Deceptive Shipping Practices
Approximately 90 percent of global trade involves maritime transportation. Malign actors constantly seek novel ways to exploit global supply chains for their benefit. The following list, while not exhaustive, summarizes several tactics utilized to facilitate sanctionable or illicit maritime trade linked to Iran, North Korea, and Syria. We recommend that persons conducting any transportation or trade involving the maritime sector continue to be vigilant against the following tactics in order to limit the risk of involvement with sanctionable or illicit activity, and that they exercise heightened due diligence with respect to shipments that transit areas they determine to present high risk.
1) Disabling or Manipulating the Automatic Identification System (AIS) on Vessels
AIS is an internationally mandated system that transmits a vessel’s identification and navigational positional data via high frequency radio waves. 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. Although safety issues may at times prompt legitimate disablement of AIS transmission, and poor transmission may otherwise occur, vessels engaged in illicit activities may also intentionally disable their AIS transponders or manipulate the data transmitted in order to mask their movement. The practice of manipulating AIS data, referred to as “spoofing,” allows ships to broadcast a different name, International Maritime Organization (IMO) number (a unique, seven- digit vessel identification code), Maritime Mobile Service Identity (MMSI), or other identifying information. This tactic can also conceal a vessel’s next port of call or other information regarding its voyage.
2) Physically Altering Vessel Identification
Passenger ships of 100 Gross Tonnage (GT) and upwards and cargo ships of 300 GT and upwards are required to display their name and IMO number in a visible location on the vessel’s hull or superstructure. 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.
3) Falsifying Cargo and Vessel Documents
Complete and accurate shipping documentation is critical to ensure all parties to a transaction understand the entities, recipients, goods, and vessels involved in a given shipment. Bills of lading, certificates of origin, invoices, packing lists, proof of insurance, and lists of last ports of call are examples of documentation that typically accompanies a shipping transaction. Authorities have found that sanctions evaders have falsified shipping documentation pertaining to petrochemicals, petroleum, petroleum products, or metals (steel, iron) or sand in order to disguise their origin. Falsifying certain documents (including customs and export control documents) is illegal in most countries, and irregularities may provide a basis to hold a shipment until its contents are validated. In addition, persons conducting transportation or trade involving the maritime sector are encouraged to conduct due diligence, as necessary, on documents that indicate or suggest that cargo is from an area they determine to be high-risk for sanctions evasion, notwithstanding any purported low-risk place of origin.
4) Ship-to-Ship (STS) Transfers
While ship-to-ship transfers (the transfer of cargo between ships at sea) can be conducted for legitimate purposes, STS transfers—especially at night or in areas determined to be high-risk for sanctions evasion or other illicit activity—are frequently used to evade sanctions by concealing the origin or destination of surreptitiously transferred petroleum, coal, and other material.
5) Voyage Irregularities
Malign actors may attempt to disguise the ultimate destination or origin of cargo or recipients by using indirect routing, unscheduled detours, or transit or transshipment of cargo through third countries. Although transit and transshipment are common in the global movement of goods, private sector entities, including flag registry management companies, port operators, shipping industry associations, ship owners, operators, and charterers, ship captains, and crewing companies are encouraged to scrutinize routes and destinations that deviate from normal business practices, as appropriate.
6) False Flags and Flag Hopping
Bad actors may falsify the flag of their vessels to mask illicit trade. They may also repeatedly register with new flag states (“flag hopping”) to avoid detection. We recommend that the private sector be aware of and report to competent authorities any instances of a vessel owner or manager who continues to use a country’s flag after it has been removed from a registry (i.e., “deregistered”), occurrences of a ship claiming a country flag without proper authorization, or instances when a vessel has changed flags frequently in a short period of time in a suspicious manner consistent with flag hopping. Specific measures for different parts of the private sector are included in the industry guidance accompanying this report as Annex A.
7) Complex Ownership or Management
Global shipping is inherently complex and involves multiple interactions with both government and private sector entities. Bad actors attempt to take advantage of this complexity through the use of complex business structures, including those involving shell companies and/or multiple levels of ownership and management, to disguise the ultimate beneficial owner of cargo or commodities in order to avoid sanctions or other enforcement action, among other reasons. Bad actors also may engage in a pattern of changes in the ownership or management of companies or in the International Safety Management Code (ISM) management companies used. If private sector entities are unable to reasonably identify the real parties in interest in a transaction, they may wish to consider performing additional due diligence to ensure it is not sanctionable or illicit.