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There has been a flurry of sanctions related penalties issued by
US authorities in April and May 2019, continuing the overall theme
so far of substantial and hefty fines.
The total settlement bill for the first half of the year on the
Department of Treasury website already exceeds $1.2
billion. This is likely to rise throughout the course of the year
as new actions are concluded.
The three recent settlements of note affecting those involved in
the trade finance and supply chain industries are:
The seizure of vessel Wise Honest
(IMO:8905490) in Indonesia when it was involved in the illicit
shipping of coal and heavy machinery to North Korea
A $870K fine for the cargo and logistics company Mid-Ship for transporting goods
on vessels connected to Iran
A significant fine totalling $620M was issued to UniCredit and its subsidiaries
for operating on behalf of the Islamic Republic of Iran Shipping
Lines company and for incorrectly screening letters of credit where
goods ultimately ended up being discharged in Iran
The case of the vessel Wise Honest uncovers a network of
criminal activity connected to North Korea including the use of
ship-to-ship transfers, multiple flags, sanctioned owners and
operators and 'dark' activity whereby vessels switch off their AIS
transponder so their movements can go undetected.
The Wise Honest had numerous red flag warning signs such as a
complete lack of AIS detection activity from August 2017 right up
until its seizure in March 2019. To evade sanctions North Korea has
used vessels such as the Wise Honest in a fleet of 'ghost ships'
which use false names, false identification numbers and always
engage in ship-to-ship transfers to discharge their cargo away from
prying eyes based at ports and berths.
In this context, OFACs attention in 2019 will remain focused on
illegal shipping practices and their relationship with global
supply chains and trade finance. Therefore, it is hugely important
that those active in these industries are aware of OFAC's current
statements and intentions.
OFAC's shipping advisory from
March 2019 regarding North Korea illustrated several important
areas that trade practitioners should be aware of when managing
sanctions compliance:
Research a ships history for AIS manipulation - has your
chartered vessel any suspicious gaps in its movement history?
Monitor for AIS disablement - has the vessels transponder been
switched off, for example, in the Gulf of Tonkin or the East China
Sea?
Promote due diligence on counterparties and who they do
business with - can you be sure there are no links to North Korea
in your transactions network?
Be aware of potential ship-to-ship transfers in high risk
locations - ensure that no manipulation of IMO numbers, call-signs
or vessel names appear in the vessels history
Review all shipping documentation - documents should be checked
for accuracy including the voyage details, the cargo, origin,
destination and parties involved in the transaction
Leverage third party resources to help in the identification of
the above measures - utilise the best shipping data available for
the identification of ship movement, ownership, registration and
location
Applying the above as a minimum set of standards in order to
mitigate trade-based risk is vital. For banks and financial
institutions this is an important but not an easy task. Trade
finance alone generates vast numbers of documents that need to be
scanned, investigated and screened for potential red flags. Getting
the information such as vessel ownership, vessel movement and
previous instances of suspicious ship activity out of these
documents requires sophisticated software and technology.
Therefore, to manage the large volumes of trade transactions
that banks and FIs (Financial Institutions) deal with the software
that works best in these instances are those of a passive nature.
Software that can perform the heavy lifting and alert you when
instances of importance such as an unscheduled ship-to-ship
transfer or a vessel unexpectedly goes 'dark' are key to successful
monitoring.
OFAC's emphasis on shipping and trade practices is very
extensive and fast moving, banks and FIs need to be vigilant and
proactive to keep pace.
Posted by Byron McKinney, Associate Director Maritime &
Trade Product Management, IHS Markit
