New guidance on avoiding a breach of UK financial sanctions

In July 2020, the UK Office of Financial Sanctions Implementation (OFSI), part of HM Treasury, issued new guidance for the implementation of financial sanctions in the UK. For the first time, the OFSI has expressly identified examples of illicit shipping practices that may give rise to sanctions and notes specific high-risk areas in the maritime sector.

• https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/903901/OFSI_-_Maritime_guidance__July_2020_.pdf

In addition, the following should be read:

1. This recent guidance supplements the OFSI’s general guidance on financial sanctions of January 2020.
   • https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/862451/OFSI_general_guide_to_Financial_Sanctions.pdf
2. Importers and exporters Financial Sanctions Frequently Asked Questions - This document covers questions relevant to those involved in importing and exporting goods and services, especially those operating in areas where financial sanctions are in force.
   • https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/706182/FAQ_guidance_for_the_import_and_export_sector.pdf
3. Enforcement - The above follows some basic information about financial sanctions, the power to impose monetary penalties, and to whom the power can apply.
   • https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/905122/Monetary_Penalties_Guidance__July_2020_.pdf

New JULY MARITIME guide

The OFSI advises that due diligence should be carried out as part of a risk-based approach to identify potential illegal practices.

Individuals and organisations with exposure to the maritime shipping sector should be aware of the OFSI’s non-exhaustive list of illicit practices below and ensure compliance and due diligence procedures are in place to effectively combat them:

1. The transfer of cargo between two vessels at sea rather than loading at a port can be used to conceal the origin and nature of cargo, facilitating the illicit transfer of petroleum products and other sanctioned goods
2. Intentionally disabling or manipulating a vessel’s automatic identification system (AIS) to avoid detection and hide its location, such as when conducting illicit ship-to-ship (STS) transfers
3. In cases of financial system abuse, bank accounts can be used as a front to conceal and engage in prohibited transactions
4. Falsifying and tampering with shipping documents to hide the origin and legitimacy of goods, a vessel and/or its voyage
5. The physical concealment of prohibited cargo on board a vessel to evade sanctions
6. In addition to the above examples, the OFSI refers to the growing occurrence in the shipping sector of cyberattacks and the use of cryptoassets to evade financial sanctions.

The OFSI does nevertheless recognise that there can be legitimate reasons to engage in certain activities, such as switching off a vessel’s AIS to pass through waters where there is a high-risk of piracy or where weather conditions may interfere with satellite connectivity.

The OFSI also notes the legitimate use of STS transfers to facilitate cargo operations.

The OFSI also notes that often it is the underlying transaction that is in breach of sanctions and not the shipping practice itself, but the above activities will raise suspicions of illicit conduct.

In response to the ever-evolving sanctions risks faced by all participants in the shipping sector, the OFSI has set out a number of due diligence measures which can be implemented to manage such risks. It stresses that the burden is on the particular organisation to ensure it has in place a due diligence regime to avoid sanctions breaches.

Here are the measures the OFSI considers should be implemented as part of a due diligence and compliance programme:

1. Ensure awareness of UK and international sanctions laws and regulations, particularly for high-risk jurisdictions and any reporting requirements
2. Obtain independent legal advice where necessary
3. Conduct a risk-based assessment of proposed transactions, identifying the companies and individuals involved in the transaction and/or contractual chain
4. Where a vessel switches off its AIS, make contact with the vessel to clarify its reasons and keep a record thereof, noting any trends
5. Carry out free online or subscription-based checks on companies, vessels and individuals to identify ownership structures, vessel flag information and recently visited ports
6. Ensure shipping documents are always verified
7. Where an organisation deals with or holds funds which are owned, held or controlled by a sanctions designated company or person, the organisation should refrain from dealing with such funds, freeze those funds and alert the OFSI

The above guidance comes after the US Office of Foreign Assets Control increased its focus on the maritime sector earlier this year.

As a result, there has been a notable shift in requiring organisations to satisfy a higher burden of due diligence prior to engaging in activities in high-risk jurisdictions and/or high-risk transactions.

The OFSI’s guidance on illicit shipping activities and due diligence measures to combat them signal a shift to greater required supervision by those involved in shipping.

More is required than simply checking UK and international sanctions lists for designated companies, individuals or vessels.