The UK’s top sanctions regulator has issued landmark guidance for all companies involved in maritime trade, instructing them to pay closer attention to vessel behaviour, company structures and potentially forged documents.

The Office of Financial Sanctions Implementation (OFSI) warns that “a variety of tactics are deployed to confuse or conceal the identities of vessels, cargo, routes and ports”, meaning banks, insurers, traders and others could be unwittingly exposed to the illicit movement of goods and funds.

Following the lead of sanctions authorities in the US, OFSI says companies must increase their awareness of those tactics, applying stronger due diligence across their entire supply chains to detect potential illegal activity.

According to the new guidance, UK companies are now expected to carry out “checks on ownership structures, vessel flag information, details of home ports and recently visited ports” when conducting seaborne trade transactions.

“The regulatory focus has widened, and the message is very clear,” says Simon Ring, global head of financial markets compliance at maritime technology firm Pole Star.

“All entities across the maritime sector and related supply chains must significantly improve their due diligence and compliance programmes to avoid breaching global sanctions.

“No company is too big to fail, and it is no longer just financial institutions who need to be concerned with sanctions.”


Red flags

Drawing on UN research into North Korea’s sanctions evasion techniques, the regulator identifies several patterns of vessel behaviour that could signal illicit activity.

Though that research has generally focused on North Korea’s attempts to export coal in defiance of US and EU restrictions, the OFSI guidance also cites sanctions regimes in place in Iran, Libya and Syria.

One major red flag it identifies is when ships disable or manipulate their automatic identification system (AIS) signals. AIS signals are used to show a vessel’s location and should be transmitted at all times, although can often be lost for legitimate reasons such as high traffic.

“While AIS switch-off does not necessarily confirm illicit shipping practices, it may be one of several indicators for consideration,” the regulator says. “Due diligence could be enhanced, for example, through contacting vessels that have ‘gone dark’ by switching off their AIS.”

OFSI adds companies should consider AIS screening services, which combine location data with other information to assess the likelihood a ship is carrying out suspicious activity, and could look at including “switch off” clauses in contracts for maritime trade.

Ship-to-ship transfers – where cargo is moved between two vessels at sea rather than loaded at a port – are also identified as a potential risk. Though often legitimate, such transfers have been used to move illicit cargo such as oil and petroleum products from Iran.

The guidance also highlights the risk of trade documents being forged or tampered with – a technique “commonly used” by North Korean officials.

“These include bills of lading, invoices and insurance paperwork, to name a few,” it says. “By providing falsified documentation, the aim is to seek to obscure the origin of a vessel, its goods, its destination and even the legitimacy of the vessel itself.”

Documents that carry that risk “should always be checked with the relevant institution for validity”, the regulator says. Front or shell companies can also be used to disguise the true movement of goods or funds, it adds.


Industry turns to tech

The guidance is reminiscent of an advisory issued by the US Office of Foreign Assets Control (OFAC) in May this year, which signalled a major change in the role of the maritime sector in fighting financial crime.

Taken together, industry experts believe one trend is clear: a move away from checking lists of sanctioned entities when onboarding new customers, and towards ongoing due diligence.

“Businesses now need to screen against possible sanctions evasion, rather than just screen names against lists of sanctioned entities,” says Ami Daniel, chief executive of Tel Aviv-based Windward Maritime Analytics.

“Eventually, they will need to screen ships continuously, even if they’ve done business recently, which creates more challenges to business relationships and operations.”

Guy Sear, executive director for product management at IHS Markit, agrees business can no longer give “carte blanche” approval to individual ships.

“Vessels can change compliance status from one minute to the next,” he tells GTR. The end result, Sear says, is an uptick in the use of maritime analytics technology across the industry.

In IHS Markit’s case, the company monitors ships’ activities – or lack of activity, in the case of dark vessel movements – in real-time. Firms can use that information to provide immediate notifications when there is a change in status for a vessel on their watchlist.

At Windward, Daniel says there has been a 200% increase in new trials for its maritime analytics solutions since the OFAC advisory was published in May.

And for Pole Star, Ring says a growing number of companies have expressed an interest in its “hybrid tracking” services, which combine tracking data gleaned from multiple sources to obtain a clearer picture of a vessel’s behaviour.

That trend is expected to continue as other sanctions authorities turn their eye to maritime trade.

“The UN Security Council is pushing for information on this, and that typically becomes a driver for the EU,” Sear says. “Then regulators in Singapore, Hong Kong and South Korea often follow EU and UN guidance, and we’re already starting to see more downstream activity across Asia.”