Sanctions

Sanctions are increasingly becoming the foreign policy tool of choice for a variety of governments and major powers including the United Nations, the European Union (EU), and the United States (US). The variety of sanctions restrictions has broadened, creating an abstruse and fluid landscape against which to determine risk. Camilla Slater, Head of legal,Shipowners’ explains.

Sanctions rise up the agenda and show no sign of abating

There has been much discussion of how the shipping and insurance sectors have been caught in the web of complexity created by sanctions. However, most reports refer to the operations of traditional, larger vessels rather than that of small and specialised vessels for which the risk is at least as great.

With oil being one of the sectors targeted by sanctions, incidents involving large tankers are among some of the more high-profile cases to have appeared in the maritime press. This may lead some observers to believe that sanctions only affect operations of this type. However, much of the legislation is broadly worded, meaning that all vessel types are potentially affected.

The impact on small and specialised vessels can be far reaching. Large offshore projects depend on a multitude of specialist vessels ranging from anchor handling tugs, to dredgers, pipe laying vessels and OSVs. Sanctions impacting such projects are widely felt by owners, charterers and the wider maritime community that supports the services provided by each of these vessels. CHANGES IN LANDSCAPE Significant developments have been seen in the sanctions landscape recently. Notably, the restrictions

The Marine Insurer | March 2020 have escalated with respect to Iran, Venezuela and North Korea. The US Government has demonstrated that it is prepared to pull away from the EU in its sanctions strategy in some areas, and has adopted a robust stance in doing so. In the context of shipping activities, the US has made it clear that it is willing to target those in the shipping industry that facilitate sanctions evasion.

The majority of vessel owners and charterers simply wish to comply with the various regimes in place in order to avoid entanglement with sanctions activity. However, even the most well-intentioned owners and charterers can become unwittingly implicated in sanctions breaches and in doing so, the stakes are high. It has become a feature of the sanctions landscape for vessel activity to be monitored by governments and authorities. If suspected of sanctions breaches, the consequences can be

Incidents involving large tankers are among some of the more high-profile cases to have appeared in the maritime press.

with little forewarning and to be subject to rapid change. Furthermore, the intended reach and impact of some of the relevant legislation is unclear. With legal uncertainty comes commercial uncertainty; owners and charterers intending to enter into long term commitments are often understandably nervous about the impact of sanctions on their operations.

SENSIBLE APPROACH Owners and charterers almost always recognise the need to take a sensible approach to compliance, but there is a legitimate expectation from the maritime industry that compliance procedures should be proportionate. Increased compliance expectations place a high burden on all shipping companies. However, for smaller shipping companies operating outside of the traditional large vessel sector,

extremely harmful for innocent vessel owners, whose vessels have been drawn into these situations.

COMPLIANCE QUESTIONS Compliance expectations have considerably increased in recent times and there are a number of challenges in reaching a point where parties can feel comfortable to engage. Alongside these increased expectations, many vessel owners question the extent of the due diligence that they ought to carry out.

Parties are well advised to consider, as a minimum, which sanctions regimes they and their counter parties may be subject to and the nature of the underlying activities. With such a multifaceted landscape, competing sanctions regimes can also come into conflict with each other.

To add a further layer of complexity, it has become common for sanctions legislation to be implemented

THE MAJORITY OF VESSEL OWNERS AND CHARTERERS SIMPLY WISH TO COMPLY WITH THE VARIOUS REGIMES IN PLACE IN ORDER TO AVOID ENTANGLEMENT WITH SANCTIONS ACTIVITY. HOWEVER, EVEN THE MOST WELL-INTENTIONED OWNERS AND CHARTERERS CAN BECOME UNWITTINGLY IMPLICATED IN SANCTIONS BREACHES AND IN DOING SO, THE STAKES ARE HIGH.

Camilla Slater Shipowners’ Club

the expectation can be particularly challenging to manage. Resources must be dedicated to compliance, but, this may be difficult to balance against the competing demands of a relatively small business, especially where the competitive environment brings its own challenges. On the other hand, without adequate checks and in the absence of expert advice (where necessary) the impact on a business can be very damaging.

It is understandable for many vessel owners to expect that, once they have carried out their due diligence, the way forward should be clear and uncomplicated. In other words, that they will have a ‘yes or no’ answer to the question: ‘Can I carry out this trade?’. However, there are often shades of grey in these situations, and it can be difficult to achieve absolute clarity.

Rather, more often, what becomes important is to achieve a clear understanding of all the various issues at play, allowing an informed decision to be made as to the level of risk. If a decision is taken to proceed, then there is the question of what measures should be put in place to counteract the risks, if any. Different entities involved in proposed works could be subject to different sanctions regimes and risk appetites may vary. This can account for a variance in the stance taken by different parties faced with the same proposition, in the same sanctions space.

Finally, a key issue that must also be considered, is whether engagement is going to be possible from a practical perspective. This practical perspective is a dominant feature in the sanctions landscape. Banks are often unwilling to process transactions in any currency, if those payments have any link whatsoever to countries where sanctions regimes are implemented, or if there is even a minor connection to sanctionable activity. This unwillingness often remains even if there is, in fact, no legal restriction to processing a payment.