November 23, 2018

OFAC fires shot across the bow of Middle East shipping industry

OFAC has reminded the shipping, oil trading and financial institution communities generally that anyone (including non-US persons) who provides support to the Syrian regime by, for example, facilitating imports of oil to the Government of Syria could be designated as a SDN

OFAC, together with the US Coast Guard and the US Department of State, has just issued a timely reminder of the risks of shipping petroleum products to Syria and Iran.

At the same time that it added 9 persons and entities to the SDN list, whom OFAC suspect were involved in the shipment of petroleum products to Syria, OFAC has reminded the shipping, oil trading and financial institution communities generally that anyone (including non-US persons) who provides support to the Syrian regime by, for example, facilitating imports of oil to the Government of Syria could be designated as a SDN.

The notice also warns persons generally who own, control or insure a vessel that transports crude oil from Iran to Syria, or countries that have not received a reduction exemption waiver, that they could be subject to secondary sanctions penalties for engaging in those activities.

The notice itself does not impose any new sanctions on Iran or Syria; it is, rather, a reminder of the existing US primary and secondary sanctions in force against both Syria and Iran in relation to the sale and transportation of oil cargoes.  However, there are two particularly notable elements to the notice.  Firstly, it sets out a non-exhaustive list of 35 vessels that are suspected of having delivered oil to Syria between 2016 and 2018.  The vessels themselves have not all been added to the SDN list, but the implication of naming the vessels is clearly that the United States has been monitoring carefully their activities and will be monitoring others in the future.

Secondly, it sets out a list of known deceptive practices used to ship petroleum products to Syria, including falsifying cargo documentation such as bills of lading, carrying out STS transfers of cargo at sea, and the disabling of AIS systems to conceal locations.  None of these measures are new in themselves; they have been employed for years by parties engaged in “sanctions busting”.  However, OFAC is saying that it knows this too and is actively on the lookout for parties engaging in such activities. 

And it warns others to look out for them as well.  In a list of risk mitigation measures, it encourages financial institutions, such as insurers, as well as ship registries, charterers and port operators to look out for AIS manipulation or documentary discrepancies that would be red flags for potential sanctioned cargoes. 

Coming just two weeks after the re-imposition of the second tranche of secondary sanctions against Iran, this notice is therefore a timely reminder that shipping and oil trading in the Middle East, with its unique concentration of sanctions risks, is firmly at the centre of US regulatory attention.  For those engaged in the industry, the risk mitigation measures identified by OFAC are a sensible starting point for managing sanctions risk.  For example, caution should be exercised in relation to suspicious requests in relation cargo documentation (such as issuing bills of lading with suspicious “Eastern Mediterranean” discharge ranges) or when dealing with vessels with suspicious periods of time with no AIS connectivity.  With the political climate in the region showing no sign of changing, those risk mitigation measures might well be in force for some time yet.