US sanctions on Iran moved centre stage once more at the start of May as waivers – that had allowed eight countries to continue buying Iranian oil – expired. While on the surface it may seem like we’ve seen it all before, in actual fact, this time is very different.
This is because on March 29, 2019, the US Treasury’s Office of Foreign Assets Control (Ofac) issued new guidance as to what it expects from the compliance regime of everyone in the maritime supply chain: banks, energy traders, bunker service providers and other parties. This requires them to proactively screen the operations of every vessel they are doing business with. This puts the burden of implementing various Ofac sanctions firmly on the back of the business community, obliging them to analyse several million pieces of data every day.
Up until now, organisations in the maritime ecosystem have screened vessels and counterparties against lists of restricted parties and vessels from Ofac, the European Union, the UK and United Nations, along with organisation-specific red-flag parameters. These could be things such as the use of flags of convenience (using the flag of a country under which the ship is registered) or lack of information regarding beneficial ownership, or prior port calls in sanctioned countries. If the review process clears a vessel (ie produces no red flags), the transaction can proceed. If the process raises red flags, it can’t.
The UN and Ofac have made it clear that this method of compliance is no longer fit for purpose, because it ignores data on vessel behaviour that is commercially available and highly indicative of sanctions evasion risk. Energy traders and banks will be expected to update their compliance controls to account for specific types of vessel behaviours that are red flags for sanctions evasion.
These include ship-to-ship transfers (STS), dark activity and identity tampering. Indeed, the UN Security Council report, published in January 2019, changed the game by specifically stating: “Ship-to-ship transfers involve increasingly advanced evasion techniques. The disguising of vessels through ship identity theft and false automatic identification system (AIS) transmissions is not being taken into account by most global and regional commodity trading companies, banks and insurers, whose due diligence efforts fall extremely short”.
Imagine a trader or banker or bunkering service provider who now has to investigate two out of every three tankers before sealing a deal. If everyone played it safe and simply avoided all of them, chaos would ensue due to a lack of supply
Ami Daniel, Windward
So, what do businesses need to do to ramp up their due diligence? Let’s look at the data. There are 2,750 operating crude-oil tankers in the world. In March of this year, 529 (19%) visited the Arabian Gulf. Of those, 352 tankers (two-thirds of the total) had gaps in their AIS transmissions for more than eight hours – gaps that are defined by Ofac as a red flag for sanctions evasion.
And this is not just a problem in the Gulf. In April, those same tankers made port calls worldwide – 32 to European posts and 109 in Asia. Imagine a trader or banker or bunkering service provider who now has to investigate two out of every three tankers before sealing a deal. If everyone played it safe and simply avoided all of them, chaos would ensue due to a lack of supply.
Piecing together this puzzle requires a fusion of maritime expertise and data science. Our estimate is that there are around 100,000,000 pieces of data that need to be analysed every day. The answer to big data and small resources is artificial intelligence. Using AI to model STS, dark activity and identity tampering reduces the list of potential sanctions evaders in our Gulf example to 29 vessels – a mere 5% of the total.
This kind of deep analysis simply can’t be done manually, at least not in the time required to support real-world businesses. Furthermore, compliance officers rightly say they want a method for seamlessly integrating vessel operational behaviour data into their existing screening process, so that vessels are automatically flagged whenever indicators suggest sanctions evasion risk.
Past experience tells us about the potential cost to any business of coming up short on sanctions. Ofac can levy penalties of up to almost $300,000 per violation for inadvertent violations; and criminal penalties of up to $1 million per violation, and jail time of up to 20 years, for wilful violations. So, getting the right data and recommendations every day is a small price to pay for peace of mind.
Ami Daniel is chief executive of maritime analytics firm Windward.