Pole Star Global, the leader in maritime intelligence and regulatory compliance solutions, in collaboration with Blackstone Compliance Services, has released a new whitepaper titled: ‘The Emerging Trends In Maritime Sanctions Enforcement’. An excerpt from this whitepaper’s executive summary follows.Whitepaper: The Emerging Trends In Maritime Sanctions Enforcement – Executive Summary

Since 2016, the Office of Foreign Assets Control (“OFAC”), and their counterparts in the United Kingdom and European Union (collectively, “the Coalition”) have continued to prioritize sanctions targeted towards the maritime industry (“maritime sanctions”). The past three years has brought this focus to a boil, with advisory after advisory focused on Iranian oil sales and enforcing the price cap on Russian oil. The current U.S. administration has even set up a dedicated maritime desk within the U.S. Treasury and State Departments to enforce these sanctions.

The Trump administration, OFAC and the State Department, have continued implementing the Biden administration’s policy of subverting Iran’s ability to sell oil and petroleum on the high seas. This policy was reinforced with a national security directive ordering the U.S. government to double down on sanctioning Iran’s oil exports, and over a third of all designations during this period focused on Iranian shipping networks.

With all the focus on shipping, it’s surprising that OFAC hasn’t levied more penalties against the maritime industry. But if someone is only looking for civil penalties announced by OFAC, they’re looking in the wrong place.

That’s because the U.S. government’s approach to enforcing maritime sanctions is different than their approach to enforcing sanctions within the financial community:

Law Enforcement Actions: The U.S. has signaled its preference to criminally prosecute shipping companies dealing with Iranian crude. An indictment can be obtained faster than the average OFAC civil penalty. It’s now routine for U.S. law enforcement to seize Iranian cargo, if only sometimes in rem. This includes high profile matters such as the seizure of Iranian cargo from reputable companies, as well as more routine seizures such as Iranian oil which passed through multiple vessels.

Real-time Designations: OFAC enforcement actions take a lot of time to complete, and the agency has instead chosen to sanction companies and their vessels for materially supporting sanctioned persons, including by providing shipping services, rather than pursuing penalties. The agency’s current strategy is to designate vessels, port operators, and other maritime parties in real-time, after the party interacts with the Iranian cargo.

Litigation: Maritime sanctions have become increasingly litigious, with counterparties challenging the use of sanctions clauses in foreign courts, some of whom enjoyed high profile decisions in the counter-party’s favor. Likewise, private companies are increasingly taking matters into their own hands by seeking damages to offset cargo seizures or losses from economic sanctions.

Simply put, maritime companies are much more vulnerable to sanctions because they have a higher chance of having their cargo blocked on the water and being mired in expensive litigation. In many ways, finding out that a cargo is subject to sanctions mid-voyage is a greater economic risk than any subsequent OFAC penalty. In most cases, this means everyone loses. The traders take a loss for the value of the cargo and any demurrage or chartering fees, the shipowner is unable to charter their vessel, and the middlemen who failed to exercise due diligence can be left on the hook for millions in damages as all parties try to claw back their losses.

Source: Pole Star Global