US sanction guidance - Advisory issued for the maritime industry, energy and metals sectors
The US Department of the Treasury, Department of State and US Coast Guard have issued a Joint Advisory intended to provide guidance to all facets of the maritime industry with regard to compliance with the various US sanctions programs.
The Advisory seeks to provide guidance for a wide range of bodies, including insurers, financial institutions, trading companies, as well as ship owners, operators and forwarders. The Advisory imposes no new requirements, it simply gives interested participants a good idea of the degree of detail required when conducting a compliance analysis prior to entering into any transaction involving trade in goods and services with the US.
The Advisory suggests a risk-based analysis of shipping transactions and sets out suggested best practices for several sectors participating in international waterborne commerce. It also identifies deceptive shipping practices and then proposes best practices for effective identification of attempted sanctions evasion.
The Advisory emphasizes the need to conduct more than a cursory compliance analysis and to review operational documentation as part of the analysis, where appropriate. The analysis may include a review of vessel registration records, a review of AIS history and require an explanation of any AIS irregularities, monitoring voyage status and location, assess authenticity of bills of lading and other transaction documentation, as well as supply chain compliance.
Insurer specific guidance
The Advisory provides specific guidance for insurers involved in shipping transactions. The guidance is intended to assist insurers to review transactions using a risk-based analysis. The degree of compliance review will depend upon the insurer’s understanding of the potential risk of sanctions violation. The guidance recommends a dynamic approach to compliance analysis that goes beyond searching a name in the Specially Designated Nationals and Blocked Persons List. The guidance suggests:
- Monitoring AIS transmissions and investigating any anomalies.
- Asses AIS history as part of pre-coverage analysis and as part of any claims analysis.
- Asses AIS history of all vessels under common management or ownership before agreeing to insure a vessel.
- Contractual language requiring the insurer to be notified of any significant AIS disablement or manipulation with language voiding cover as a result of AIS interference.
- Contractual language prohibiting ship-to-ship transfer to or from a vessel not broadcasting AIS or with a history of AIS manipulation.
- Providing information to governmental and industry regulators of insurance denial or cancellation as a result of suspect vessel activity.
- Informing participants that activity inconsistent with relevant sanctions may be cause for immediate termination of business and notification to appropriate regulators.
- Collection of appropriate documents in order to perform due diligence, such as vessel registration documents and ownership/management documentation. This could include information on all vessels in a fleet or common management that regularly trade in areas determined to be a high risk for sanctions evasion. The Advisory identifies examples such as transshipment of North Korean coal along the Chinese coast, along with others.
- Ensuring good communications with all interested participants in a shipping transaction.
- Incorporating data such as historical ship location, registry and flag information, as well as information available from governmental entities in due diligence practices.
The best practices suggested by the Advisory are to be incorporated in a compliance due diligence program but are not intended for every transaction. The specifics of a particular transaction will dictate how in depth an analysis must go.
The Advisory does not provide much guidance for the sophisticated insurance, excess insurance and reinsurance transactions that are commonplace in international shipping transactions (or international transactions generally). The Advisory provides a clear picture of the type of sophisticated compliance program that insurers must have in place in order to participate in international transactions.
If an insurer is found to have violated any of the U.S. sanctions programs, the potential penalty for that violation will, in part, depend on whether the insurer had an adequate compliance program. The existence of a dynamic risk-based sanctions program that is reviewed and updated regularly will be considered when assessing a penalty. The program should be in writing and should include regular training for employees involved in any aspect of the business potentially involving sanctions.