On December 12, 2023, the Department of Justice (DOJ), Department of Commerce’s Bureau of Industry and Security (BIS), Department of Homeland Security’s Homeland Security Investigations (HSI), the Department of State’s Directorate of Defense Trade Controls (DDTC), and the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a joint compliance note (the “Compliance Note”) describing practices that may indicate evasion of U.S. sanctions and export control laws and identifying steps that industry participants can take to ensure compliance with U.S. law.
The Compliance Note specifically identifies vessel owners, charterers, exporters, managers, brokers, shipping companies, freight forwarders, commodities traders, and financial institutions as industry participants that “must be responsible for assessing their risk profile and implementing rigorous, risk-based internal compliance programs” to avoid potentially illicit conduct and reduce the risk of sanctions and export controls violations and evasion.
Echoing prior guidance from OFAC relating to sanctions evasion in the maritime industry, including the Sanctions Advisory for the Maritime Industry published on May 14, 2020 and the Advisory for the Maritime Oil Industry published on October 12, 2023, the Compliance Note reiterates practices viewed as red flags for sanctions evasion, including:
- Manipulating location or identification data;
- Falsifying cargo and vessel documents;
- Ship-to-ship transfers;
- Voyage irregularities and use of abnormal shipping routes;
- Frequent registration changes; and
- Complex ownership or management.
The Compliance Note also advises industry participants to “know their cargo”, in order to ensure that they have adequate compliance policies in place that can detect or protect against the above-mentioned practices, including:
- Institutionalizing sanctions and export control compliance programs;
- Establishing location monitoring best practices and contractual requirements;
- “Know your customer” due diligence;
- Supply chain due diligence; and
- Industry information sharing.
The foregoing controls are particularly important for industry participants operating in high-risk geographic areas or dealing with high-risk categories of cargo.
A key takeaway for industry participants is perhaps best summarized by the adage that “an ounce of prevention is worth a pound of cure.” The Compliance Note provides notice to the market that these U.S. government agencies, as well as other non-governmental organizations are looking for “deceptive shipping or transportation practices [that] facilitate illicit transit of cargo” and “when such cargo later becomes the subject of U.S. enforcement actions (whether criminal or civil) the costs and reputational risks can be significant.”
While the recommendations do not have the force of law, the best practices contained in the Compliance Note are designed to assist entities operating in maritime and other transportation industries to mitigate risks of exposure to the consequences of running afoul of U.S. sanctions and export control laws.
The Compliance Note’s extensive discussion of recent criminal and civil enforcement actions relating to the illicit shipment of cargo further emphasizes that the U.S. Government, through its various federal agencies and departments, continues to closely monitor the shipping industry to ensure compliance with U.S. laws and that enforcement of such laws remains a top priority.
We will continue to closely monitor developments in this space.