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What are Sanctions Violations, their Implications, and How to Remain Compliant

Economic sanctions are imposed by governments and regulators globally. While some are considered regional, regulations established by the likes of the U.S. Office of Foreign Assets Control (OFAC) and the UN affect maritime industry players internationally. Failure to comply with such sanctions can have serious consequences, including financial penalties, criminal proceedings, reputational damage, and the risk of being sanctioned yourself.

The repercussions of being placed on a sanction watchlist by OFAC, OFSI, or the UNSC are far-reaching. For vessels, it can mean being blacklisted, seized, grounded, or even destroyed. For companies, financial institutions, and multinational corporations it can result in having assets frozen and unrecoverable reputational damage. As a result, any sanctioned entity or asset is forbidden to have any involvement in trade or maritime activity, otherwise, the whole supply chain could face ongoing business disruption and detrimental loss of profits. 

As a result, players within the maritime ecosystem must understand exactly who and what they are in business with to avoid association with such bad actors. 

Therefore, it is vital to implement comprehensive due diligence practices into your regulatory compliance procedures, including sanctions screening, vessel tracking, document verification, and more. 

Consequences of being non-compliant

Non-compliance occurs either due to negligence, ignorance, or deliberate illicit behaviour. As a result, OFAC enforces penalties based on a thorough assessment of the violation, with fines ranging from moderate to severe, based on the extent and effect of the violation.

Moderate fines are issued for violations caused by insufficient control measures or administrative errors, yet severe fines are imposed on entities that show a cavalier attitude or disregard for sanctions with past occurrences. 

The May 2020 OFAC Advisory included recommended actions for all players within the maritime trade supply chain, which for the first time broadened the regulatory focus much further than just financial institutions and insurers. 

The importance of incorporating vessel screening into your compliance process

Vessel screening should be highly prioritised by all organisations in the industry, including ship owners, operators, managers, charterers, brokers, flags, ports, shippers, freight forwarders, commodity traders, insurers, and financial institutions. It gives a better understanding of the vessel’s history, including its past movement activity, ports of call, dark activity, and current and previous ownership and management. Vessel screening enables organisations to conduct pre-trade due diligence to gain visibility on the prospective vessels, and whether they have engaged in potentially illicit activity, or registered with false information about their identity, ownership, and management.

Challenges & solutions when identifying areas of risk during vessel screening

  1. Understanding best practices - Speak to industry experts to understand how your organisation is affected by current regulations and find a solution that meets industry requirements. 
  2. Control measures and risk parameters - Set clear and repeatable policies and procedures for the organisation, which are well communicated to stakeholders.
  3. Bills of lading - Ensure all bills of lading are screened and verified to prevent the risk of documentary fraud and the undertaking of illegitimate transactions.
  4. Vessel associations - Look beyond your point of contact and consider the business, political, and other relationships that prospects maintain.
  5. Vessel identity fraud - Identify fraudulent ships that have been reported to have been disguised to look like another ship or changed their name. 
  6. Limitations during a live transaction - Overcome limitations through the use of technology to automate live alerts and enhanced due diligence.

What should you be looking out for? 

  • AIS manipulation or disablement
  • Falsifying cargo and shipping documents 
  • Ship to ship transfers
  • Vessel name changes
  • False flags and flag hopping
  • Voyage irregularities
  • Complex ownership structure

Learn more about building a comprehensive compliance programme here.

Advantages of working with Pole Star

  • Longstanding industry expertise across maritime and financial markets
  • Close working relationships with regulatory organisations and frontline insights into emerging trends
  • Free demo and a 14-day trial to explore the benefits of sanctions screening and gain insights on your potential exposures.
  • Advanced sanctions expertise to help you understand how regulation affects you, whether your organisation is an SME or a tier 1 financial institution 

Benefits of using PurpleTRAC

  • Streamlined, digital technology
  • Increased efficiency and transparency
  • Seamless aggregation of multiple sources of high-quality data
  • Systems updated regularly alongside the ever-changing regulatory landscape
  • Configurable to a client’s specific risk parameters
  • A system that auto-populates key screening data from one single field of input
  • Ability to unify compliance processes across international branch networks
  • Easy integration using PurpleTRAC’s APIs
  • A system that automates and records the entire process in an auditable format 
  • Offering 24/7/365 customer support by industry professionals 

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