Practical challenges and recommendations for financial institutions regarding the monitoring of AIS outages and suspicious vessel activity.

Executive summary

The U.S. Treasury Office of Foreign Assets Control (OFAC) and the United Kingdom's Office of Financial Sanctions Implementation (OFSI) advisories on shipping published in May and December 2020, respectively, contained a number of new recommendations for financial institutions (FIs) to recognise and implement. Many of the risk factors that FIs are encouraged to appreciate include specialist maritime information not readily available or widely known within the banking or insurance sector. For example, identifying commodities and trade corridors where transshipment and ship-to-ship (STS) transfers take place.

Additionally, the advisories place an increasing emphasis on Automatic Identification System (AIS) technology, used to track and monitor vessels in near real-time, as a potential due diligence risk factor. AIS sends information on the ships movement, speed, direction and other particulars via satellite and terrestrial stations. While AIS offers the ability to pinpoint the routes and patterns of a ship's travel, it does have a core weakness in that the AIS service can be disabled by the ship's crew, thus, preventing the tracking of the vessel. While there are legitimate reasons for AIS to be switched off, AIS manipulation and disablement can be performed by those seeking to bypass global economic sanctions. For example, vessels may turn off AIS when they approach sanctioned countries or conduct illicit STS transfers in high-risk locations.

The encouragement by OFAC and OFSI to investigate a vessel's historical AIS outages prior to business engagement, coupled with real-time monitoring of individual, risky transactions will potentially increase the burden of trade operations and risk/ compliance teams as they perform day to day tasks.

In this context, this paper will offer an overview of the shipping industry and how it relates directly to FIs in light of the OFAC and OFSI advisories. We will cover the key aspects of AIS and discuss the main elements and steps in a typical STS operation. Furthermore, practical measures and recommendations will be highlighted for potential implementation as part of a sanctions compliance programme dealing specifically with shipping.

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Department of the Treasury, ‘Sanctions Advisory for the Maritime Industry, Energy and Metals Sectors, and Related Communities’, Department of the Treasury, [website], [14 May 2020], https://home.treasury.gov/system/files/126/05142020_global_advisory_v1.pdf (as accessed November 2021); HM Treasury Office of Financial Sanctions Implementation, ‘Financial sanctions guidance for entities and individuals operating within the maritime shipping sector’, HM Treasury Office of Financial Sanctions Implementation, [website], [December 2020], https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948299/OFSI_Guidance_-_Maritime_.pdf (as accessed November 2021)