- VISA Power Limited - India
- Kideco Jaya Agung - Indonesia
- Economic Council, Georgia
- Malabar Cements Ltd - India
- Standard Chartered Bank - UAE
- Savvy Resources Ltd - HongKong
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- ICICI Bank Limited - India
- Kaltim Prima Coal - Indonesia
- Central Electricity Authority - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- AsiaOL BioFuels Corp., Philippines
- Tamil Nadu electricity Board
- Directorate Of Revenue Intelligence - India
- Holcim Trading Pte Ltd - Singapore
- Grasim Industreis Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Semirara Mining and Power Corporation, Philippines
- Latin American Coal - Colombia
- Billiton Holdings Pty Ltd - Australia
- Coastal Gujarat Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Bharathi Cement Corporation - India
- The Treasury - Australian Government
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