Shipping companies should remain focused on sanctions compliance for 2023. The sanctions space has been bursting with activity as a result of the Russia-Ukraine war, which shows no signs of abating. Companies continue to seek advice with respect to international sanctions with respect to all aspects of Russian sanctions and other countries such as Iran, China and Venezuela. In 2022, the US continued to aggressively adopt, implement, and enforce US sanctions, including in the shipping and transportation sector. Because the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) may impose civil penalties for sanctions violations generally based on a strict liability legal standard, keeping up with developments in this dynamic area remains a priority and continues to be an active area of the Firm’s practice.
Russian Sanctions
Since the onset of the Russia-Ukraine war, the Russian Harmful Foreign Activities Sanctions program has expanded rapidly and includes a range of new sanctions, import restrictions and export controls. This includes prohibitions on the import of certain Russian energy products into the United States, as well as prohibitions on “new investments” in Russia by US persons. As another example, in May 2022 OFAC also prohibited the export of certain professional services to Russia, including accounting, trust and corporate formation, and management consulting services.
Notably for the shipping sector, following a statement of intention published in September 2022 by the G7 finance ministers, the United States has now prohibited a variety of specified services related to the maritime transport of Russian Federation origin crude oil and petroleum products, including trading/commodities brokering, financing, shipping, insurance (including reinsurance and protection and indemnity), flagging, and customs brokering. These prohibitions took effect for crude oil transport on December 5, 2022 and for other petroleum products on February 5, 2023. An exception exists to permit such services when the price of the relevant product does not exceed the relevant price cap; but also requires market participants to be mindful of the accompanying record-keeping and attestation process outlined in OFAC’s published guidance, so that each party in the supply chain can affirmatively demonstrate or confirm that oil has been purchased at or below the relevant price cap. Notably, prohibited “financing” services in this context include both transaction-specific trade finance as well as non-transaction specific financing.
Most recently, on February 24, 2023, the one-year anniversary of Russia’s invasion of Ukraine, OFAC announced a number of additional sanctions targeting the financial services sector, metals and mining sector, military supply chain, and individuals and entities connected to Russia’s sanctions evasion efforts.
In addition, published multi-agency guidance from the United States indicates that 2023 is likely to include an intensifying focus on civil and criminal enforcement against actors seeking to evade existing sanctions and export controls, including against the use of third-party intermediaries or transshipment points in order to circumvent restrictions or obscure the true identities of Russian end users.
Iranian Sanctions
OFAC continued to aggressively enforce the Iranian Transactions and Sanctions Regulations (ITSR) in 2022, including against persons, entities, and vessels that have facilitated financial transfers and shipping of Iranian petroleum and petrochemical products, often to China and other locations in East Asia. Absent a rapprochement between Iran and the West on a nuclear agreement, formally known as the Joint Comprehensive Plan of Action (JCPOA), we expect these enforcement efforts will continue unabated in 2023. In a September 2022 statement, for example, OFAC set out in no uncertain terms that “enforcement actions will continue on a regular basis” with an aim to severely restrict Iran’s oil and petrochemical exports, and that “anyone involved in facilitating these illegal sales and transactions should cease and desist immediately if they wish to avoid U.S. sanctions.”
Enforcement Outlook
OFAC continues to bring enforcement actions and pursue civil penalties against companies involved in transactions with sanctioned jurisdictions and actors, and for deficiencies in compliance programs. Significant enforcement actions were settled with companies in the virtual currency industry, as well as against companies that processed payments through the United States financial system involving sanctioned persons, without adopting or implementing policies and controls to prevent those transactions from taking place. OFAC also continues to bring enforcement actions against non-US companies under the “causing” theory of liability, where a non-US person engages in a prohibited US-dollar transaction under US sanctions laws that transits the US financial system and causes a US financial institution processing funds to engage in and facilitate the transaction.