Financial institutions should write additional clauses in letters of credit (L/Cs) issued for oil and petroleum transactions in areas of East Asia to help prevent North Korea taking delivery of shipments in contravention of an embargo meant to limit the country's imports according to the UN Panel of Experts monitoring global compliance with sanctions imposed on Pyongyang.

It says enablers in China, Taiwan and elsewhere in the region using a network of shell companies to disguise payments and activities have enabled several illicit ship-to-ship transfers and tampered with vessel identity to breach the embargo that limits imports of refined petroleum products to North Korea to 500,000 barrels per year.

Advice to financial institutions

Financial institutions should include automatic identification system (AIS) screening and vessel due diligence risk assessment clauses into L/Cs, loans and other financial instruments issued to commodity traders involved in the oil and petroleum products industry in the region according to the panel.

It also recommends that financial institutions involved in the area expand transaction monitoring programmes to incorporate AIS screening for both client and counterparty vessels.

Risk indicators

The panel's report says companies involved in illicit ship-to-ship transfers of refined petroleum to North Korea use a series of shell companies to make payments for shipments that allegedly evade the embargo.

Complicit actors have also been known not to submit owner and management information on commercial maritime platforms or may be listed as undisclosed interests in the vessel's onward sale, likely to disguise the ultimate beneficial owner and to evade sanctions.

Other risk indicators include layered ownership and management structures, use of front companies and shell companies, and engaging multiple intermediaries removed from the actual owner.

The UN Panel of Experts report on North Korea, available in several languages, can be downloaded from here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.