Introduction
OFAC continues to emphasize that having a sanctions policy in place will greatly benefit members of the shipping community. Such a policy is useful in risk management both for internal purposes to reduce risks of violations as well as to help protect a company in case of enforcement or targeting by sanctions authorities.
Background
International sanctions in the United States are regulated to a large degree by the Office of Foreign Assets Control (“OFAC”), which is an agency of the U.S. Department of the Treasury. OFAC regulates a wide variety of transactions. In recent years, OFAC has been encouraging the shipping industry to come more in line with international practices and procedures. OFAC has been using several tools at its disposal, including pro-active education and outreach sessions in the world’s shipping hubs. Conversely, OFAC has also undertaken enforcement action and targeting entities which it believes have violated sanctions. OFAC’s policy focus extends to several areas of the world in addition to specialized programs.
However, the areas where OFAC’s policy goals interact with large degrees of the shipping industry are relatively limited in geographic scope. Currently, OFAC has comprehensive sanctions against Cuba, Iran, North Korea, Syria, Venezuela, Russia, and Burma. Of these programs, much of the shipping industry’s recent focus has been concentrated on Russia and Venezuela, with OFAC also having taken recent actions signaling that it intends to enforce sanctions, particularly as regards its sanctions against Russia.
Analysis
November 2023 Enforcement Request to Maritime Companies
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.
Protecting Companies: Sanctions Compliance Programs
Although not a “new” action, the recent actions taken by OFAC indicate the need for companies to either implement or update their Sanctions Compliance Program. OFAC provided guidance on such programs in its 2019 “A Framework for OFAC Compliance Commitments outlines five essential components of a risk-based sanctions compliance program (SCP).” These components are:
- Management commitment: SCP’s should demonstrate that they have the approval of Senior Management as well as appropriate resources to succeed. Sanctions personnel should have both the autonomy to implement programs as well as to report directly to Senior Management. Senior management’s commitment to, and support of, an organization’s risk-based SCP is one of the most important factors in determining its success.
- Risk assessment: Organizations should conduct ongoing comprehensive risk assessments to identify potential areas of exposure to OFAC sanctions.
- Internal controls: Organizations should implement internal controls to mitigate sanctions risk. Such controls should be easy for non-specialist employees to follow. They should also have policies regarding recordkeeping for sanctions related matters, as well as ongoing learning and updating components. Companies should avoid a “one-size-fits-all” approach and work within their organization to determine what the best steps that fit for them as a company.
- Testing and auditing: Organizations should test and audit their SCPs to ensure that they are effective and up-to-date.
- Training: Organizations should provide training to employees and other stakeholders on the SCP and the importance of sanctions compliance. Such training should have a regular component, but sanctions officials should also have the resources and autonomy to create ongoing training programs which would affect and improve knowledge for employees. As sanctions are not static, it is important for training to be ongoing and regular.
Russia Price Cap Guidance
OFAC provided updated guidance on the transportation of Russian crude oil and petroleum products in late December. The U.S., along with the G7, the European Union, and Australia, have implemented a “price cap” for crude oil and petroleum products of Russian Federation origin. OFAC provided the initial guidance in February 2023. After much deliberation and speculation, OFAC ended up providing only minor updates to compliance with the price cap. First, OFAC now requires that, to receive the “safe harbor” benefits of the price cap policy, shipping companies must receive attestations within “a specified timeframe for each lifting or loading of Russian oil or Russian petroleum products.” OFAC also now requires shipping companies to obtain “ancillary cost information,” such as the cost of freight or insurance.
In other ways, the guidance from OFAC on this topic remains largely the same and can be summarized as follows:
- Price Cap Policy: The guidance outlines the price cap policy for crude oil and petroleum products of Russian Federation origin, which is designed to prevent the evasion of U.S. sanctions by limiting the price at which these products can be sold.
- Scope: The guidance explains the scope of the price cap policy, including the types of transactions and parties that are subject to the policy.
- Compliance Obligations: The guidance describes the compliance obligations of U.S. persons, including the requirement to implement a compliance program and conduct due diligence on counterparties.
- Penalties: The guidance outlines the penalties for noncompliance with the price cap policy, including civil and criminal penalties.
Know Your Cargo: Quint-Seal Compliance Note
December also saw the issuance of the Quint-Seal Compliance Note: Know Your Cargo. Five agencies (Department of Justice, Department of Commerce’s Bureau of Industry and Security, Department of Homeland Security’s Homeland Security Investigations, Department of State’s Directorate of Defense Trade Controls, and OFAC) issued the compliance note. The note highlights common tactics deployed by malign actors in the maritime and other transportation industries, as well as recent criminal and civil enforcement actions taken in response to alleged violations of U.S. sanctions and export controls. The note also describes steps that the maritime and other transportation industries can take to ensure compliance with U.S. sanctions and export controls.
The compliance note provides several recommendation to shipping companies in particular to avoid violations of U.S. sanctions. These steps include:
- Know your customer: Conducting due diligence on customers, including their ownership structure;
- Know your cargo: Conduct due diligence on cargo, including its origin and destination;
- Know your counterparties: Conduct due diligence on counterparties, including their ownership structure;
- Know your industry: Stay informed about the latest developments in U.S. sanctions and export controls;
- Know your role: Understand your role in the supply chain and the potential risks associated with it.