What best practices can the shipping industry adopt to detect deceptive shipping practices and potential sanctions evasion?

Lee Kok Leong, our special correspondent, interviews Kerry B Contini, Partner, Baker & McKenzie, on trade sanctions against North Korea and the need for a good compliance program and best practices to counter evasion.

Baker & McKenzie (BM): As a starting point, companies in the shipping industry should conduct risk assessments to identify where they might encounter attempts to evade the sanctions, including by counterparties. On the basis of that risk assessment, the company should develop or update its sanctions compliance program to specifically address the identified risks.

Even within the shipping industry, the specific risks vary depending on the type of company and its role in a particular shipment. This is why the US government, in its “Guidance to Address Illicit Shipping and Sanctions Evasion Practices”, provides guidance on the policies and procedures that might be helpful for different types of companies involving in the shipping industry. This includes ship owners, managers, operators, brokers, ship chandlers, flag registries, port operators, shipping companies, freight forwarders, classification service providers, commodity traders, insurance companies, and financial institutions.

It is critical to train employees to recognize red flags indicating the possibility of sanctions evasion in a transaction. In fast-moving transactions, it might be easy for someone to miss a piece of information that, if reviewed critically, might indicate that a vessel is, for example, carrying cargo from North Korea or otherwise involved in sanctions evasion.

For instance, as part of your due diligence, consider whether a vessel has a history of turning off its AIS responder. Monitor ships throughout the entire lifecycle of the transaction. Watch out for sudden transfers in the ownership of a vessel between companies controlled by the same beneficial owner. These are just a few examples. I recommend reading the US government’s advisories, getting to know them well, and incorporating that guidance into a thoughtful, risk-based compliance program aimed at conducting appropriate due diligence as well as identifying and addressing possible red flags.

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