The U.S. Office of Foreign Assets Control (“OFAC”) regularly targets shipowners and operators for violations of its sanctions programs. At the same time, the U.S. has imposed sanctions against countries which host more than one third of the world’s supply of crude oil and approximately 5% of the entire global economy. In the past several years, dozens of vessels and their owners/operators have been “listed” by OFAC causing untold damage to such companies’ finances and reputation. Clients that have undergone such a procedure regard it as one of the most harrowing and challenging experiences of their professional careers.
Scholasticus offers several solutions to assist in these situations. Having seen time and again that an ounce of prevention can save pounds of cure, we have tailored solutions for clients to have proper policies and procedures in place to adequately manage risk. We also offer industry leading approaches to due diligence, specializing in taking a thorough, effective, and in-depth look at counterparties in charters and vessel sales and purchases. Our clients have often found that payments can be blocked by banks even when there is no violation which has occurred. We also regularly offer clients training so staff and key personnel are aware of how sanctions impact their day-to-day operations.
Scholasticus can work with clients to customize these services and offer them at a flat fee. We are well prepared to assist should a listing or enforcement action occur. With a dozen years’ experience in Washington, D.C. Scholasticus has assisted several shipowners and operators exit from the OFAC list as soon as possible.
Due Diligence and Sanctions Checks
To assist ship owners, operators, and charterers in managing their risk from exposure to U.S. trade sanctions, Scholasticus Law offers clients sanctions screening services. The services offered involve screening of counterparties, cargo, and parties associated with a transaction or transportation of cargo for any indications of risk of violating U.S. sanctions. This service takes into account up-to-date information regarding sanctions compliance from direct meetings with U.S. policymakers and guidance issued by the relevant agencies.
Our services offer the depth and breadth needed to manage risk at a flat fee. This allows shipping companies to manage their risk at a reasonable and planned price. It also allows parties to factor in the cost of risk management advice into transactions they are contemplating or negotiating.
What truly sets Scholasticus’ due diligence apart is that we offer more than simple sanctions screening. Indeed, based on guidelines and personal conversations with the relevant authorities, simple sanctions screening is now insufficient to protect a company from the risk of sanctions violations. What we provide is the following:
- Top-of-market sanctions screening services using universally regarded third party software
- Search of U.S. sanctions databases for similar names and addresses to find potential masking of cargo or counterparties
- Investigation techniques honed over 12 years of practice at two of Washington D.C.’s elite sanctions and maritime firms
- Sanctions experience gained from numerous meetings and conferences with U.S. sanctions and foreign policy officials
The end result of Scholasticus’ due diligence process is clear advice which accurately and in detail analyses potential risk presented by a transaction. The diligence process also includes recommendations to manage any risk presented by a particular trade or counterparty. In an era where U.S. sanctions pose a substantial risk to shipping companies and where U.S. policymakers have made clear their intent to monitor the shipping industry for compliance, our services can help assure shipping companies that they are complying with U.S. sanctions in their various trades and transactions.
Sanctions Policy
Scholasticus offers its clients the opportunity to tailor-make or update sanctions policies.This service is at a flat rate and involves consultation with the client to customize policies and procedures to their needs while implementing critical guidance from the relevant authorities.
Companies with a sanctions policy in place are better able to manage their risk than those without. The first benefit is having procedures which reduces the risk of an inadvertent violation or doing business with a counterparty who could lead to sanctions risk. The second benefit is that the presence of a sanctions policy (or lack thereof) is a significant factor weighed by the authorities when determining whether a company should be blacklisted or face enforcement action. Additionally, the existence or implementation of a sanctions policy is a factor which can assist a vessel owner/operator in being removed from a sanctions enforcement action or blacklist.
OFAC recently emphasized this in a request for information that was both public and indicative. It has been publicly reported that OFAC sent a request for information to dozens of members of the maritime industry in November 2023. One of the items requested as part of this request was a sanctions policy. This indicates the severity with which OFAC views the presence—or lack thereof—of a sanctions policy. The ability to respond to OFAC with an updated policy in line with the below guidelines is thus an invaluable tool to mitigate any risks associated with trades in the maritime sector.
There are several key factors which Scholasticus uses to develop its sanctions policies. OFAC provided guidance on such programs in “A Framework for OFAC Compliance Commitments outlines five essential components of a risk-based sanctions compliance program (SCP).” There have been several relevant updates to this, including guidance on country-specific OFAC programs (especially Russia) and compliance notes on “knowing your cargo”. The policies developed by Scholasticus implement this guidance with the goal of providing clients top-of-the line policies and procedures.
Trainings
Scholasticus’ tailor-made training solutions help shoreside staff navigate the world of sanctions and avoid pitfalls that have occurred in the past. The world of sanctions impacts every part of a shipping company—it is not confined to the legal or insurance office. Almost every aspect of the shipping industry has the opportunity to interact with a sanctioned party or otherwise inadvertently violate sanctions. Examples can include bunker trades, payments, parts and repairs purchases, operations, and chartering.
Trainings are usually offered in-office and can be customized depending on the audience, the length of time needed, and cost. The trainings are user-friendly and engaging, with the designed outcome to be an increase in knowledge and awareness of relevant personnel on the scope of U.S. sanctions.
Delisting
OFAC has publicly stated that blacklisting companies is a tool used to promote behavior change in line with U.S. policy. However, for most shipping companies that have been on OFAC’s list or faced an enforcement action, being listed is the most challenging experience of their career. An entity that is blacklisted loses access to banks and the ability to do business. In the shipping sector, this means that ships that are listed (or those owned or managed by listed entities) must effectively cease operations until sanctions are removed. The economic cost of essentially halting business operations can be tremendous.
Scholasticus’ goal in a delisting application is to remove companies as quickly as possible. Through more than a decade of working with the authorities on delisting petitions, Scholasticus is aware of what OFAC generally requires to delist a company, and can work directly with the client to accelerate the production of documents and items needed to delist a client with as little anxiety and time as possible.
Payments
Scholasticus has assisted clients in “unblocking” payments which have been stopped by banks. Such payments are often not sanctions related, but are stuck in a compliance impasse. We now live in a world of “over compliance,” where the primary enforcers of sanctions are not governments, but banks and other private actors. Due to the large fines received by banks for processing sanctions-related payments in the past, correspondent banks are incredibly cautious when processing payments and oftentimes block even entirely innocent payments. Scholasticus can provide a consultation on strategies to assist in unblocking payments stopped by banks or other third parties.
