How Entities Use Deceptive Shipping to Circumvent Sanctions
Updated: Jan 20
"Regulatory organizations like the OFAC have made it clear that no operation, regardless of their role in illicit shipping, is safe from consequences."
Dark shipping is an increasingly common tactic used by public and private organizations to maintain trade under international sanctions. In recent years, the primary culprits of dark shipping and deceptive shipping for sanctions evasion have been Iran, Syria, North Korea, Venezuela, and Russia. Still, these manipulation techniques are also used by small organizations at the most isolated tactical level - making it a global issue that must be soon met with enhanced detection and mitigation.
Regulatory scrutiny is more prevalent for public and private companies operating in maritime trade and its congruent supply chains than ever. Regulatory organizations like the OFAC have made it clear that no operation, regardless of their role in illicit shipping, is safe from consequences. The problem for these regulatory agencies is that maritime trade is booming, and things are a mess. With trade industries and supply chains compromised by the looming pandemic, it’s becoming more and more challenging to ensure compliant maritime operations - never mind monitoring and tracking the movements of multiple countries’ shipping fleets that are meant to be operating under harsh international trade sanctions.
What sanctions compliance organizations are learning is that AIS data no longer satisfies the needs of complete maritime domain awareness - and vessel tracking requires a multi-faceted approach to understand a ship’s movements, history, trade patterns, and reporting.
While awareness surrounding deceptive shipping for sanctions avoidance is growing, many are left wondering how they can best combat the challenge. The first step toward mitigation is understanding the problem at its core. Below, we dive deeper into deceptive shipping tactics for sanctions avoidance and outline how regulatory organizations push back against the threat.
Types of Deceptive Shipping for Sanctions Evasion
In May of 2020, the US Department of State, the US Coast Guard, and the US Department of Treasury’s Office of Foreign Assets Control (OFAC) issued a global advisory to any organization involved in maritime trade - providing those involved with information and tools to combat the emerging trends of illicit shipping for sanctions evasion. The advisory reflects the US government’s commitment to existing maritime challenges like sanctions evasion, human trafficking, IUU fishing, and other nefarious activity - focusing primarily on heavily sanctioned countries like North Korea, Syria, and Iran. Still, the advisory is meant to address any individual or organization involved in maritime trade.
Information on the risks and types of deceptive shipping was a focus of the advisory - covering everything from methods used to sanctions compliance policies & procedures. While this information was meant to support maritime organizations of any sort, it focused on the following entities:
Ship Owners and Managers
Classification Service Providers
In no particular order, the following deceptive shipping practices were highlighted as the primary concerns in maritime trade.
AIS Darkness & Manipulation
Automatic Identification Systems (AIS) are mandated for certain types of vessels operating internationally - transmitting a ship’s identification data and navigational position with high-frequency radio waves. While AIS systems are accurate and reliable when used correctly, they are subject to different types of manipulation that are relatively easy to execute - allowing nefarious individuals or organizations to use them to their advantage.
Vessels operating illegally can simply disable their AIS transponders at the flip of a switch, putting data transmission on hold and allowing them to work “in the dark.” Doing so is the primary definition of “dark shipping” and is the most common method used for things like illicit STS transfers and port calls.
On the other hand, AIS manipulation is referred to as “AIS spoofing,” allowing ships to send AIS positions under different names, IMO identification numbers, and additional identifying information used by regulatory agencies or other vessels. AIS spoofing can also help a ship hide a call to port or any further details regarding its voyage history.
Physical Vessel Alterations
Passenger ships with a Gross Tonnage (GT) of 100 or more and cargo ships with a Gross Tonnage of 300 or more are required to clearly display their IMO number and the vessel name on the ship’s hull or superstructure while in operation. While a vessel’s IMO number is meant to be permanent, regardless of a change in ownership or name, many ship operators involved in illegal or illicit activity paint over names and IMO numbers - obscuring the ship’s true identity and operating under a false one.
Cargo and Vessel Document Falsification
Shipping documentation is critical in ensuring all maritime parties are involved in compliant operations. Shipping documentation must be complete and accurate to understand maritime trade operations to the fullest extent and can include the following:
Bills of Lading
Certificates of Origin
Proof of Insurance
Port Call Lists
Maritime authorities say that sanctions evaders most often falsify shipping documents regarding petrochemicals, petroleum, metals, and sand to disguise their origin - which is illegal in most countries. Documentation irregularities provide a basis to hold a shipment until its contents are confirmed, making due diligence a prime component of identifying risks to sanctions evasion.
Illicit Ship-to-Ship (STS) Transfers
Although many ship-to-ship (STS) transfers are conducted for legitimate and compliant purposes, STS transfers at night or in high-risk areas are commonly used to circumvent sanctions. Illicit STS transfers are widely used for trading materials like oil & gas, coal, or other mineable materials.
Vessels involved in illicit trade or sanctions evasion often use tactics like indirect routing, unscheduled detours, or cargo transshipment through a third or even a fourth country. While transshipment is expected in the global trade of goods - private sector entities, port operators, shipping associations, ship owners & operators, and crewing companies are encouraged to evaluate and scrutinize shipping routes and destinations that are unexpected or fall outside of regular operations.
Flag Hopping or False Flags
Another tactic used to trade illicitly or evade sanctions is falsifying a vessel’s flag or repeatedly registering the ship with new flag states - a tactic referred to as “flag hopping.” Organizations involved in the private sector are urged to be aware of the method and report any suspected instances of flag hopping or false flags to the appropriate authorities.
Complex Ownership and Management Documentation
The maritime shipping industry is fundamentally complex - involving numerous interactions with public and private entities. Those hoping to trade under sanctions often attempt to take advantage of the shipping industry’s complex nature by creating complicated business structures, including multiple levels of ownership and management, to hide the actual owner of a ship’s cargo or commodities - ultimately avoiding sanctions and enforcement.
Assessing Deceptive Shipping Risks and Adopting Risk Management Practices
While all organizations involved in maritime shipping and trade implement some level of due diligence or compliance programs in their operations, global maritime authorities also recommend that they continually adopt practices that help identify anomalies that could be a flag for sanctionable or illicit behavior. Below, we outline a few ways organizations can better prepare themselves for the ongoing threat of deceptive shipping.
Sanctions Compliance Programs
Authorities recommend that all entities involved in maritime trade adopt and follow sanctions compliance programs and train their crews to execute the programs successfully. Organizations are also encouraged to work closely with their partners, counterparties, subsidiaries, and affiliates to ensure compliant operations. Compliance programs should be audited regularly by third-party auditors to ensure programs are up-to-date and meet all necessary industry standards.
When consulting with counterparties, private sector entities are encouraged to be clear that they:
Conduct all activity consistent with US and UN sanctions
Have sufficient resources to ensure execution of compliance
Ensure subsidiaries and affiliates comply with adjacent policies
Have relevant controls in place for AIS monitoring
Have controls in place to screen and assess cargo in high-risk areas
Have controls to evaluate the authenticity of “bills of lading”
Have controls in place consistent with the most recent US and EU sanctions advisory
Implement AIS Best Practices and Contractual Requirements
AIS manipulation is regularly used for sanctions avoidance, and entities in the maritime industry should consider evaluating a ship’s history to identify any instance of previous AIS manipulation or AIS darkness during transit. Entities should promote the continuous transmission of AIS throughout the life of a journey - especially in areas that pose a high risk for sanctions evasion. If an event is identified as suspicious for AIS manipulation, private organizations are encouraged to investigate the event thoroughly and suspend partnerships with any vessel thought to have manipulated these data.
Monitor Ships During their Entire Transaction Lifecycle
Ship owners, managers, and charter companies should continuously monitor vessels as their risk assessment indicates. Monitoring strategies can include supplementing AIS with Long Range Identification and Tracking (LRIT) and receiving periodic LRIT signals. Port authorities in high-risk areas may decide to use LRIT as a risk management strategy, while also educating port workers about the deceptive shipping practices used to circumvent sanctions.
Vet Customers and Counterparties Thoroughly
Flag registry admins, insurance companies, financial institutions, ship managers, and ship charterers should consistently conduct customer and counterparty vetting based on risk analysis and assessments.
Examples of information to be vetted include:
Vessel Ownership Paperwork
Supply Chain Due Diligence
Exporters and shipping entities involved in maritime supply chains should conduct due diligence to ensure recipients and counterparties are not trading commodities that could trigger sanctions. Entities should also implement controls that help verify a place of origin or confirm that a ship has not taken part in STS transfers in high-risk areas. Copies of export licenses and shipping documentation may also be requested to verify an origin or destination.
Share Information with Regional and International Networks
Sanctions compliance programs often rely on information sharing to understand and mitigate threats and risks of sanctions avoidance. Entities are encouraged by maritime authorities to provide relevant and valuable information to partners, member organizations, and colleagues to enhance maritime domain awareness.