Sanctions Evasion and Illicit Shipping and Compliance Practices
Illicit shipping practices are often used by countries that seek to evade economic sanctions. Such practices include flag hopping and false flags, voyage irregularities, altering vessel identification, manipulating or disabling vessel automatic system identification, and falsifying ship-to-ship transfers and vessel and cargo documents, among others.
Flag Hopping and False Flags
A false flag operation is where a carrier pretends that a ship is sailing under a flag state without the knowledge, permission, or consent of that state. Flap hopping, on the other hand, involves changing the flag state of a ship with the goal of avoiding identification by the respective marine authorities. Flag hopping and false flags are mainly used to conceal a ship’s activities and its identity. Some red flags that raise suspicion include frequent changes of a vessel’s name, changing flag registry, as well as vessel name and IMO number not matching.
Falsifying Vessel and Cargo Documents
In international freight forwarding, a number of documents are issued and presented between parties such as ship managers, banks, charterers, owners, and the master. Bad actors may try to falsify certificates of origin, insurance paperwork, invoices, and bills of lading to conceal a ship’s destination, origin, or cargo details.
Calling at Ports in Sanctioned Countries
Basically, this is a practice of calling at ports in sanctioned states such as Iran and North Korea. It occurs when a ship is switching off its AIS data in order to call at ports in sanctioned countries. The goal is typically carrying out illegal trade.
A ship that drifts or anchors in a high-risk area is engaging in loitering. Red flags and warning signs are vessels with a history of turning off their AIS and ships with a record of loitering in hot spots, especially for extended periods of time.
Other illicit practices include altering the IMO number /unique vessel identifier/, disguising beneficial ownership, and a low number of port calls.
There is a number of compliance practices to help entities, states, and authorities identify illicit practices and sanctions evasion. Among them are monitoring vessels, establishing contractual requirements and AIS best practices to identify disruptions and manipulations, and implementing sanctions compliance programs. There are also policies and procedures for parties such as:
- Financial institutions
- Insurance companies
- Commodity traders
- Classification service providers
- Freight forwarders
- Shipping companies
- Flag registries
- Ship chandlers
- Port operators
- Ship owners
Examples of compliance practices include sharing industry information about risk mitigation measures, threats, and challenges, exercising due diligence with regard to supply chains, and knowing counterparties and customers.
Individuals and entities engaged in trade in coal, sand, copper, aluminum, iron, steel, petrochemicals, refined petroleum, and crude oil should also take appropriate action. In addition, parties are encouraged to review current and historical activities and information about a counterparty and its vessels should they decide to enter into any contracts. This can help identify illicit practices at an early stage.