US Sanctions Guidelines Need Careful Study by All Participants in the Shipping Supply Chain

US – To the uninitiated the setting of sanctions would seem to be a simple process, who they are aimed at, what they consist of and an outline of the actions to be taken. Unfortunately this is rarely the case and, under the Trump administration where policy is often produced like a rabbit from a hat, the situation has seemingly gotten even more complex than usual.

Legal pronouncements need to be couched in language which is both clear and accurate, but you would not know it when reading the latest ‘Advisory’ published this month by the US Department of State, US Department of the Treasury’s Office of Foreign Assets Control (OFAC), and US Coast Guard which have issued a joint Sanctions Advisory for the Maritime Industry.

This document is the latest of several such pronouncements which have been brought forward over the past two years. The idea being that the sanctions, targeting the maritime sectors of the relevant countries, as well as shipments of oil, natural gas and various commodities, are laid out for all to understand. Unfortunately they appear to fall short in this as the guidance being given is often in language of suggestion (e.g., parties ‘may wish to consider…’), rather than as a mandate.

We are grateful to Daniel Pilarski, a partner in the New York office of legal outfit Watson, Farley and Williams for his analysis of the recently issued Advisory. He points out that the maritime community is usually the sector at the forefront of policing sanctions and that it is obvious the US government is relying on all parties involved, from vessel owners and operators to charterers and insurers to cooperate and act according to its ‘advice’.

There is a feeling of unease when one reads the expert analysis, it looks to the observer as if the authorities want the global maritime community to police itself, and for players to ensure that both they and their counterparts are in compliance, however the extent and details are not always clear cut, giving the authorities at some future point the right to make judgements on decisions, often made at sea, over which the participants may not have full control at the time.

Unlike financial regulation Pilarski points out that shipping interests are often small entities without the sophisticated compliance infrastructure of a bank, thus making it much more difficult to comply. The Advisory suggests that parties should research a ship’s history to identify things such as previous Automatic Identification System (AIS) manipulation before entering into new contracts involving the ship, and to monitor AIS manipulation and disablement when cargo is in transit.

The Advisory also suggests that relevant contracts include a clause requiring the AIS to broadcast at all times, and permitting termination where the clause is breached, not so easy to cancel a contract when the vessel involved is thousands of miles away and the situation unclear. Switching off an AIS certainly makes it easier to commit clandestine acts, including ship-to-ship (STS) transfers where cargo is simply swapped mid ocean to another vessel.

OFAC is naturally concerned that STS transfers can be used to evade sanctions by disguising the origin or destination of the relevant cargo. While OFAC acknowledges that STS transfers can be conducted for legitimate purposes, it flags such transfers as potential sanctions evasion, especially if conducted ‘at night or in areas determined to be high risk for sanctions evasion or other illicit activity.’

The recent Advisory also includes a map showing areas near the Korea Peninsula, China and Eastern Russia that are thought to be high risk for North Korean sanctions evasion. No similar map is shown for other areas (e.g., the Persian Gulf or offshore Syria). Previous sanctions advisories have included a list of ships and ship owners identified as having traded with Syria, Iran and North Korea, and having engaged in STS transfers of cargo that ended up in these countries.

The previous advisories made clear that they were not ‘sanctions lists’ (i.e. that the parties listed were not blocked and generally could be dealt with), and that there was no determination that a sanctions violation had occurred. Nevertheless, the market largely reacted to these ‘name-and-shame’ lists as if they were sanctions lists. The new Advisory does not revise the ‘name-and-shame’ lists, neither to add new parties to the lists, nor to ‘remove’ existing parties, merely saying that there may be further ‘updates’ in the future. Thus market behaviour is likely to still remain on the cautious side.

The Advisory also includes a second Annex describing the relevant sanctions programs targeting North Korea, Iran and Syria, and including country-specific guidance. The inclusion of North Korea and Iran is consistent with the highly comprehensive US ‘secondary sanctions’ targeting both countries, as well as UN sanctions against North Korea. While Syria’s inclusion is consistent with previous advisories, most trade with private actors in Syria is not subject to ‘secondary’ sanctions

Secondary sanctions apply to non-US persons generally who can deal with Syria in a manner that does not violate US sanctions, so long as they do not deal with the Syrian government or entities or individuals designated as ‘terrorists’, which given US policy swings could be said to be unpredictable at least. Nevertheless, the Advisory seems to imply that most trade with Syria, whether or not conducted by US persons, may violate sanctions. There is that implication again, rather than a precisely worded policy.

Also of interest is the absence of a separate listing for Venezuela, which has been the target of a significant escalation of US sanctions over the past year and has been the focus of a crackdown on sanctions evasion. It seems in the current US political climate that, whilst clarity is lacking in so many areas, all parties featured in the Annex checklist, which ranges from port groups, through all aspects of shipping to insurers and classification societies, should avail themselves of the contents despite this not being a mandatory instruction.

Photo: The US Navy seized this cache of munitions from an Arab dhow headed for Yemen in February this year. (Image courtesy of US Navy).