Washington, D.C. (December 19, 2023) – On December 11, 2023, the United States Department of Commerce, Department of the Treasury, Department of Justice, Department of State, and Department of Homeland Security issued a joint "Quint-Seal Compliance Note" ("Compliance Note"), targeted at entities operating in the global maritime and transportation industries.
The Compliance Note, titled "Know Your Cargo: Reinforcing Best Practices to Ensure the Safe and Compliant Transport of Goods in Maritime and Other Forms of Transportation," (1) emphasizes the increased risk of sanction evaders in these industries, (2) suggests best practices for companies and individuals working in related sectors to avoid such risks, and (3) outlines recent criminal and civil enforcement actions in connection with illicit trade. A summary of each suggestion from the Compliance Note follows:
(1) Protect against, and monitor for, common practices by malign actors:
The Compliance Note highlights tactics commonly used by malign actors — entities who exploit global supply chains by engaging in sanctionable activities or evade export controls. Specifically, such tactics may include:
- Manipulated location or identification data:
- Altered or disabled Automatic Identification System or International Maritime Organization numbers to obscure identities.
- Falsified cargo and vessel documents:
- Falsified bills of lading, certificates of origin, packing lists, proofs of insurance, and other shipping documents.
- Ship-to-ship transfers:
- Transfers at night or in high-risk geographical areas.
- Voyage irregularities and use of abnormal shipping
routes:
- Indirect routing, unscheduled detours, or transit through third countries.
- Frequent registration changes:
- "Flag hopping:" re-registration of vessels under new flags.
- Complex ownership or management:
- Use of shell companies or opaque management structures to hide illicit activity.
(2) Adopt best practices to deal with trade-related risks:
To assist companies and individuals working in trade-related sectors, the Compliance Note suggests adoption of best practices including, but not limited to, the following:
- Institutionalize sanctions and export control
compliance programs:
- Develop standardized compliance policies, procedures, standards of conducts, and safeguards, considering resources developed by federal agencies, such as the Department of Commerce Bureau of Industry Security Export Compliance Program.
- Establish location monitoring best practices and
contractual requirements:
- Entities, including insurers and other financial institutions, should conduct due diligence on the location history of vessels, vehicles, and aircraft, and should encourage continuous broadcasting of related data by counterparties. Private entities should consider including contractual language prohibiting violations of U.S. laws or regulations.
- Conduct appropriate due diligence on
counterparties:
- Screen transaction parties against governmental sanctions, licensing, denial, or similar lists, such as the International Trade Administration's Consolidated Screening List.
- Exercise supply chain due diligence:
- Request copies of applicable licenses and complete, accurate shipping documentation to ensure that counterparties are not sending or receiving commodities in violation of U.S. sanctions or export control laws.
- Share risk-related information:
- Industry groups and similar organizations should provide members, partners, and colleagues with risk-related information.
(3) Review Recent Criminal and Civil Enforcement Actions:
The Compliance Note also outlines the authority of federal agencies to enforce sanctions regulations and highlights recent related criminal and civil actions. The Department of Justice ("DOJ") can pursue civil and criminal actions to enforce violations of U.S. laws, such as where malign actors seek to disguise the true origins of cargo or otherwise attempt to evade U.S. sanctions and export controls. The Department of Commerce Bureau of Industry ("BIS"), in addition to assisting DOJ in criminal investigations, can bring administrative enforcement actions for violations of the Export Administration Regulations ("EAR"), resulting in monetary penalties or export restrictions. Similarly, the Department of the Treasury's Office of Foreign Assets Control ("OFAC") can bring civil enforcement actions and monetary penalties against persons who violate U.S. sanctions regulations. Recent trade-related actions by these agencies include the following:
- Criminal prosecutions:
- 2023: A DOJ action alleged that the conduct of a bareboat charter and oil tanker operator caused a U.S. financial institution to process transactions in violation of U.S. Iran sanctions laws. Following a guilty plea, the bareboat charter was sentenced to three years corporate probation and a fine of nearly $2.5 million.
- Civil forfeiture actions:
- 2021: In an action against four vessels alleged to be part of a scheme to covertly ship Iranian oil via ship-to-ship transfers to Venezuela, a federal court granted DOJ's motion for default judgment, and the oil was forfeited to the United States.
- Civil enforcement actions:
- 2022: OFAC imposed a $6,131,855 penalty against a major international freight forwarding and logistics company for causing U.S. persons to violate sanctions through the receipt of 2,958 payments through U.S. financial institutions related to sea, air, and rail shipments involving blocked persons on the Specially Designated Nationals and Blocked Persons List ("SDN List").
- 2019: OFAC imposed a $871,837 civil penalty on a U.S.-based shipping company that had transacted with blocked vessels.
- 2018: BIS imposed a $155,000 administrative penalty (of which $20,000 was suspended during a one-year probationary period) against a logistics company for exporting items to listed on the BIS Entity List, overriding or ignoring known flags.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
