On 23 February 2018, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the largest North Korea-related sanctions tranche to date, aimed at disrupting North Korea’s illicit funding of its nuclear weapons and ballistic missile programs to advance the U.S. maximum pressure campaign. The action targeted 27 shipping and trading companies, 28 vessels and one individual across a range of countries and regions for facilitating North Korea’s coal and fuel shipments. With the U.S. Department of State and the U.S. Coast Guard, OFAC issued North Korea Sanctions Advisory: Sanctions Risks Related to North Korea’s Shipping Practices (hereinafter referred to as “the Advisory”) to alert persons globally to deceptive shipping practices used by North Korea to evade sanctions, which include:

• Physically altering vessel identification, including vessel names and IMO numbers
• Concealing the origin or destination of cargo through Ship-to-Ship Transfers
• Falsifying cargo and vessel documents, such as bills of lading, certificates of origin, invoices, packing lists, proof of insurance, and lists of last ports of call
• Disabling AIS to mask vessel movements or manipulating AIS

The advisory recommends that any signs of disabling or manipulating AIS transponders should be considered for potential illicit activity prior to processing transactions. Vessel operators should ensure that they have verified the vessel name, IMO number, and flag prior to engaging in STS transfers. Individuals and entities processing transactions pertaining to shipments potentially involving North Korean-flagged vessels should ensure that they request and review complete and accurate shipping documentation. Clearly communicate sanctions compliance obligations with parties to a transaction and leverage available resources to verify shipping data such as ship location, ship registry information, and ship flagging information.

Annex I of the advisory Overview of Sanctions Related to the Maritime Industry outlined some different prohibitions by the US and the UN, for example, the US prohibits direct or indirect exports and imports of nearly all goods while the UN only prohibits exportation and importation of a list of goods. The annex also explained activities that could respectively result in OFAC designations and UN designations.

Although the sanctions are only unilateral measures based on the US laws, it is necessary for shipowners operating globally to be aware of North Korea’s deceptive shipping practices, considering the role of the US in global trade and the dominance of US dollar in settlement. From an insurance perspective, shipowners, as the insureds, who violate US sanctions are unlikely to be covered for potential damage since the insurers may also be subject to sanctions. For this reason, Members are recommended to take sanctions risks seriously and conduct due diligence on ships, cargoes and parties to the shipping transaction to ensure compliance with legal requirements.

Note: this article does not cover all of the contents of the Advisory and should be used for information purposes only as many of them are subject to ongoing revision or changes. You may consult a professional or visit the OFAC website for more information.