A US advisory on combating deceptive shipping practices is not mandatory, but cargo lines would do well to adhere to the guidance. Otherwise, they risk greater scrutiny from the US authorities.

The advice, issued by the US Coast Guard and the Treasury Department’s Office of Foreign Assets Control (Ofac) in May, will require costly and often complicated measures.

In some cases the information sharing required to meet the guidelines would violate European Union privacy laws, a facet the US may seek to clarify in the future.

However, the cost of not implementing these best practice recommendations is significant.

As the US government tightens its global sanctions web by focusing on evasion made possible through illicit shipping practices, it has become increasingly effective at identifying and punishing the bad actors in the industry.

New reality

Governmental and private-sector entities would be wise to take note and adapt to this new reality as soon as they can, so they aren’t caught in the same net as the bad actors.

In a nod to the predicted difficulty in implementing best practice measures, the advisory contains annexes highlighting specific tactics used to evade sanctions on North Korea, Syria and Iran.

It is also separated into specific advice for each sector across shipping, ranging from maritime insurance companies and flag registry managers to industry associations, financial institutions, vessel captains and beyond. A huge range of relevant industries is covered.

Several common deceptive shipping practices are covered in depth, including the use of false flags or registration with new flag states, known as flag hopping, to avoid detection and mask illicit trade, and voyage irregularities, in which bad actors disguise the ultimate destination or origin of their cargo.

Complex business structures

Further guidance addresses the use of complex business structures to obfuscate ownership and avoid enforcement, another illicit tactic often seen.

As well as these specifics, the advisory details more general approaches to help the industry implement compliance policies and procedures and carry out necessary due diligence.

New recommendations include monitoring ships throughout the entire transaction life cycle, adding contractual language to cover compliance requirements and encouraging information sharing. This, in particular, may pose problems when shipping companies face the task of also complying with EU privacy laws.

Ofac has demonstrated a strong capability to track ships and bring sanctions against complex networks designed to evade restrictions, and the US Navy has increased at-sea interdiction efforts

Matthew Oresman, partner Pillsbury Winthrop Shaw Pittman

Overall, the advisory is representative of Washington’s consistent and ever-more detailed efforts to stamp out deceptive shipping practices used to avoid sanctions, in effect providing the industry with a checklist for strong compliance.

As compliance becomes an increasingly central aspect to the long-term health of any business, shipping would do well to take note.

Alternative methods

US efforts are illustrated by Ofac’s recent actions.

On 8 June, sanctions went into effect against the Islamic Republic of Iran Shipping Lines (IRISL) and its Shanghai-based subsidiary E-Sail Shipping.

Although both companies were already on Ofac’s Specially Designated Nationals and Blocked Persons List (SDN List), which blocks the entities’ US assets and generally prohibits dealings with US persons, this new round of sanctions affects humanitarian activities that were previously exempt.

As these latest sanctions went into effect, Ofac designated more than 120 vessels owned by or tied to IRISL or E-Sail.

The sanctions were announced last December, but the effective date was postponed by 180 days to allow exporters to find alternative shipping methods.

If the past is any indication, we can expect further sanctions in the pipeline. Last August, the US Treasury added to the SDN List a shipping network engaged in ship-to-ship transfers with North Korean vessels, demonstrating that this drive to curtail illicit practices is not a new trend.

Ofac has demonstrated a strong capability to track ships and bring sanctions against complex networks designed to evade restrictions, and the US Navy has increased at-sea interdiction efforts.

With new US sanctions threatening to sink all bad actors, companies operating legally and in good faith should ensure they are lifted with the tide by implementing these new best practices to ensure economic sustainability and resilience.

Matthew Oresman is a partner at US law firm Pillsbury Winthrop Shaw Pittman, where he provides advice on international law and policy matters, including global sanctions compliance