New research has revealed a surge in the number of sanctions issued against maritime vessels over the last year, fuelling a more complex process for organisations involved in global trade and trade finance.

The number of sanctions issued by the US’ Office of Foreign Assets Control (OFAC) against maritime vessels has soared 164% from 221 in July 2018 to 583 in July 2019 (figure 1), research by financial crime compliance software provider Accuity revealed this week at the annual Sibos conference.

Vessels play a pivotal role in international trade, and over the last year there have been numerous examples of conflict over ships, sanctions issued against shipping companies, as well as sanction breaches, enabling goods to be shipped to and from sanctioned geographies.

Most recently, the US Treasury on Wednesday announced new “Iran-related” sanctions on five Chinese individuals and six entities, including two Cosco Shipping corporation subsidiaries. Earlier this month, US President Donald Trump also took to Twitter to say he has instructed the secretary of the treasury to “substantially increase sanctions” on Iran.

Tensions over vessels reached boiling point in August, with Iran cautioning the US against seizing its super-tanker Adrian Darya 1 – formerly known as Grace 1 – which set sail from Gibraltar after more than six weeks of detention. It was seized by authorities in Gibraltar with the help of the British Royal Marines after it was thought to be carrying around 2 million barrels of illegal oil to Syria, but a court ruling in Gibraltar ordered its release. US authorities attempted to seize the tanker before it left Gibraltar.

 

Figure 1: Number of sanctions issued against maritime vessels in July 2018 and July 2019

Accuity, which validates caution lists from all major sanctioning bodies, law enforcement agencies and financial regulators, found that more general sanctions have risen too; over the past five years, the number of entities – companies, countries or individuals – sanctioned by OFAC increased by 37% (from 6,403 to 8,755), with almost US$1.3bn-worth of fines having already been issued by OFAC for breaches of US sanctions in 2019 – more than in any previous year.

Sanctions by OFAC also overshadowed those issued by other major sanctioning bodies this year, including the EU, the United Nations (UN) and Her Majesty’s Treasury (HMT). As of August 2019 (figure 2), the OFAC list included 8,755 entities, while other bodies stood at 2,136 (EU), 2,123 (HMT) and 1,057 (UN).

Events that have led to the snowball of sanctioned entities include the roll-back of the Joint Comprehensive Plan of Action (JCPOA), or “Iran-deal” that Trump later called “a horrible, one-sided deal that should have never, ever been made”, adding that the US would be instituting “the highest level” of economic sanctions against Iran.

 

Figure 2: Number of entities sanctioned (August 2019) by sanctioning body

The need for banks to screen their transactions against sanctions lists spreads farther than government-issued lists. Any entities owned 50% or more by a sanctioned entity must also be blocked according to OFAC’s rules. Additional entities such as subsidiaries, countries, cities, aliases, alternative addresses, bank branches and routing codes, are considered within the scope of the regulations but are not extensively captured in official lists, making screening for sanctions a very complex task.

Sophie Lagouanelle, vice-president of financial crime screening at Accuity, says: “Since financial institutions hold assets, move funds and help finance trade activities, they have always shouldered a greater responsibility than other entities for preventing sanctioned targets from using the international financial system.” However, she adds: “The standard lists issued by government bodies or regulators do not include supplementary information that is necessary to maximise coverage and prevent regulatory breaches.”

One of the ways in which Accuity is helping to enhance sanctions screening is through its real-time vessel alerting and tracking tool, which it added to its screening solution last year. The system allows organisations involved in trade to track shipping vessels in real-time, to ensure they do not breach international sanctions. Should a vessel enter a sanctioned zone or port, the software will issue an alert.

“We were hearing more and more of our customers talking about vessels and then we saw that the data sets were changing and more sanctions were being issued against ships,” head of innovation at Accuity, Neela Das told GTR at Sibos this week. “A bank who is financing a vessel has a liability to make sure that it doesn’t end up or travel through an embargoed port, so that’s where our sea enforcement alerts come.”