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Banks learnt sanctions diligence the hard way. Shipowners don’t have to

Kicking the tyres won’t be enough to avoid the coming crackdown. You need to look under the bonnet, and Lloyd’s List Intelligence can help you do that

Sanctions efforts have so far been unrolled more by way of moral suasion and threatened consequences rather than active enforcement. But that is likely to change shortly

ASK BNP Paribas what can happen to companies in any line of business, from anywhere in the world, deemed to have violated US sanctions.

In 2014, the French banking giant was ordered to forfeit $8.8bn and fined $140m after pleading guilty to processing transactions for Sudanese, Cuban and Iranian entities, in what still marks the largest criminal financial penalty in human history.

Standard Chartered had to pay a total $1.6bn for two sanctions cases in 2012 and 2019, while Commerzbank reached a $1.45bn settlement with the US Office of Foreign Assets Control in 2015.

It is now shipping’s turn in the firing line. US, European Union and UK sanctions against Russia — imposed in retaliation for last year’s invasion of Ukraine — hinge on tanker operators and their insurers observing a $60 a barrel price cap on Russian crude exports.

This seems largely to be sticking in the West, although there are reports that Indian and Chinese buyers are not playing ball.

So far, sanctions efforts have been unrolled more by way of moral suasion and threatened consequences rather than active enforcement. But there are pointers from the US that that is likely to change shortly.

In particular, Washington is keen to disrupt the opaque operations of the so-called “dark fleet” of tankers ready to trade with Russia and other sanctioned countries such as Iran and Venezuela.

This has now grown to 456 vessels, equivalent to about 10% of the existing international tanker tonnage.

It is unclear if the EU intends to follow suit, but Brussels may find its arm twisted in that general direction. Precedent suggests that a small minority of owners gladly run the risks of sanctions busting if the price is right. Remember to write to them in jail.

But you don’t have to be a bad guy to feel the heat on this one. Sanctions remain a major headache for rule-abiding owners too.

You may or may not think it fair that your company is being asked to undertake a policing function. But realistically, this is where we now find ourselves.

There is a real risk of inadvertently falling foul of the strictures if due diligence is restricted to just kicking the tyres.

Ofac statements recognise that shipping service providers can be duped by false documentation or spoofing of AIS signals to disguise tanker calls to Russia’s eastern ports, including Kozmino.

But this can also be read as a clear signal that the US government is now fully up to speed on subterfuge patterns, and closely watching every move.

Insurers have some degree of wiggle room, in the shape of the attestation. This essentially provides that if a cargo interest or tanker operator swears they bought their cargo at or under the cap, they should be taken at their word.

But this is not a “Get Out of Jail Free” card, and underwriters cannot contrive a nudge-nudge wink-wink attitude to facilitate any complicity.

As Ofac’s assistant director of sanctions compliance and evaluation made clear in a webinar this week, the onus for forensic compliance sits firmly with all parts of the maritime supply chain.

Tick-box efforts are not going to be good enough. Relying on vessel-tracking services that don’t alert you to spoofing or deceptive shipping practices will not pass muster.

Lloyd’s List hosted its own webinar, in which compliance specialists from P&I and banking confirmed our long-held view that shipping is nowhere near ready for what is shaping up as an impending crackdown.

Too many suppliers and owners are still not taking compliance seriously, and that could become a painfully expensive oversight for some.

As a result of the BNP Paribas case, banks now have in place an industrial-scale compliance infrastructure, with compliance costs now representing 15% of a bank’s total annual spend in some cases. This is no longer regarded as a bolt-on, but rather a basic business requirement.

The lessons for shipowners are obvious. Now that government agencies know exactly who is doing what, not knowing that your customer’s customer had loaded sanctioned crude is relegated to “the dog ate my homework” layer of unacceptable excuses.

We will confess to not being disinterested in all this. Lloyd’s List Intelligence has a product to sell you that will help you in this task, in the shape of Seasearcher Advanced Risk and Compliance.

ARC can help you spot spoofing, ship-to-ship transfers in high-risk areas, flag-hopping, false flagging and multiple other factors that represent red flags. States are now monitoring these activities 24 hours a day; with ARC, you can, too.

It is not the only product of its kind, and yes, it is more expensive than downloading a $15 ship-tracking software programme online.

But it is — we would modestly maintain — the best one out there, and certainly worthy of your investigation if you don’t fancy the kind of eyewatering fine meted out to our banker friends.


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