• Home
  • Insights
  • Sanctions: deceptive practices and high-risk areas – Part 1

12 Apr 2021

Sanctions: deceptive practices and high-risk areas – Part 1

Linkedin

The maritime industry has transitioned to the front and centre of the global stage with increasing scrutiny on sanctions enforcement. Sanctions evaders have, and will continue to, exploit the industry as an ideal forum for implementing tactics to camouflage illicit trade or sanctionable behaviour, otherwise known as "deceptive shipping practices". In the first of our two-part series, we provide an overview of deceptive shipping practices that industry players should be aware of and a rundown of the high-risk areas globally.

Overview of deceptive shipping practices

What are they?

They are tactics used by sanctions evaders to camouflage illicit trade and/or sanctionable activities. As well as sanctions evasion, these practices are used in connection with the facilitation of terrorism, smuggling and other criminal activities.

In 2020, the United States ("US") and the United Kingdom ("UK") published guidance aimed at providing large-scale recommendations on sanctions compliance to industry players worldwide:

  • On 14 May 2020, the US Department of State, the US Department of the Treasury’s Office of Foreign Assets Control ("OFAC") and the US Coast Guard issued guidance on trends in sanctions evasion. The guidance lists certain deceptive practices often used in the maritime industry to hide sanctionable behaviour (click here) ; and
  • On 27 July 2020, the Office of Financial Sanctions Implementation in the UK published "Maritime Guidance" for entities and individuals operating in the maritime sector which lists the variety of tactics used to disguise sanctionable activities (click here), together, the "Guidance Documents".

Why do they matter?

It is important for industry players to recognise and identify red flags and suspicious behaviour in order to properly protect themselves against any risk of exposure to sanctions when conducting business with parties and counterparties.

The Guidance Documents have helped to increase the global expectation that industry players must adopt effective business practices in order to carefully identify any red flags or suspicious behaviour patterns in their day-to-day activities. Unlike the banking sector, which has been traditionally well-equipped to invest in and adopt such practices as part of everyday compliance procedures, the maritime sector has had to quickly adapt to everchanging sanctions regulation regimes and which require investment into sanctions compliance, despite being traditionally a "cash-strapped" industry.

Who needs to be aware of them?

This article is aimed at players within the maritime industry, including but not limited to the following:

  • Vessel owners, operators or charterers;
  • Crew management companies;
  • Masters of vessels;
  • Brokering companies;
  • Flag registries;
  • Port authorities;
  • Shipping companies;
  • Insurance companies;
  • Freight forwarders;
  • Classification service providers;
  • Commodity traders; and
  • Financial institutions.

List of deceptive shipping practices and red flags

In part two of our series on deceptive practices, we will explore the most common practices used in the maritime industry and highlight the common fact patterns that industry players should be aware of. Some of the most prevalent deceptive practices include disabling or manipulating the AIS, ship-to-ship transfers, loitering in high-risk areas and falsifying cargo and vessel documents.

High-risk areas

What are they?

The term "high-risk area" is used to denote those countries which are currently subject to the most stringent and wide-reaching sanctions regimes, representing significant compliance and reputational risks to entities conducting business directly or indirectly in those countries and/or with entities or individuals connected to those countries.

Why do they matter?

To assist industry players in their day to day sanctions risk compliance, identifying the countries subject to sanctions, particularly those that are deemed "high-risk", is absolutely essential in helping make the appropriate commercial decisions and necessary compliance investigations.

It is anticipated that there will be further changes to the current sanctions framework under US President Biden's administration, and industry players are therefore strongly encouraged to keep regularly updated on the latest regulations and regimes.

Which countries are currently subject to sanctions?

 

map

 
In the above world map, we have colour-coded countries based on their respective sanctions' risks having regard to the current sanctions implemented by the US, European Union and United Nations as at the date of this article. The key sets out the risk that each colour signifies.

For example, North Korea is marked in red as a high-risk country due to the comprehensive US, EU, UN and other third-country sanctions that apply, including trade bans, wide-reaching sectoral sanctions and overall sanctions enforcement from the international community as the country is identified as an international threat to global security.

Conversely, Yemen is marked in green because the sanction regimes of the UN and US are less comprehensive with travel bans on certain individuals, asset freezes on certain entities and individuals and an arms embargo.

Industry players should be particularly aware of the countries coded in yellow and red above, and conduct the necessary compliance investigations prior to conducting any business in these countries.

Get in touch

Our sanctions team based in Dubai regularly supports clients in navigating the complexities and fluidity of different sanctions regimes and their applicability. Our primary goal is to provide our clients with straightforward advice and deliver practical solutions aimed at protecting clients against the risk of being caught by sanctions.

Should you have any queries or require any specific advice in respect of sanctions compliance, please contact a member of our sanctions team, who would be happy to assist.

Linkedin

KEY CONTACT

James Willn

James Willn
Partner

T:  +971 4 407 3922 M:  +971 52 865 9482 Email James | Vcard Office:  Dubai

Finlay Donaldson

Finlay Donaldson
Associate

T:  +971 4407 3938 M:  +971 50 846 7127 Email Finlay | Vcard Office:  Dubai

Sophie Fengaras

Sophie Fengaras
Associate

T:  +971 4 407 3959 M:  +971 58 990 1686 Email Sophie | Vcard Office:  Dubai