These 3 Trends Are Shaping Maritime Sanctions Compliance
Maritime sanctions compliance is among the toughest nuts to crack across the global regulatory landscape. Why? Because it involves navigating a complex web of international laws, diverse stakeholders, and the movement of ships with cargo from port to port in different countries. It's also an area that experts describe as being in crisis. This report will review the current state of play and reveal the key trends.
But before we do that, let's quickly remind ourselves what maritime sanctions compliance is - and why it's so complicated.
What Is Maritime Sanctions Compliance?
Sanctions compliance in the shipping industry is tremendously challenging to get right.
Regulators such as the US's Office of Foreign Assets Control (OFAC) and the UK's Office of Financial Sanctions Implementation (OFSI) expect companies, such as shipping firms, to track their transactions, screen vessels and cargo, and promptly report any sanctions breaches.
And it's not just shipping firms stuck knee-deep in the quagmire of maritime sanctions compliance. Here are some more organizations that also face the same legal requirements:
- Port operators
- Freight forwarders
- Marine insurance companies
- Financial institutions involved in maritime transactions
- Charterers and brokers engaged in vessel transactions
- Exporters and importers utilizing maritime transport
It's important to point out that - and this is something many people forget - unlike anti-money laundering laws (AML), which apply to regulated financial services companies, sanctions laws apply to everyone.
But why is it so hard for any business involved in maritime industries to stay sanctions-compliant? The problem is that stakeholders, such as vessel owners and customers (usually corporate entities), never appear on one structured list - making the sanctions screening process difficult.
The decentralized nature of maritime operations, coupled with the involvement of multiple intermediaries, exacerbates the already challenging playing field.
Now we know more about maritime sanctions compliance, let's explore the three trends shaping it in 2024
1. Surging Sanctions Continue To Pose Serious Challenges
The 2022 Russian invasion of Ukraine led to a flurry of sanctions against Russia that continue today. As of 2024, we find ourselves in a world experiencing the highest number of sanctions in modern history.
It's not only Russia, of course. Sanctions against countries such as Iran are also shaping the current sanctions landscape, where the phrase "new round of sanctions announced" has become ubiquitous in the headlines.
Here's an example: Just last week (at the time of writing), US President Joe Biden imposed 500 new sanctions on targets connected to the death of Russian opposition leader Alexei Navalny, and the war in Ukraine.
But returning to the global maritime industry, how has the proliferation of sanctions impacted stakeholders? The answer: massively.
The situation on the ground right now, which will persist into 2024, is that the shipping industry (along with everyone connected to it) is struggling to keep up. One reason for this challenge is that many companies lack in-house compliance teams and access to the latest regulatory technology.
Is it a crisis? Some experts believe so.
2. Regulators Are Increasing the Pressure on the Maritime Industry
The next trend shaping maritime sanctions compliance in 2024 is increasing pressure by regulators on the shipping industry to get their houses in order.
But where is this pressure coming from?
The issue is this: Regulatory governmental agencies, such as the US's Office of Foreign Assets Control (OFAC) and the UK's Office of Financial Sanctions Implementation (OFSI), issue sanctions to apply pressure on countries such as Russia.
However, their impact is severely undermined if the sanctions are not enforced and easy to evade. Deceptive shipping practices in sanctions evasion are significant concerns for political leaders, which is why pressure is mounting in the maritime sector.
So, what actions have regulators taken?
For example, on February 28, OFSI refreshes its guidance for the maritime sector. A key takeaway from the report is updated recommendations for implementing additional due diligence practices, such as sanctions screening.
Here is another case to illustrate the point. Preparing for 2024, in December 2023, five US government agencies, including OFAC, issued a joint Know Your Cargo compliance note.
The joint note (open the full PDF by clicking the link) has three objectives.
First, it highlighted sanctions evasion tactics deployed by nefarious actors in maritime and other global transportation industries.
Second, the note revealed best practices to ensure compliance with US sanctions and export controls.
Third, it also reminded readers of the tremendous risk of breaking sanctions laws in international trade.
3. The Rise of AI Is Moving the Maritime Compliance Needle
The third trend driving maritime sanctions compliance in 2024 is the emergence of AI-powered compliance solutions - an area growing considerably fast. But how and why is AI a game-changer?
Let's examine a tangible example. A hard-to-solve problem in shipping is data quality. It's common for stakeholder data, including vessel owners, cargo contents, and customers, to miss structure (and may not even be digitized).
The data set resembles more of a jigsaw. So when a fundamental compliance process takes place, sanctions screening, finding true matches, as opposed to false positives, is a fundamental challenge. To illustrate this point, names appear in different phonetic alphabets or are missing information.
This process of getting it as accurate as possible is known as name matching. In 2024, AI algorithms are increasingly being developed to compare and identify similarities between names across different datasets - producing fewer false positives.
sanctions.io has developed a next-generation AI-driven name-matching solution - contact us to learn more.
Maritime Sanctions Compliance in 2024: Final Thoughts
The outlook for sanctions compliance in 2024 will continue as it started for the shipping industry: uncertainty over the growing number of sanctions and concern over growing regulatory interest in maritime compliance.
But here's the silver lining: RegTech solutions, like those incorporating AI in name-matching technology - as offered by sanctions.io - are now more affordable and accessible than ever.
sanctions.io is a highly reliable and cost-effective solution for sanctions screening. AI-powered and with an enterprise-grade API with 99.99% uptime are reasons why customers globally trust us with their sanctions screening needs. To learn more about how our sanctions, PEP, and criminal watchlist screening service can support your organization's compliance program:
We also encourage you to take advantage of our free 7-day trial (no credit card is required).
