Arthur Dedels October 29, 2025October 29, 2025 In recent years, the U.S. has focused increasingly on “intermediaries” or “facilitators” of sanctions evasion, such as shipping companies, logistics service providers, freight forwarders and transport intermediaries, as well as insurance companies. Over the past few years, the U.S. government has published several guidelines on sanctions compliance for the maritime industry. These guidelines highlight the common deceptive shipping practices, suggest recommendations to identify them and mitigate associated risks, and provide case studies. Below is a summary of the guidelines. Common deceptive practices Disabling or manipulating the location data (Automatic Identification System (AIS)) The International Convention for the Safety of Life at Sea (SOLAS) requires that certain classes of vessels traveling on international voyages operate AIS at all times with few exceptions – safety issues may prompt legitimate disablement of AIS transmission, and sometimes transmission may be poor. However vessels also intentionally disable their AIS transponders or manipulate the data transmitted in order to mask their movements. This is known as “spoofing” and it allows ships to broadcast a different name, IMO number, MMSI, or other identifying information. This tactic can also conceal a vessel’s next port of call or other information regarding its voyage. Altering vessel identification data A vessel’s IMO number is intended to be permanent regardless of a change in a vessel’s ownership or name. Vessels involved in illicit activities have often painted over vessel names and IMO numbers to obscure their identities and pass themselves off as different vessels. Falsifying cargo and vessel documents To disguise the origin or destination of cargo, parties use falsified shipping documents, including bills of lading, certificates of origin, invoices, packing lists, proof of insurance, and lists of last ports of call. Ship-to-ship transfers Although often conducted for legitimate purposes, ship-to-ship transfers are also a tactic used to conceal the origin or destination of cargo. Transfers that occur at night or in areas of high-risk for illicit activity are of particular concern. Voyage irregularities and use of abnormal shipping routes Parties involved in illicit trade may try to disguise the destination or origin of cargo or its recipients by using indirect routing, unscheduled detours, or transit or transshipment through third countries. Changes that are made without what appears to be a legitimate reason to go off-route, such as unsafe ports, extreme weather, or emergencies, and other suspicious deviations in route may signal unlawful conduct. False flags and flag hopping In an effort to evade certain management measures or national provisions, vessels may participate in “flag hopping,” which involves the repeated re-registration of the vessel under new states’ flags. They may also falsify the flag. Complex ownership or management Parties may use shell companies or opaque ownership and management structures to disguise the ultimate beneficial owner of the vessel, cargo, end user, or other entities involved in the shipment process. Obscure ownership structures or frequent changes in ownership or management of companies may be a sign of sanctions evasion. Identification of sanctions evasion Institutionalize sanctions compliance programs It is crucial to have robust sanctions compliance programs that are followed in practice and are up-to-date. The guidelines suggest that compliance programs may establish that engaging in sanctionable conduct is cause for immediate termination of business or employment, and that employees who disclose suspected behavior be protected from retaliation and that a confidential mechanism exist to report such behavior. The US government has published certain resources to help with the development of compliance programs. Establish location (AIS) monitoring best practices and contractual requirements The guidelines encourage port state control and vessel traffic services authorities to reiterate the requirement to maintain AIS broadcasts to tankers and bulk containers arriving in and leaving their jurisdictions. If a vessel cannot account for its AIS history consistent with SOLAS, port authorities may wish to consider investigating the underlying activity to ensure that it is not sanctionable or otherwise illicit. If determined to be illicit, the port authorities may wish to consider prohibiting that vessel from entering their ports or taking other appropriate actions. Monitor ships throughout the entire transaction lifecycle Port authorities may may consider monitoring ships using the Long-Range Identification and Tracking (LRIT) system within their areas of operation as a risk mitigation strategy. Know your customer (KYC) All participants in the maritime industry should conduct appropriate risk-based due diligence on counterparties, based on their role in a transaction. This includes screening transaction parties against government lists, such as the US government’s Consolidated Screening List, the UAE’s sanctions list and other national and international lists. Exercise supply chain due diligence Exporters and entities across the maritime supply chain are encouraged to conduct appropriate due diligence as necessary to ensure that recipients and counterparties to a transaction are not sending or receiving commodities that may trigger sanctions. They may also consider implementing controls that allow for verification of origin and recipient checks for ships that conduct STS transfers. Contractual language Members of the industry are encouraged to incorporate in all their contracts provisions dealing with these best practices. Industry information sharing Successful sanctions compliance programs to a large extent rely on fostering industry-wide awareness of challenges, threats, and risk mitigation measures. All market participants are encouraged to provide and share relevant information across the industry. Guidance for maritime insurance companies The US guidelines recommend that maritime insurance companies consider implementing the following due diligence practices to the extent they deem such practices appropriate and helpful in assessing and mitigating sanctions risks and consistent with local laws and regulations. Monitor AIS Monitor AIS transmissions and investigate the following when involving an insured vessel: any significant time period with non-transmission that is not consistent with SOLAS; navigation of suspicious deviations in routes (e.g., changes without what appears to be a legitimate reason to go off-route, such as unsafe ports, extreme weather, or emergencies); a pattern of turning off AIS in a manner inconsistent with SOLAS; and engaging in trade to or from vessels that are not transmitting AIS consistent with SOLAS. Assess AIS history in pre-coverage and claims presentations In pre-coverage and claims presentations, include due diligence procedures that assess the AIS history of vessels that engage in potentially illegal activities and operate in high-risk areas for sanctions evasion. This may warrant further investigation of the ship’s voyage, charter, ownership, and other factors. Research AIS history of all vessels under a client’s ownership or control Insurers that provide coverage for ship owners, suppliers, buyers, charterers, and ship managers may research the AIS history for all the vessels under the ownership or control of such parties. Insurers may wish to communicate to clients that any signs of AIS transponder manipulation inconsistent with SOLAS could be considered a red flag and investigated prior to entering into contracts, continuing to provide services to, or engaging in other activities with such vessels (including engaging in financial transactions in connection with the vessel’s activities). Invalidate policy due to AIS irregularities Incorporate contractual language and explicitly notify clients that AIS disablement or manipulation inconsistent with SOLAS is possible grounds for investigation by the insurer of the ship’s activities and could result in cancellation of insurance. Prohibit ship-to-ship transfers to/from vessels with AIS irregularities Incorporate a contractual provision that prohibits transfers of cargo to or from clients with other vessels that are not broadcasting AIS consistent with SOLAS or have a history of AIS transponder manipulation inconsistent with SOLAS. Inform relevant third parties Inform competent authorities and other relevant regulators, other insurers, commercial databases, the IMO, and when relevant, the UN Security Council 1718 Committee Panel of Experts (the UN DPRK Panel of Experts) in the event of insurance denial or cancellation of services of a vessel in relation to illicit activity. Terminate business and supply data to authorities in case of sanctions breach Inform registrants (including owners of vessels) that activity inconsistent with relevant US or UN sanctions may be cause for immediate termination of business and that the underlying due diligence and registration documents revealing information on ownership structure may be sent to the relevant US government and/or UN body at the discretion of the insurer. Collect details of vessel owners and in case of unlawful activities supply it to authorities Ensure, as allowed by applicable laws and regulations, due diligence documents (e.g., registration documents for flag registries) include a color copy of the passports, names, business and residential addresses, phone numbers, email of all individual owners of the vessel(s), and the names and IMO numbers of all the vessels in the fleet of the individual ship owner, for ships operating near high risk areas for sanctions evasion or violations. Where necessary and allowed by applicable laws and regulations, state in forms collecting personally identifiable information that the insurers and re-insurers may share this information with competent authorities if the vessel conducts unlawful activities. Incorporate data into due diligence practices Incorporate data such as historical ship location, ship registry information, and ship flagging information, along with available information from the US Department of the Treasury, the UN, and the US Coast Guard into due diligence practices. Clear communication Explain clearly relevant restrictions under and the steps required to comply with US and UN sanctions regimes and encourage all parties involved in the shipping industry to share the US sanctions advisory guidance with others in their supply chain. Case studies In October 2024, OFAC published scenario-based sanctions compliance guidance to aid the shipping industry to identify attempts at sanctions evasion, address due diligence issues and implement best practices. Deceptive shipping practices to conceal sanctions nexus A charterer concealed the origin of crude oil that came from Iran. The Europe-based owner of the vessel discovered the forged documents only after their ship was damaged in a collision. Subsequent investigation and auditing revealed the full extent of the sanctions violation, including previous illegal ship-to-ship transfers and movement of Iranian crude, all in breach of OFAC regulations. Consequently, the ship’s insurer denied the claim for the collision damage, citing the sanctions exclusion clause within the P&I agreement. Key takeaway: voyage documentation and data manipulation Vigilance concerning voyage documentation and data manipulation is essential. Closely examine trade documents for shipments traveling through regions where sanctions evasion is common. Key warning signs of obfuscation include: Vessel location tampering, such as “spoofing” of a ship’s AIS data. Misclassifying the vessel or class of trade. Unusual voyage patterns. Lengthy intervals during which a vessel’s location transmission is absent. Identification of Specially Designated National (SDN) on trade documentation A foreign affiliate of a US ship management firm entered into a one-year agreement to provide services to a European purchaser of iron ore. During the due diligence for an iron ore transaction, the foreign affiliate discovered that the originally intended freight forwarder was listed on the OFAC SDN List. When the affiliate sought details regarding the potential involvement of the SDN, the customer simply provided new documentation that substituted the SDN-listed company with an alternative freight forwarder. Crucially, this new forwarder was recently established and had no discernible prior experience in cargo shipment. Consequently, the US company terminated the contract, implemented stricter sanctions compliance protocols, and submitted a voluntary self-disclosure to OFAC. Separately, a European bank that had provided a letter of credit for the iron ore buyer also discovered the SDN’s initial involvement during its own diligence and subsequently cancelled the financial agreement due to the potential exposure to US secondary sanctions. Key takeaway: concealing SDN involvement Common red flags for sanctions evasion that indicate attempts to conceal an SDN nexus include the following: Modifications to original trade documents designed to hide or eliminate evidence of sanctionable activity. Abrupt, unjustified changes to customary shipping instructions. Refusing to supply further information when presented with reasonable, standard industry requests. Policy or registration renewals for vessels with obscured or complex ownership A non-US ship management company obtained an annual hull and marine insurance policy from a UK-based insurer. Although the ship management firm was recently established (only two years old) and registered in an unconventional maritime jurisdiction, it initially satisfied the underwriters’ due diligence. The UK insurer later transferred a portion of this portfolio to a US reinsurance broker, which incorporated a standard sanctions clause into its contract. When the ship management company filed an insurance claim for vessel damage, the US broker’s subsequent diligence uncovered that the vessel’s ultimate beneficial owner was a Russian state-owned enterprise – an entity blocked under OFAC’s Russian sanctions regulations. As a consequence, the US broker invoked its sanctions exclusion clause and refused to participate in the claim. Key takeaway: sanctions clauses Include sanctions exclusion clauses in all agreements and policies. This is essential to provide a contractual basis for terminating agreements that would otherwise violate US sanctions law. In addition, mandate that all of counterparties adhere to US sanctions regulations. Mid-voyage notification of sanctions risk Stakeholders become aware of potential sanctionable activity only after a voyage has begun or concluded. It was discovered after an oil tanker had embarked on a journey that the vessel had previously manipulated its location data to conceal an illegal ship-to-ship transfer of Iranian-origin crude oil. As a result of this discovery, the vessel’s insurers (US subsidiaries of global companies) immediately revoked their policies by citing the sanctions exclusion clauses. When the vessel later attempted to dock and discharge its cargo at a port in South Asia, the port authority denied its entry. Furthermore, the vessel was ultimately deflaged by its flag state authority after the registered owners failed to respond to diligence inquiries about the situation. Key takeaway: monitor public reporting of sanctions violations Conduct due diligence before initiating business relationships and continue to perform diligence throughout the relationship if any red flags emerge, if any red flags emerge, which includes monitoring media reports. If sanctions exposure becomes apparent mid-voyage, parties should evaluate the option of applying to OFAC for a specific license to cover the continued provision or, more commonly, the wind-down of services to the affected party Opaque ownership information of proposed oil tanker purchaser A potential buyer attempted to acquire a used crude oil tankers from a ship broker. The buyer was structured as a special-purpose vehicle with no prior history in the maritime oil sector, and it refused to supply standard transaction information. The ship broker rightly rejected the deal and flagged the potential buyer in its internal tracking system. Nine months later, a different purported buyer attempted to purchase a tanker from the same broker. Internal diligence quickly revealed that this new buyer shared the same ultimate beneficial owner as the previously rejected entity. Further investigation exposed that the new prospective buyer held an ownership interest in multiple other vessels that OFAC had blocked six months earlier due to their involvement in the transport of Iranian-origin oil. Key takeaway: opaque vessel ownership Vigilance is required regarding risk indicators suggesting attempts to conceal the ultimate beneficial owners of vessels. Pay close attention to the use of the following that could be employed to obscure the vessel’s true purpose or end use: Complex ownership structures. Complex management structures. Shell companies. Escrow agents. All maritime sector stakeholders, including maritime insurance companies, that want to ensure compliance with the US sanctions should adopt robust internal sanctions compliance controls to ensure they are not violating sanctions or causing or facilitating others to do so. Further reading Sanctions Advisory for the Maritime Industry, Energy and Metals Sectors, and Related Communities, 14 May 2020, US OFAC Know Your Cargo: Reinforcing Best Practices to Ensure the Safe and Compliant Transport of Goods in Maritime and Other Forms of Transportation (aka Quint-Seal Compliance Note), 11 December 2023, US Department of Justice, State, Commerce, and Homeland Security Sanctions Guidance for the Maritime Shipping Industry, 31 October 2024, US OFAC Sanctions Advisories for the Maritime Industry, 2022, HIS Markit, Institute of International Banking Law and Practice, and Association of Certified Sanctions Specialists
