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The maritime sanction compliance advisories published by the
United Nations Security Council Panel of Experts for North Korea,
the US Department of Treasury's Office of Foreign Assets Control
(OFAC) in May 2020 and the UKs Office of Financial Sanctions
Implementation (OFSI) in July 2020, have all added to the growing
burden on vessel screening by financial institutions.
In light of these advisories, it would seem opportune to
identify how big the actual burden is, where the pain-points exist,
and how they could be managed.
Four advisories published by OFAC since February 2018 have all
concentrated in detail on a few distinct areas as the basis for a
sanctions screening program concerning vessels and their movements
and owners. *These two elements are the IMO (International Maritime
Organisation) number and AIS (Automatic Identification System)
movement tracking devices. The reason for the emphasis on these two
data elements is that they are the cornerstones of vessel
identification and tracking; without them it is impossible to
formulate sanctions policy from the regulators' perspective and to
manage it day-to-day from a banking implementation point of
view.
In this manner, the OFAC and OFSI Advisories recommend
compliance mechanisms that go well beyond the standard screening of
owners, operators and vessels against sanctions lists. The new
compliance measures include historical and continued analysis of
AIS transmission data, AIS-related contract clauses, careful
scrutiny of shipping documents, and 'know your vessel' checks.
In regard to the IMO number, the OFAC advisory highlights the
need for thorough research into a vessel's IMO so that a historical
picture can be identified as to activity, route, flag, safety
record, and age. Such information provides a behavioural picture of
a vessel's propensity to evade sanctions despite not currently
being designated.
The expected risk indicators and red flags now include the
following:
AIS transmission requirements and best practice to be shared
with customers and partners
AIS transmission gaps to be identified for risk in certain
'hotspots'
AIS history and monitoring
Vessel due diligence
Ship-to-Ship checks for certain cargo types in high-risk
geographies
Shipping document review
Clear communication of sanctions requirements to partners
Know Your Customer due diligence
Significant emphasis is placed on AIS in the OFAC advisory as an
antidote to the dark status of a ship. Dark status is the term used
when the AIS device is switched off and the ship is no longer fully
visible, it is very often an enabler preceding a vessel evading
sanctions. OFAC clearly views the monitoring of AIS for dark
activity as an indispensable part of a maritime sanctions screening
program but, as compliance teams are fully aware, these new
measures have cast a very wide net in terms of the number of
vessels now covered as potentially sanctionable and high-risk.
Using maritime data to identify what is now captured in the OFAC
net we can uncover the scope of potential sanctionable activity for
banks and others to be aware of.
There are nearly 700 sanctioned vessels on various watchlists
today and these lists are easily maintainable from a trade
operations screening perspective. In addition, there are vessels
that are known to have made sanctioned port calls or fly a flag
from a designated country such as North Korea (DPRK) or Iran which
places them in a sanctioned or higher-risk category. To provide an
example of the numbers in this classification, in the last three
months (July-October 2020), the number of tankers, bulkers, general
cargo and container ships to have visited sanctioned ports are:
2,281 vessel arrivals at Iranian ports, of which 402 are unique
vessels
60 vessels arrived at DPRK ports, of which only 20 are unique
vessels
1,353 arrivals to Venezuela, of which 193 are unique
vessels**
The figures here in regard to sanctioned vessels and sanctioned
port calls comprise a very small percentage of the overall merchant
shipping fleet. It also points to a shift in how sanctions are
evaded by vessels and entities behind them; as the number of calls
to sanctioned ports is low, how are cargoes being shipped and
loaded? Today, they are mostly being transferred from vessel to
vessel under the darkness of AIS disablement or through the
spoofing of MMSI (Maritime Mobile Service Identify, a nine-digit
code broadcast over radio channels) and satellite signals. In this
context, the monitoring of designated and sanction watchlists is
not enough to effectively detect illicit maritime behaviour
anymore, hence the shift to suspicious activity based on AIS.
Conversely when we look at the number of vessels now captured
through the OFAC advisory requirements which concentrate heavily on
potential risk typologies attributed to ships, the numbers rise
significantly.
In the same July-October 2020 period, instances of dark activity
totaled 3,795 separate occasions where a sanctioned port call or
suspicious ship-to-ship transfer (STS) could have occurred.
Overall, the number of vessels that are not currently sanctioned by
OFAC but have engaged in 'dark activity' in the last 12 months and
may, potentially, have led to a sanctioned port call or STS in a
high-risk location is 8,324 unique vessels. In this context, dark
activity means a gap in AIS transmission within a known hotspot as
defined by OFAC such as the South China Sea, Gulf of Tonkin, Yellow
Sea, Persian Gulf, etc. Among these 8,324 unique vessels, only 339
actually made a visible, with AIS switched on, sanctioned port call
in the last 12 months.
Whilst not all vessels in this 8,324 list of suspicious types
are evading sanctions, it does highlight the number of vessels that
OFAC has now effectively placed into a 'warning' zone, separate
from its original blocked list.
To illustrate the point of how a vessel can be non-sanctioned
but participating in dubious practices, we can take a working
example from this pot of 'warning' vessels. A crude oil tanker,
running a Panamanian flag, with a registered owner in the Middle
East and a clean bill of health in regard to OFAC vessel and owner
sanction status looks initially innocuous. But a closer inspection
highlights why, with the new OFAC shipping advisory lens passed
over the vessel, it becomes potentially suspicious:
The ship has had only four known port calls in the last 12
months
She has made only two ship-to-ship cargo transfers in the last
12 months
The vessel's AIS was switched off for 192 days in the last 12
months
The port calls and STS activity for this vessel are below
average for a similar oil tanker and would rank it as fairly
inactive. This information is further compounded when analysing the
vessel's entire movement history over the previous 12 months.
Figure 1: Potentially suspicious, oil tanker movement
history
In the graphic, the dotted lines are AIS transmission outage
periods. They all occur in three major hotspots recognised by OFAC
in their advisory documents: anchorage areas of Venezuela; the
South China Sea; and the Persian Gulf.
Furthermore, the vessel's draught, a measurement that can
determine the mass of cargo onboard the ship, highlights a change
when it moved across the Atlantic Ocean towards the Mediterranean
Sea. The change to the draught suggests it was loaded with crude
oil at Venezuela but the subsequent voyage after this probable port
call led to a vessel with nowhere to off-load as the ship's
destination noted 'For Orders'. ***In the oil industry, a vessel on
the water with no current buyer is viewed as distressed and is not
a healthy sign. The remainder of the voyage shows the ship heading
towards Greece, making a full turn, sailing south along western
Africa, around the Cape of Good Hope, and back north towards the
Persian Gulf before heading to Asia and discharging its cargo in
Dalian, China, in Oct 2020, nearly six months since loading the
cargo in mid-April.
Obviously there are numerous risks here. Oil cargo from
Venezuela to China, the proximity of Dalian to the North Korean
border, significant gaps in the AIS signal, loitering in the
Mediterranean Sea and Persian Gulf, a non-specific route, and a
valuable cargo with no predefined customer. In conjunction with the
evident risks, this example also illustrates the difficulties of
managing ship movements for sanctions screening purposes.
The extraction of data to analyse this particular journey, the
vessel particulars and other relevant details is a time-consuming
process and requires objective analysis to determine whether the
outcome of this vessel conforms to a bank's risk appetite or not.
Whilst this example would highlight a vessel that might not pass a
compliance check, there are others that will pass the check but
still require the same level of research and investigation.
However, OFAC's seemingly straightforward instruction in its
shipping advisories that "[AIS] data should be incorporated into
due diligence practices," will present significant practical
challenges. The detection of genuinely suspicious AIS transmission
outages poses considerable questions on data input, data quality,
false positives and, most obviously, time and resources.
So how can operations teams be effective and avoid being swamped
with multiple instances of false positives when managing maritime
sanctions?
AIS outage gaps can have various legitimate explanations: poor
line of sight in inland waterways can cause transmission issues;
high traffic density areas; severe weather conditions; or even
vessels discharging liquified natural gas which can cause sparking
may have the broadcast signal switched off. Therefore, an
AIS-related compliance monitoring programme that does justice to
the complexity of the data requires an accredited content
management system which allows for decision making in real-time.
Without such a system, vessel due diligence checks, similar to that
performed on the above-mentioned ship, can take up to an hour or
more.
Applications that understand the anomalies within AIS data are
commercially available and they include inputs based on the
information already discussed but the key to managing the new OFAC
advisory is understanding which vessels pose potential compliance
issues. Quantifying this and thus providing a semblance of security
similar to the black and white, yes or no, certainty of a watchlist
is paramount. The quantification in the examples used here has been
done and roughly equates to the 8,000+ vessels identified earlier
as potentially falling within a 'warning' indicator range.
So, what is the overarching criteria and how can confidence
levels be raised when handling these warning vessels? Factors to
consider include:
Ensure your maritime sanctions screening provider understands
the concept of a 'warning' classification for vessels based on AIS
activity, STS cargo transfers, and flag changes. This 'warning'
classification, if managed and maintained by your solution
provider, removes a considerable segment of heavy data analysis
from the bank operations side and conforms to OFAC
recommendations
Only certain types of goods and vessels will engage in ship to
ship transfer; most notably tankers and bulkers. This reduces the
number of vessels that can come under investigation for this
activity type
AIS outages should be handled operationally on a time-length
basis. Short transmission outages can be justified as being of
lower risk due to the time it takes to make a port call or to
transfer cargo between ships
Vessels engaged in suspicious activity have a general pattern
of doing so, often activating many different red flags in the
process. Such vessels do not have a history of single instance red
flag lapses
Taken together these steps, with the right application and use
of technology, can make the overall process of screening for
maritime sanctions easier and less burdensome.
To conclude, the extra workload on bank trade finance operations
teams regarding maritime screening has come about due to expansion
of international sanctions evasion tactics by shipping companies,
corporates, and nation-states who are finding new ways of
circumventing regulations. The old methods of discharging or
loading cargo in sanctioned ports, continuing to use sanctioned
vessels and flags of convenience are not as practicable today as
they used to be for North Korea and others. Instead we see STS
transfers, dark vessels, and signal spoofing as the new tools in
the armour of those bypassing shipping sanctions. This has meant
that new measures proposed by regulators have become increasingly
complex to implement for banks on the receiving end. Even so, there
are ways to solve them and in many cases as effectively as
watchlist management processes, but it does require the right level
of technology. Shipping algorithms with artificial intelligence and
machine learning properties can be utilised in a manner similar to
KYC screening applications that cover individuals, entities, and
corporates. Artificial intelligence methodologies applied to a
maritime sanctions workflow can at the very least understand who
the high-risk and 'warning' vessels are and act on them
appropriately. This provides operational compliance teams with the
best opportunity for getting back to the certainty of a watchlist
approach.
*The OFAC advisories include: "Sanctions Risks Related to North
Korea's Shipping Practices" (23 Feb 2018); "Sanctions Risks Related
to Petroleum Shipments involving Iran and Syria" (25 Mar 2019);
"Publication of New and Amended Iran-Related Frequently Asked
Questions" (5 Sept 2019); and "Guidance to Address Illicit Shipping
and Sanctions Evasion Practices" (14 May 2020).
**Sourced from IHS Markit, Trade Compliance Secure. Data taken
from the period of July 15th-October 15th, 2020
***'For Orders' is a term entered by the ship's captain to the
vessel's 'Destination' field and implies that the ship has no
current destination and is available for charter. For Order was the
entry used in the destination field for the oil tanker, Grace 1
(also known as the Adrian Dariya), owned by Iran and seized by the
UK Royal Navy in the Mediterranean Sea in July 2019.
Posted 05 November 2020 by Byron McKinney, Product Management Director, Maritime, Trade & Supply Chain, S&P Global Market Intelligence
