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04 May 2021

Sanctions: deceptive practices and high-risk areas – Part 2

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There has never been a greater emphasis on monitoring the historic and current activities of counterparties. Industry players must be able to recognise sanctionable behaviour in order to protect themselves against any sanctions risks. In the second of our two-part series, we explore the common deceptive practices currently used by sanctions evaders in the maritime industry.

Deceptive shipping practices

What are the common deceptive shipping practices?

Deceptive practices are tactics used by sanctions evaders to camouflage illicit trade and/or sanctionable behaviour, and may be used in connection with the facilitation of terrorism, smuggling and other criminal activities. In Part 1 of our two-part series, we provided an overview of deceptive shipping practices and high-risk areas. To view this article, please click here.

How should entities be using this information?

This article is intended as guidance only. Each scenario should be considered carefully on a case-by-case basis to determine whether a particular set of facts may give rise to sanctionable behaviour. For example, a vessel that appears to be engaging in two or three deceptive practices may raise further concerns, particularly when those deceptive practices are linked.

Some red flags and deceptive practices may attach more risk than others. For example, a vessel with a few voyage irregularities (e.g. unscheduled routes) in the last 2 months may carry less risk than a vessel that has been loitering in a high-risk area for a number of weeks. However, each case should still be carefully investigated and examined where there are potential anomalies.

1. Disabling or manipulating the Automatic Identification System ("AIS")

What is it? AIS is an automatic tracking system that transmits a vessel's location and voyage information. It is designed to monitor marine traffic and avoid vessel collisions, ensuring safety and security whilst at sea.

How is it used? Bad actors typically manipulate a vessel's AIS by turning it off in order to conceal its location. The vessel therefore "goes dark" and conducts illicit activities without anyone knowing based on the data transmitted. However, there may be legitimate reasons for this practice such as where a vessel switches off its AIS to hide its identity or location from pirates in high-risk areas or where the vessel might be located in an area with poor signal coverage.

Some fact patterns raising suspicion:

  • A vessel that has "gone dark" in an area where the quality of coverage is good and nearby vessels are transmitting AIS signals without disruption.
  • Duration of time between each side of an AIS transmission gap, which might suggest a possible port call at a sanctioned country if that signal gap represented enough time for the vessel to arrive at the port, perform an operation and depart from that port. In some cases, a vessel's AIS might be completely switched off for long periods of time without a clear explanation.
  • Vessels engaged in illicit trade will usually have a sustained pattern of "going dark" rather than it being a one-time occurrence. An analysis into the vessel's AIS history is therefore essential.

2. False flags and flag hopping

What is it? A false flag occurs when a vessel falsely represents that it is registered under a flag state without that flag state's consent and often without its knowledge. Conversely, flag hopping refers to the practice of repeatedly changing the flag state of the vessel, often to avoid being identified by the relevant authorities.

How is it used? The ultimate aim is to conceal the vessel's true identity and its activities. Bad actors will therefore often use false flags to broadcast false transmissions of the vessel's AIS by entering those transmissions manually to create an entirely fictional identity or simply use the identity of another vessel. The latter is otherwise known as "spoofing", where a vessel sends a signal using another vessel's registration number.

Some fact patterns raising suspicion:

  • If the vessel's International Maritime Organisation ("IMO") number cannot be verified through the IMO's Global Integrated Shipping Information System. If the IMO number and vessel name do not match, this may give rise to further suspicion.
  • If the vessel has a history of changing its flag registry and those previous registries were "flags of convenience".
  • When public registries and databases list the vessel's flag state as "unknown".
  • The vessel's history reveals a frequent change of name.

3. Corporate structures disguising beneficial ownership

What is it? In simple terms, every vessel has a registered and beneficial owner, which will usually be different entities. The beneficial owner is considered the ultimate owner of the vessel whereas the registered owner is the entity that is recorded as having legal title of ownership over the vessel. The registered owner in most cases will be a special purpose vehicle in order to limit the legal liability of the ultimate beneficial owner.

How is it used? Vessels can have complex ownership structures, which can sometimes be used in order to cover up the ultimate beneficial owner, making it harder for authorities to investigate the true actor behind the vessel's activities. However, vessels may have complex ownership structures for a number of reasons other than sanctions evasion, and this should not be relied upon as the only indicator when assessing sanctions risks.

Some fact patterns raising suspicion:

  • Frequent changes in a vessel's ownership between companies ultimately controlled by the same beneficial owner.
  • Where there is no particularly legitimate purpose for a transfer of ownership.
  • Vessels owned through multiple layers of ownership and/or by a shell or front company.

4. Ship-to-ship transfers ("STS")

What is it? An operation in which a vessel transfers its cargo (typically petroleum products, crude oil or coal) to another vessel positioned alongside it whilst at sea rather than at a port. However, STS's are often common and legitimate activities used by vessels in order to avoid berthing at the jetty, thereby allowing cost and time savings.

How is it used? Bad actors may use this practice to hide the origin and/or destination of the cargo. This practice is typically implemented along with switching off the AIS in order to evade detection.

Some fact patterns raising suspicion:

  • Vessels conducting STS in high-risk areas.
  • The most common types of vessels engaging in this activity are tankers and bulk carriers.
  • STS operations often occur at night in order to avoid being caught.
  • Vessels that are seen loitering, particularly in high-risk areas (i.e. anchoring or drifting).

5. Falsifying cargo and vessel documents

What is it? In the maritime industry, a variety of documents are issued between different parties including between the master, owners, charterers, banks and ship managers.

How is it used? Bad actors may falsify these documents, such as bills of lading, invoices, insurance paperwork and certificates of origin, in order to hide the vessel's ultimate origin and/or destination, the specific details of the cargo and the parties involved in the illicit activities. 

Some fact patterns raising suspicion:

  • Parties should review all documentation carefully to validate its authenticity. Any omissions, inconsistencies and inaccurate information should be highlighted and investigated further.
  • The same documents should be verified by the applicable bank where possible to ensure any anomalies are picked up and further inquiries are made.

6. Voyage irregularities

What is it? This might include indirect routes, unscheduled detours and transit or transhipment through low-risk third countries.

How is it used? This practice may be used to obscure the ultimate origin or destination of the cargo and/or the vessel. It essentially provides a masked cover of legitimacy through the use of intermediary points and potentially less scrutiny from international banks and local authorities. However, this practice alone may not suggest sanctionable behaviour.

Some fact patterns raising suspicion:

  • Routes/voyages that deviate from normal business practices with no clear explanation.
  • Shipment of goods through third-party countries that are themselves not subject to sanctions. However, passing through a non-sanctioned country should not be regarded as a sanctions risk in itself.

7. Altering the unique vessel identifier ("IMO number")

What is it? A unique 7-digit number given to a vessel for its lifespan for quick identification and traceability. The AIS will transmit, amongst other information, the vessel's unique identifier via terrestrial and satellite receivers.

How is it used? Bad actors engaging in illicit trade will physically alter the vessel's identification, for example, by painting over the vessel's name and IMO number in order to deceive others into thinking that it is a different vessel.

Some fact patterns raising suspicion:

  • If the vessel's IMO number cannot be verified through the IMO's Global Integrated Shipping Information System. If the IMO number and vessel name do not match, this may give rise to further suspicion.
  • Where public registries and databases list the vessel's IMO number as "unknown".

8. Visiting ports in sanctioned countries

What is it? As the title suggests, it refers to any vessel which has visited a port in a sanctioned country, especially one that is considered "high-risk" (e.g. North Korea, Iran and Russia). Such information might be determined from the vessel's AIS data, but it is usually the case that the vessel's AIS will be switched off when it enters a sanctioned country or port.

Some fact patterns raising suspicion:

  • Although not every vessel's visit to a sanctioned port/country indicates that it is carrying out illegal trade, it should be investigated further.
  • A distinction should be drawn between those vessels passing through the waters of a sanctioned country and those that arrive at a sanctioned port to take on cargo; the latter suggests a higher risk.

9. Low number of port calls in last 12 months

What is it? This is when a vessel makes an intermediate stop at a port for supplies, repairs, transhipment of cargo, etc. during its scheduled itinerary.

How is it used? A low number of port calls may suggest that the vessel has "gone dark" when calling at ports located in sanctioned countries in order to avoid being detected.

Some fact patterns raising suspicion:

  • When a vessel's historical data reveals a low number of port calls in the last 12 months.
  • When a vessel's draught has changed (the mass of cargo on board) while it appears to be at sea but with no clear explanation. This might be because it loaded at a port in a sanctioned country but was not transmitting AIS signals at the time and then moved back to an area where it made its next AIS transmission.

10. Loitering in high-risk areas

What is it? A vessel that anchors or drifts in an area, which is a typical "hot spot" for sanctionable activities.

How is it used? There may be a number of legitimate explanations; however, just because a vessel is loitering in a high-risk area, one cannot conclude that it is participating in sanctionable activities. Bad actors typically loiter if they are engaging in STS or if they currently do not have a buyer for the sanctioned cargo.

Some fact patterns raising suspicion:

  • A vessel with a historical record of loitering in high-risk areas, particularly for long periods of time at once.
  • A vessel that has a historical record of turning off its AIS, particularly near the area in which it has been loitering.

Conclusion

Parties are strongly encouraged to investigate the historical and current information and activities of a vessel and/or counterparty before entering into any contracts. The deceptive practices and red flags listed above may help parties to identify any suspicious behaviour at an early stage. Should there be any concerns identified, they must be raised internally and investigated as soon as possible.

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.

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James Willn
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