Figuring out how to comply with complex rules has become one of the top concerns for shipping since Washington tightened its enforcement of sanctions against Iran, Venezuela and North Korea.
Many industry participants have complained that they could fall foul of the sanctions easily and by accident, due to the lack of transparency and consistency in enforcement.
The Office of Foreign Assets Control (Ofac) — the US Treasury Department’s enforcement agency for sanctions — laid out the framework for compliance commitments in May, to provide more guidance.
It states that the sanctions apply to American citizens, and to any US and foreign entities that conduct business in US jurisdiction or with the US, or that use US-origin goods or services.
Ofac listed the top 10 characteristics of violations of sanctions.
Lack of a formal compliance programme: While not requiring all companies to establish a programme, Ofac said a company that has one could be fined less if it were found to be violating sanctions. It defined a formal programme as including management commitment, risk assessment, internal controls, testing, auditing and training. Industry figures generally reckon it is costly.
Misinterpretation of Ofac regulations: Organisations wrongly judge that a sanctioned transaction is either not prohibited or not applicable to them. Sometimes a company might even actively disregard the sanctions that apply to it, according to Ofac.
Facilitating sanctioned activities by non-US operations: Some multinational firms with US operations have instructed their foreign operations to carry out sanctioned activities. Such violations stem from a misinterpretation or misunderstanding of sanctions regulations, Ofac said.
Selling US-origin goods, technology or services to sanctioned entities: Non-US entities can often violate sanctions with such activities. Ofac’s enforcement actions in this area have generally focused on large, sophisticated companies engaged in a pattern or practice that lasted for years.
Using the US financial regime for sanctioned transactions: This usually involves sanctioned transactions denominated in dollars by non-US entities. Even if the deal is about selling goods from a third country to a sanctioned nation, the inclusion of an American financial institution in any associated payments often results in a prohibited activity.
Sanctions software faults: When screening counterparties, organisations sometimes fail to update sanctions software for the latest sanctions list and financial information on blacklisted entities. At times, organisations do not take into consideration alternative spellings of prohibited countries or parties.
Improper due diligence: Ofac said that for due diligence, organisations must look into their counterparties for their ownership, geographical locations, transactions, knowledge and awareness of sanctions, as well as the companies they are doing business with.
Decentralised functions and inconsistent application of a compliance programme: Organisations with personnel and decision-makers scattered in different offices or business units can fail to execute compliance programmes properly. Ofac suggested violations have resulted from the lack of a formal escalation process to review potentially sanctioned transactions; inefficient or incapable oversight and audit function; or miscommunication regarding an organisation’s compliance policies and procedures.
Non-standard payment or commercial practices: Organisations attempting to circumvent sanctions or conceal their activities sometimes implement non-traditional business methods to complete their transactions.
Individual liability: Senior staff can sometimes facilitate sanctioned transactions while obfuscating and concealing their activities from colleagues, including compliance personnel. This often occurs in the non-US operations of US entities. In such circumstances, Ofac said it will consider punishing not only the violating entities, but also the individuals.
