Single-Ship Fleets May Be Red Flags for Sanctions Evasion, Compliance Expert Says

Sanctions compliance officers working in the maritime shipping industry should pay particularly close attention to registered ship owners operating single-ship fleets, which could signal a ship attempting to evade sanctions, said Byron McKinney of S&P Global Market Intelligence. McKinney said he’s seen a spike in single-ship fleets -- which are used in some cases to obscure the true ownership of a vessel -- since the Treasury Department published its maritime sanctions advisory in 2020.

That guidance highlighted illegal shipping and sanctions evasion practices by Iran, North Korea and Syria, including ship-to-ship transfers (see 2005140039). Since it was published, McKinney said there has been a “big rise” in large ship ownership groups fragmenting their vessels into smaller fleets, which allows them to “hide the group owner or the real ultimate origins and ownership of the vessels themselves.”

McKinney, speaking during a webinar hosted by S&P Global last week, called the guidance and the uptick in single-ship fleets a "clear correlation." While he said those fleets don’t guarantee that the vessel is looking to evade sanctions, including against Russia, it does “overlay a risk element on top of it when it's coupled with other activities” that may also be red flags.

“We think this is very important, because if you're trying to understand if a potential vessel or the participants behind it are likely to evade sanctions, you kind of need to understand the ownership of the vessel, where it's located, what they've been involved in, what kind of fleet they have, and how that fleet is actually managed,” McKinney said. He said companies should also know whether the vessel has been engaged in ship-to-ship transfers and where those transfers have taken place, and then “you can kind of build up a picture of a scenario there.”

McKinney added that many of the single-ship fleets he has analyzed are “within countries where general flags of convenience are found,” such as the Marshall Islands, Liberia and Panama. But he also has seen some ships from European Union member states, including Germany, the Netherlands and Malta.

He said Russian fleets in particular, along with those involved in shipping Russian oil, have “broken out into many of these” single-ship fleets. He specifically pointed to India-based Gatik Ship Management -- a “significant player in Russian oil transport,” Reuters reported earlier this year -- which previously controlled around 55 vessels but has started to “fragment” its fleet over the last few months.

McKinney said Gatik now only “covers” three vessels, meaning “at least 50 or so vessels have kind of moved away.” Although each of those vessels now lists different owners, “when you break it down and you take a closer look, you can still see the relationships are still there,” he said. “This is a tactic to obscure who the group owner is, where it's based, what the fleet is made up of.”

He said other owners outside of India have taken similar a tack, including companies based in the United Arab Emirates. “They fragmented the ownership level, and it's a clear indication of trying to obscure who is that owner,” McKinney said. “This obviously portrays a degree of risk to those from risk and compliance screening departments across the trade-finance supply chain industry, who need to try and understand this.”