Economic Sanctions: International Shipping and Maritime Insurance

Over the years, economic sanctions laws and regulations have become increasingly complex, numerous, and have had a significant effect upon the shipping industry. Sanctions have also had a major impact not only on shipping operations, but also on financial institutions and insurance companies, including on P&I clubs worldwide, serving the shipping industry. The U.S. government strongly enforces sanctions prohibitions and requirements.

Industry Requirement

Compliance with laws and regulations and adherence to industry best practices governing international economic sanctions have become vitally important for any entity involved in international shipping and maritime activities.

Sanctions – Worldwide Reach

Economic sanctions laws and regulations have worldwide reach and transcend traditional jurisdictional principles. Sanctions laws and regulations are complex, and they are administered and enforced by governmental authorities, such as the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the U.S. Justice Department, the United Nations, the EU, and the UK’s HM Treasury. Sanctions laws and regulations of the countries imposing them may have common elements, but they also differ in significant aspects.

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Affected parties: shipowners, vessels, P&I and other insurers, reinsurers, and service providers.

International shipping and maritime insurance are mainly impacted by the following economic sanctions of the United States:

Sanctions against Iran, Syria, Russia, Venezuela, Cuba, North Korea, Crimea, and SDN list entities.

Penalties for Violations

Penalties for sanctions violations can involve civil and criminal monetary penalties / fines (for entities as well as individuals) ranging from thousands of dollars to hundreds of millions of dollars. Under U.S. laws and regulations, penalties for criminal violations can also involve incarceration.

Blacklisting

An additional penalty can entail the SDN blacklisting of a company, its vessels, and / or relevant individuals. Blacklisting by the U.S. authorities prohibits all transactions between the blacklisted entity / individual / vessel (target) and the United States or with U.S. persons. As a practical matter, blacklisting has a severe negative impact on reputation and also impacts the target’s ability to engage in financial and other transactions worldwide. No responsible financial institution wants to deal with an SDN. Being put on the OFAC’s SDN list is the “kiss of death.”

Culture of Compliance

An essential factor in any enforcement authority’s investigation of a potential sanctions violation and the penalty assessment is whether affected persons (entities and individuals) followed an effective compliance program and have a culture of compliance.

Must Have Effective P and Ps

It is now widely understood that entities in the international maritime industry need to have and follow sanctions compliance policies and procedures (“P and Ps”). It is the prevailing wisdom that there is no valid excuse for any shipping company, charterer, insurer, or other service provider to not be aware of sanctions prohibitions and to not have and follow effective P and Ps.

Moving Target

Sanctions laws and regulations are constantly adjusted and amended depending on political and security developments and imposing state policy, and they are lifted, relaxed, or calibrated upon the change in behavior of the sanctions target. The laws are indeed a moving target.

OFAC guidance, such as “A Framework for OFAC Compliance Commitments,” highlights the need for companies to implement risk-based sanctions compliance programs and elaborates upon the role that OFAC’s assessment of such programs will assume in enforcement, sanctions violations investigations, and the assessment of penalties. OFAC’s guidance encourages the implementation of P and Ps with the following five essential elements: ​management commitment, risk assessment, internal controls, auditing and testing, and training.

Development of Robust and Effective Sanctions Compliance P and Ps

Lawyers of The Eren Law Firm have unrivaled expertise and insight gained from their 20 years of private practice and combined 30 years of service at OFAC with respect to sanctions compliance as it relates to the shipping and insurance industries. We can assist your company with the development of robust and effective P and Ps that satisfy all five essential components outlined by OFAC. We help clients establish, maintain, and periodically review all aspects of P and Ps, and also develop relevant internal procedures for clients that are uniquely suited to their needs. Our services also include the annual or periodic audits and testing of systems and procedures, due diligence, and seminars or training for relevant personnel teaching them to identify and understand the indicators of sanctions risk “red flags” that they may encounter in their respective daily duties and responsibilities. This capability will enable them to assist management with making fully-informed decisions. ​

Custom-Tailored

Sanctions risks vary from one company to another and among the different functional areas in a single company. Accordingly, P and Ps should be tailored to fit and address these differing risks. The Eren Law Firm will analyze and assess the risks faced by each client and custom-tailor appropriate, user-friendly P and Ps in an efficient manner.

Due Diligence and Green-Lighting

The Eren Law Firm’s lawyers are thoroughly familiar with the international maritime industry and the application of sanctions laws to shipping and maritime activities. We are therefore capable of reliably conducting due diligence and quickly providing clients with transactional advice on short notice when time is of the essence.

Prohibitions

Generally, both the sanctions laws of the U.S. and EU (or other countries), to one degree or another, prohibit:

  • Trade and transactions with or involving certain countries or designated persons (i.e., blacklisted individuals and entities),
  • The supply or exportation of certain goods, services, and technology to certain persons,
  • Certain imports or imports from certain countries or persons,
  • Investment / financing in a country subject to sanctions,
  • Dealings with designated persons (individuals and entities) on relevant blacklists,
  • Support for certain activities in the country or for the person that is a target of economic sanctions, or
  • Material support for SDNs and other sanctions targets.

Due Diligence

Example of a Due Diligence Protocol:

Sanctions prohibitions may be implicated based on the main elements of information related to maritime transportation and a particular cargo shipment transaction. The elements that should be scrutinized include the following:

  • Name of vessel, IMO no., flag;
  • The country(ies) involved in the trade of vessels / origin and destination of cargo;
  • The nature of or type of cargo being transported;
  • The identity and domicile of the cargo shippers and receivers (end-user);
  • The business activity of the shippers and receivers;
  • The identity and domicile of the charterer and / or any subcharterers;
  • The identity and domicile of other parties involved in transportation;
  • The load port(s) and / or the discharge port(s) involved, including the identities of terminal operators there;
  • The identity and domicile of any banks involved in connection with any relevant bank guarantees, letters of credit for the cargo in question, etc.; and
  • The purpose for which the cargo will be used once delivered.

As part of their internal sanctions compliance program, affected persons should investigate all of the above elements when considering a proposed transaction or voyage to better assess any potential sanctions issues.

The Eren Law Firm’s legal services related to economic sanctions consist of:

  • Advice or opinions on transactions
  • Representation before OFAC and the U.S. State Department
  • Clearance for voyages
  • Design of compliance programs
  • Enforcement defense
  • Requests for relief / licenses
  • Party and cargo due diligence
  • SDN list removal petitions

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