On September 4, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed sanctions on a shipping network it said was run by Iran's Revolutionary Guards, alleging it sold millions of barrels of oil to benefit Syrian President Bashar al-Assad. According to an advisory that OFAC issued the same day, the United States is targeting private and public sector entities around the world that engage in sanctionable conduct relating to shipping petroleum and petroleum products from Iran to Syria, China, and elsewhere. OFAC is implementing these sanctions by adding 16 entities, 10 individual and 11 vessels suspected of being involved in such sanctionable activities to its List of Specially Designated Nationals and Blocked Persons (SDN List). Among them was Mehdi Group, an India-based ship management company that OFAC alleges handles crewing and management of at least 7 of the vessels used in the Iranian oil smuggling network.
Iranian oil shipments create significant sanctions risk for entities and individuals in the shipping industry, including shipping companies, bunkering service providers, vessel owners, managers, operators, insurers, and financial institutions. Those who knowingly engage in significant transactions for the purchase, acquisition, sale, transport, or marketing of petroleum or petroleum products from Iran, or knowingly provide significant support to an Iranian person on the SDN List, such as the National Iranian Oil Company (NIOC), the National Iranian Tanker Company (NITC), and the Islamic Republic of Iran Shipping Lines (IRISL), are at serious risk of being targeted by the United States for sanctions, regardless of the location or nationality of those engaging in such activities.
OFAC administers and enforces a comprehensive trade embargo against Iran, as set forth in the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR), issued under the authority of the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-06 and other authorities. The ITSR prohibits most direct and indirect transactions with Iran by U.S. persons or within the United States, unless authorized by OFAC or exempted by statute. Absent an applicable exemption or express OFAC authorization, foreign persons, including foreign financial institutions, are prohibited from processing transactions to or through the United States in violation of these prohibitions, including transactions through U.S. correspondent accounts for or on behalf of Iranian financial institutions, other persons located in Iran, or where the benefit of those services is otherwise received in Iran.
In addition, non-U.S. persons, including foreign financial institutions, may be subject to U.S. sanctions for knowingly conducting significant transactions for, or knowingly providing significant support to, certain Iran-related persons on the SDN List, including NIOC, NITC, and IRISL, unless an exception applies. Further, non-U.S. persons that knowingly own, operate, control, or insure a vessel that transports crude oil exported from Iran could be subject to secondary sanctions under the Iran Sanctions Act. Even if an exception applies, the involvement of the Islamic Revolutionary Guard Corps (IRGC) or any other person designated in connection with Iran’s support for international terrorism or its proliferation of weapons of mass destruction or their means of delivery is nonetheless subject to U.S. sanctions.
The risk of engaging in sanctionable activity or processing prohibited transactions can be potentially mitigated by implementing the following types of measures:
• Avoid providing underwriting services or insurance or reinsurance to any Iranian person on the SDN List or transactions involving the designated entity Kish Protection & Indemnity Club (aka Kish P&I), a major Iranian insurance provider;
• Conduct appropriate due diligence to corroborate the origin of shipments of petroleum and petroleum products when transported or delivered by vessels exhibiting deceptive behaviors or where connections to sanctioned persons or locations are suspected;
• Employ “know your customer” due diligence risk mitigation measures consistent with Financial Action Task Force standards designed to combat money laundering and terrorist and proliferation financing;
• Be wary of vessels that appear to have turned off their Automatic Identification Systems while operating in the Mediterranean and Red Seas and near China. Any other signs of manipulating AIS transponders should be considered red flags for potential illicit activity and should be investigated fully prior to continuing to provide services to, processing transactions involving, or engaging in other activities with such vessels;
• Request and review complete and accurate shipping documentation. Satisfactory shipping documentation should reflect the details of the underlying voyage and the relevant vessel(s), flagging, cargo, origin, and destination. Any indication that shipping documentation has been manipulated should be considered a red flag for potential illicit activity and should be investigated fully prior to continuing with the transaction.
Individuals and entities engaged in certain transactions involving petroleum or petroleum products from Iran or certain Iran-related persons on the SDN List should be aware that engaging in such conduct may result in designation on the SDN List or other sanctions under U.S. sanctions authorities.
In addition, violations of the ITSR could result in civil enforcement actions or criminal penalties for persons or transactions subject to U.S. jurisdiction. Persons that violate the ITSR can be subject to significant civil monetary penalties.
King & Wood Mallesons has an industry leading economic sanctions team. If you have any questions related to economic sanctions matters, do not hesitate to contact Aaron Wolfson at [email protected] or Meg Utterback at [email protected]