Commodity Trading and Maritime Industry in the focus of US Sanctions Enforcement

U.S. targets illicit shipping and sanctions evasion practices by the commodity trading and maritime industry.

The OFAC, the U.S. Department of State and the U.S. Coast Guard have on May 14, 2020 jointly published a new guidance serving as an advisory for the maritime industry, energy and metals sector as well as related communities.

The Guideline identifies various behaviours and transactions by commodity traders, insurance companies, financial institutions, freight forwarders, shipping companies, ship owners, managers, operators, brokers and other involved parties to evade U.S. and United Nations sanctions programs targeting Iran, North Korea, Venezuela and Syria. The publication of this guidance shows that the U.S. government has set a strong focus on the enforcement of its sanctions within the global commodity trading and maritime industry. This is also evidenced by the ongoing campaign of OFAC against Maritime Entities for Supporting the Maduro Regime in the Venezuela Oil Trade. Due to the extraterritorial application of US sanctions, also Swiss commodity traders and the maritime industry should carefully study this guideline and re-evaluate their Internal Compliance Programs to address the outlined risks.

The Guideline identifies various behaviours which are considered as deceptive shipping practices such as

  • Falsifying cargo and vessel documents, particularly with respect to shipments involving petrochemicals, petroleum, petroleum products, metals (steel, iron) or sand to disguise their origin.
  • Ship-to-Ship (STS) Transfers used to conceal origin/destination of products.
  • Voyage irregularities to disguise the ultimate destination or origin of cargo, including indirect routing, unscheduled detours or transit or transshipment of cargo through third countries.
  • Use of complex ownership or management to disguise the ultimate beneficial owner of cargo or commodities in order to avoid sanctions or other enforcement actions.

In order to prevent such deceptive shipping practices and to assure compliance with U.S. and UN Sanction Programs, the Guidelines define various “best practices” which need to be addressed by Internal Compliance Programs (ICP) as well as in the business operations of commodity traders and the maritime industry.

In general, the U.S. Authorities expect commodity traders and players in the maritime and shipping industry to institutionalise their Sanctions Compliance Programs which should include

  • appropriate and continuous sanctions risk assessments;
  • the implementation of sanctions compliance and due diligence programs (Internal Compliance Program, ICP);
  • training and resources to personnel in order to best execute the ICP;
  • the implementation of appropriate measures to oblige counterparties, partners, subsidiaries, and affiliates to secure compliance with the relevant and applicable sanctions programmes.

In its annex A, the Guidance contains specific recommendations for various players in the industry, such as commodity trading companies or financial institutions. The Internal Compliance Programs are expected to – as of now – comply with these best practice recommendations.

The specialists of MME Compliance AG are ready to support commodity traders, shippers, freight forwarders ship owners and managers as well as contractual carriers (NVOCC) in the assessment of their trade compliance and sanction risks, the establishing of adequate, effective and lean Internal Compliance Programs (ICP’s) or to check existing ICP’s in the light of the new US Guidelines.

June 2020 | Authors: Raphael Brunner, Peter Henschel

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