Sanctions violations - BIMCO Bulletin

Sanctions violations

REGULATION March 2020 Are you violating sanctions? Sanctions are growing in popularity as a political tool – particularly in the US – and there is a growing expectation that companies ensure they are not breaking these restrictions. But can you ever be certain you are not violating sanctions? The past two years have witnessed a significant increase in the number, use, and complexity of international sanctions programmes. Leading the field is the US, which has imposed an increasingly wide array of sanctions targeting people undertaking certain types of activity. Most recently, the spotlight has fallen on those operating in and supporting Iran ́s construction, mining, manufacturing and textile sectors. For the container shipping sector in particular, the challenges of staying on the safe side are enormous By Mette Kronholm Frænde, Communications Manager and Editor at BIMCO The escalation in the use of sanctions puts increasing pressure on the shipping industry to carry out thorough checks and due diligence to avoid dealing with sanctioned parties and becoming designated. For the container shipping sector in particular, the challenges of staying on the safe side are enormous, according to law firm Crowell & Moring. “In today’s world, there is no way for shippers to ensure that the owners, cargoes, origins, and destinations of 10,000 containers comply with sanctions – it is not possible,” says Dj Wolff, partner at Crowell & Moring in the US. “Even if you have the world’s most perfect diligence system, and you actually sought certifications as to the contents of every single one of those containers, what if they lied? Technically speaking, under US law, if you were subject to US jurisdiction you would have violated a sanction if the container contained sanctioned contents; but you did nothing wrong,” Wolff says. New sanctions, higher expectations According to Wolff and colleague Michelle Linderman, also partner at Crowell & Moring and based in the UK, there are increasing sanctions and due diligence expectations by the governments and authorities, in the US in particular, of anybody involved in shipping, trading and moving goods globally. Despite this pressure, many actors in the field – especially smaller companies – fail to take even the most basic diligence steps, according to Linderman. “A lot of people still do not carry out adequate checks on their counterparties. For example, they often fail to go beyond asking with whom they are contracting, to determine who owns and controls the company they are contracting with, and so forth,” Linderman says. Even once everything is checked and double-checked, human errors can creep in; names might be misspelled; the screening programme does not quite do what it was supposed to do; or at some point during the contemplated voyage, a previously permissible party gets sanctioned or designated. “It is not possible to protect yourself 100%, so it will always come back to you being able – or not – to answer the authorities’ questions about whether you had a reasonable risk-based compliance programme in place,” says Wolff. “Did you understand the risks? Did you have controls in place to mitigate them? And if something goes wrong, or if the rules change, was your programme flexible enough to adapt to those changes? In essence, did you do your best or did you just cross your fingers?” No foolproof solution There have been recent cases where large US companies got into trouble because the sophisticated screening software they used failed to pick up the name of a sanctioned entity and unwittingly ended up violating sanctions. “Having a compliance programme in place at least helps you when it comes to enforcement of the actions by the government; you can prove you were doing your best but made a mistake. But if you are not doing any checks, the risk and the chances that you are unwittingly violating sanctions are very high, depending on your area of business. If you are doing lots of shipment to or from the Middle East, you have to be very careful,” Linderman says. “Even with the very best intentions, you can still get into trouble. You can protect yourself to an extent, but I don’t think any sanctions compliance programmes are 100% foolproof – even the very best ones,” she says. Recognising that it is impossible to prevent potential sanctions breaches fully – given how difficult transparent information can be to acquire and how dynamic regulations can be – a company’s best hope is to implement a compliance programme that regulators in the US, UK, or in third countries, view as being reasonable and risk-based. “In the United States, even if you did everything perfectly, technically, you still violated the law. In practice however, the agency will focus its enforcement attention on actors that it considers not to have had a risk-based compliance programme in place. Therefore, your real protection is implementing – and documenting – that programme prior to any potential violation occurring,” says Wolff. In the EU, each member state has to take its own action in relation to enforcement of sanctions and, if an entity accused of a breach can prove that it carried out checks, but a mistake was made nonetheless, it may escape liability, depending on the situation. “In the EU, as in the US, having a good risk-based compliance programme is the best defence. It will put you in a better position if you unwittingly violate a sanction,” says Linderman. Read also in the Bulletin: The consequences of violating sanctions Connect with BIMCO A lot of people still do not carry out adequate checks on their counterparties Did you do your best or did you just cross your fingers? Photo (top): iStock / Dilok Klaisataporn In December 2019, BIMCO published two new sanctions clauses to meet geopolitical challenges. The clauses are available to download (registration required) from BIMCO’s website for time charter and voyage charter parties. Explanatory notes are for members only. 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