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On 14 May 2020, the US Department of State, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and the US Coast Guard jointly issued a 35-page advisory called “Guidance to Address Illicit Shipping and Sanctions Evasion Practices” (the “guidance”).1
The guidance has significant and far-reaching implications for businesses conducting any transportation or trade involving the maritime industry, as well as similar activities relevant to the energy and metals sectors. It provides industry specific recommendations for ten different sectors including financial institutions, shipping companies, freight forwarders, maritime insurance companies and commodity traders and suppliers.
The guidance states that 90% of global supply chains move goods by sea and that certain “malign actors” have learned new ways to avoid sanctions. Companies operating in this sector therefore need to be increasingly diligent in assessing and mitigating sanctions risk.
The sanctions-avoidance strategies employed by these malign actors include:
In response to these avoidance tactics, the guidance sets out the following seven general practices to help companies enhance their due diligence and sanctions compliance policies and procedures.
As part of our sanctions blog series, we will explore these different areas of the guidance.
What does the guidance mean for compliance leaders?
In short, it means there continues to be an increasing focus on sanctions compliance – with a particular spotlight on the sectors and activities mentioned above. The practices outlined in the guidance indicate the direction of travel regarding where the US government is focusing on sanctions risk. They also indicate the likely criteria the US regulators will apply when determining the adequacy of a company’s compliance programme and to inform enforcement actions.
One of the key recommendations for companies from the guidance is to “institutionalise [their] sanctions compliance programs”. This means assessing their sanctions risk and, as necessary, implementing controls to address any identified gaps in their sanctions compliance programmes (“SCPs”). This also means properly embedding the SCP across the end-to-end business so that it blends seamlessly into everyday business practices, responsibilities and the overall company culture.
As mentioned in our previous article, OFAC offers a great deal of information on the essential components of a risk-based SCP in guidance issued in May 2019,2 centred on the following five essential principles of sanctions compliance:
It is also clear that anyone conducting transportation or trade involving the maritime sector – or any of the related sectors – should limit the risk of involvement with sanctioned or illicit activity, and conduct heightened due diligence on shipments that transit to or from high risk areas.
Some practical takeaways
What are the implications of the guidance?
The guidance is not legally binding and mentions this some 12 times. However, its recommendations are explicit and companies operating in the shipping sector continue to be actively investigated. It seems likely that US authorities will expect these recommendations to be implemented and that they may soon be considered standard practices for an effective SCP. No doubt the first enforcement actions will show how failure to implement these recommendations will be dealt with by US authorities.
Does it apply to my business?
The answer is not always straightforward. Businesses will need to work out whether they are a ‘US person’ or otherwise fall within US jurisdiction. The answer can also sometimes be surprising.
In a recent OFAC settlement, a Singaporean subsidiary of a US shipping company engaged with a sanctioned entity to ship sea sand to Burma in apparent violation of US sanctions laws. Although the shipping was undertaken by the Singaporean subsidiary, the transaction was reviewed and approved by management in the US. OFAC took the view that this brought the matter into its jurisdiction. To settle the apparent violations, the US parent agreed to pay OFAC $1.125m – reduced from base penalty $4m in recognition of a number of mitigating factors, including the development and implementation of a formal SCP.
The guidance is very detailed and quite overwhelming! Where to start?
Here are some helpful tips to consider as you digest the guidance and contemplate next steps:
As US authorities continue to scrutinise sanctions risk in global trade and the role the maritime sector can play to identify and mitigate sanctions risk, we expect there will be further guidance for this sector.
Stay tuned for our next blog post, where we explore some of OFAC’s suggested practices that are recommended in the guidance, as well as a discussion on industry leading practices.
If you would like to discuss any of the issues raised in this blog, or find out more about our Forensic services, please contact Stacey Toder Feldman.
An international trade lawyer by background, Stacey Toder Feldman is a Partner in the Firm's Forensic practice and leads the Energy and Resources team. Stacey has over 20 years’ experience advising clients on all aspects of the economic crime compliance lifecycle, in particular on global export controls, sanctions, customs, anti-bribery and corruption and fraud. Stacey’s practice covers a wide range of industries, with a particular focus on Energy, Resources and Industrials, specifically on oil and gas, chemicals, manufacturing, trading, shipping, metals and mining and wider energy matters. She specialises in conducting complex, multi-jurisdictional investigations and identifying areas of risk and opportunity, with emphasis on developing tailored compliance frameworks designed to minimise economic crime risk for businesses.
Olly is a Manager in the Firm’s Forensic practice with over 7 years’ experience in accounting and finance. He is a qualified Chartered Accountant and has over 3 years’ forensic experience working predominantly on investigations into sanctions breaches, bribery and fraud. Olly has experience working alongside legal teams and supporting clients in responding to requests from regulators. He also has experience advising clients on their sanctions policies and procedures.