- Tahlia Townsend and Ami Daniel
- May 2, 2019
This blog post is based on the executive summary of the whitepaper “Uncharted Waters: Navigating New Maritime Sanctions Compliance Requirements” published by Windward and Wiggin & Dana LLP
Iranian oil is now radioactive. As of May 2, any country, individual, energy trader, financial institution, vessel, port authority, bunkering provider, or other party consuming or facilitating its sale or movement is at risk of retribution from the U.S. government for undermining U.S. sanctions. As the State Department warned on April 22 countries considering continued imports of Iranian oil: “The risks are simply not going to be worth the benefits.”
An End to Iran Oil Sanctions Waivers
The additional heat on Iranian oil follows a surprise announcement by the White House that the U.S. won’t renew ”Significant Reduction Exceptions” (“waivers”) for half a dozen countries that had been major importers of Iranian oil. Combined with a trio of sternly-worded advisories on maritime sanctions evasion issued by the UN and the U.S. Treasury’s Office of Foreign Assets Control (OFAC) in March (collectively, “the Advisories”), the White House announcement puts maritime supply chain participants firmly in the spotlight, as they grapple with how to avoid inadvertently facilitating transfers – particularly petroleum and coal – to and from Iran, North Korea, and Syria. No-one wants to become the poster child for failing to heed OFAC’s warning that “[t]hose who in any way facilitate the financial transfers, logistics, or insurance associated with…[sanctions-busting] shipments…are at risk of being targeted by the United States for sanctions…regardless of location or nationality.”
Current List-Based Screening
Commonly, parties in the maritime ecosystem – including energy traders, banks and entities involved in bunkering (refueling ships at sea) – seek to minimize the risk of becoming mired in maritime sanctions evasion or entering into relationships with parties or vessels who are, or are at high risk of becoming, prohibited sanctions targets, in part by screening vessels and fleets known to be involved in their transactions.
They do so by screening vessels and counterparties against lists of restricted parties and vessels from OFAC, the EU, UK and UN, along with organization-specific red-flag parameters (such as the use of flags of convenience, or lack of information regarding beneficial ownership, or prior port calls in sanctioned countries). If the review process clears a vessel (produces no red flags), the transaction can proceed. If the process identifies a true match to sanctions indicators, it can’t. If the process produces red flags that are not definitive, the transaction is escalated for further investigation, before it can move forward.
New Expectations for Behavioral Analysis
However, the Advisories make it clear that this method of compliance is no longer fit for purpose, because it ignores data on vessel behavior that is commercially available and highly indicative of sanctions evasion risk. OFAC appears to expect all parties involved in maritime transactions, including energy traders, banks and bunkering service providers, to update their compliance controls to account for specific types of vessel behaviors, beyond past port calls in sanctioned countries, that are red flags for sanctions evasion. These include Ship-to-Ship transfers (STS), Dark Activity, and Identity Tampering. Identifying such behaviors in turn requires obtaining, and performing deep contextual analysis of, Automatic Identification System (AIS) transmission data, as well as other vessel behavioral data.
Keep Business As Usual
According to OFAC: “Commercial shipping data, such as ship location, ship registry information, and ship flagging information…should be incorporated into due diligence practices.” However, this seemingly straightforward mandate presents significant practical challenges. While AIS data can reveal suspicious patterns of activity, the volume of data involved is vast and continuously evolving; it requires deep contextual analysis to reliably identify actual red-flag behaviors. For example, the mere cessation of AIS transmissions may have multiple innocent explanations, so identifying true “Dark Activity” requires accounting for a broad range of additional factors. These include:
- Geography – was transmission interrupted in suspicious waters?
- Past behavioral patterns – has the vessel’s operations suddenly changed and has it recently changed its name or flag?
- The common operations of similar vessels in the region
- The behaviors of other vessels in the same fleet or operated by the same entity
This kind of analysis simply can’t be done manually, at least not on the timelines necessary to support real-world businesses. Consider the bunkering provider who has as little as 15 minutes to approve a transaction for one of its traders. Furthermore, compliance officers say – with good reason – they don’t want to deal with a separate platform dedicated to vessel due diligence: to be effective and efficient, they need a method for seamlessly integrating vessel behavior data into their existing screening process, so that vessels are automatically screened and flagged whenever behavioral indicators suggest sanctions evasion risk. This is a complex challenge but, as in many other contexts, Artificial Intelligence (AI) can help.
Tahlia Townsend is co-chair of the International Trade Compliance Practice Group at Wiggin and Dana LLP
Ami Daniel is CEO of Windward
Get the Whitepaper
In this Whitepaper, you’ll get an overview of the key aspects of relevant sanctions regimes and the recent Advisories. You will learn about deceptive shipping practices highlighted by regulators, and understand how these evasion trends appear in practice. The paper ends with recommendations for implementing a compliance workflow that responds to the new regulatory expectations by employing advanced data and technology along with maritime expertise to efficiently screen vessels and fleets for potential sanctions risk.