Know Your Cargo: Strengthening Compliance in Maritime and Transportation Logistics
The complexities of global supply chains present both opportunities and risks for entities involved in the movement of goods. The Quint-Seal Compliance Note—issued by the Departments of Commerce, Treasury, Justice, State, and Homeland Security—emphasizes the importance of powerful compliance measures to prevent sanctions and export control violations. Companies operating within maritime and broader transportation industries must proactively mitigate the risk of facilitating illicit activities.
Understanding Sanctions and Compliance Risks
The global trade network involves multiple stakeholders, including vessel owners, exporters, brokers, freight forwarders, insurers, and financial institutions. However, this intricate ecosystem is vulnerable to exploitation by malign actors seeking to bypass U.S. sanctions. These actors employ various deceptive practices, including:
- Manipulating vessel location and identification data (e.g., disabling or falsifying Automatic Identification System (AIS) signals).
- Falsifying cargo documentation to obscure a shipment’s true origin or destination.
- Engaging in ship-to-ship transfers to disguise illicit cargo movement.
- Using abnormal shipping routes and frequent vessel re-registrations (“flag hopping”) to evade scrutiny.
- Operating through opaque ownership structures to conceal beneficial ownership.
Failure to detect and prevent these activities can expose companies to severe legal, financial, and reputational consequences.
Best Practices for Strengthening Compliance
To ensure adherence to U.S. export controls and sanctions regulations, industry participants should implement a risk-based compliance framework, including:
- Developing Comprehensive Compliance Programs
- Establish written policies and procedures aligned with U.S. government guidance.
- Communicate compliance expectations to all business partners.
- Enhancing Location and Shipment Monitoring
- Conduct due diligence on vessel movement histories to detect irregularities.
- Investigate gaps in AIS data and implement contractual clauses prohibiting illicit activities.
- Strengthening Due Diligence on Counterparties
- Conduct Know Your Customer (KYC) screenings and vet counterparties using government lists like the U.S. Consolidated Screening List.
- Verify the accuracy of bills of lading, licenses, and other shipping documents.
- Improving Supply Chain Oversight
- Monitor cargo flow to prevent unauthorized diversions.
- Use open-source intelligence and commercial satellite imagery to verify reported shipment routes.
- Industry-Wide Information Sharing
- Participate in industry forums to exchange risk intelligence and compliance best practices.
- Report suspicious activities to relevant U.S. authorities.
Enforcement Actions and Legal Consequences
The Department of Justice (DOJ) and other enforcement agencies have aggressively pursued civil and criminal actions against companies and individuals attempting to evade U.S. sanctions and export controls. Recent cases have targeted networks tied to sanctioned entities in Iran, Russia, North Korea, and China, demonstrating that non-compliance can result in asset seizures, financial penalties, and criminal prosecution.
By institutionalizing compliance measures and actively monitoring cargo movements, companies can safeguard their operations, ensure regulatory compliance, and contribute to a more secure global trade environment.
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