US Issues Guidance on Common Sanctions Evasion Practices for Shipping Industry

The Treasury Department, the State Department and the Coast Guard issued a May 14 guidance on illegal shipping and sanctions evasion practices by Iran, North Korea and Syria. The guidance aims to help traders in the maritime industry -- including the energy and metal sectors -- avoid doing business with customers trying to avoid U.S. sanctions. The 35-page guidance updates previous shipping advisories, including a guidance on illegal North Korean ship-to-ship transfers (see 1903210052).

The guidance is intended to help ship owners, managers, operators, brokers, port operators, freight forwarders and others bolster their due diligence and compliance policies, the agencies said. The guidance includes up-to-date practices used by foreign entities and people to evade sanctions -- including disabling ship’s automatic identification systems, falsifying cargo documents and flag hopping -- which the agencies said are “critical” for compliance programs.

The agencies said ships from Iran, North Korea and Syria sometimes manipulate their AIS to “broadcast a different name” or International Maritime Organization number, which is referred to as “spoofing.” They may also paint over or obscure their IMO number, which is required to be displayed on the outside of a ship for vessels of a certain size. Sanction evaders also sometimes falsify shipping documents, specifically related to petrochemicals, petroleum, petroleum products or metals to hide their origin, the guidance said. “Irregularities [in shipping documents] may provide a basis to hold a shipment until its contents are validated.”

Shipping operators should also be aware of illegal ship-to-ship transfers, “voyage irregularities” -- such as “undisclosed detours” or indirect routing -- and flag hopping, or repeatedly registering with new flag states. “Complex” ownership may be another sign of an attempt to evade sanctions, as “bad actors attempt to take advantage” of the already complex nature of global shipping by using shell companies and multiple levels of ownership “to disguise the ultimate beneficial owner of cargo,” the guidance said.

While the guidance is “not exhaustive,” companies and supply chain actors should review these sanctions evasion methods to address gaps in their compliance programs, the agencies said. Companies should “continually adopt business practices to address red flags,” including by providing up-to-date compliance training to staff, create an AIS “best practices” policy and contract requirements, and monitor ships through the “entire transaction lifecycle.” Companies should not hesitate to include their best practices in contracts and share details of their compliance program with others in the industry. The agencies said industry groups should encourage members to share information about suspected bad actors and how they conduct due diligence. While the agencies said companies should closely review the guidance to avoid sanctions risk, they stressed that it does not impose “any specific requirements” on industry.