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Clyde & Co reviews sanctions and the maritime industry from the OFAC & OFSI advisories

In contrast to earlier guidance, the OFAC Advisory now sets out in detail what it expects in terms of sanctions risk management from a myriad of industry stakeholders.

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Patrick Murphy and John Keough, partners at international law firm Clyde & Co on Wednesday (5 August) published an article analysing some details found in the recently released OFAC sanctions "Advisory" directed at the maritime industry and compares it to a similar advisory released by OFSI in the UK.

The shipping and commodities industries have found themselves at the forefront of sanctions developments in recent months.  In May 2020, the US Departments of State and Treasury (the latter of which includes OFAC) and the US Coast Guard provided a sanctions "Advisory" directed at the Maritime, Energy and Metals Sectors and Related Communities (the OFAC Advisory).  The UK's Office of Financial Sanctions Implementation produced a similar advisory on 27 July 2020 (the OFSI Advisory).  It is no coincidence that these key sanctions bodies are looking closely at the maritime sector.

OFAC has historically leveraged its reach by co-opting critical elements of the global economy into enforcing its sanctions objectives.  It has traditionally looked to the banking industry to spearhead compliance given its gateway involvement in financial transactions, requiring it to filter out transactions that might be related to sanctioned persons or jurisdictions.  Now, as the United States continues its “maximum pressure” campaign of sanctions against Iran, North Korea, Syria and Venezuela in particular, OFAC is ratcheting up its intense focus on the maritime and commodities industries to require sanctions compliance.

OFAC's growing focus on due diligence in shipping surfaced in a series of advisory notes issued to the maritime industry from 2018 onwards - in respect of North Korea (February 2018 and March 2019), Iran (September 2019) and Syria (November 2018 and March 2019).  But the OFAC Advisory of May 2020 is far more comprehensive in both its scope and detail than any of the earlier notes. 

Firstly, it is not limited to guidance in respect of specific sanctions targets such as North Korea or Iran (although it does update earlier advisory notes for each of those regimes).  Rather, it is expressed to be comprehensive sanctions compliance guidance to the maritime community generally – as well as to the energy and metals sectors which were not so obviously targeted in the earlier notes.  In this regard the OFAC Advisory can be seen as an industry specific development of an earlier OFAC guidance, its "Framework for OFAC Compliance Commitments" published in May 2019, which set out OFAC's expectations to the world at large of what it expected the essential components of a Sanctions Compliance Program to look like.  

Secondly, in contrast to the briefer earlier guidance notes, the OFAC Advisory sets out detailed guidance of what OFAC expects from a host of key industry participants in terms of sanctions risk management and due diligence – from flag states, port state control authorities and insurers, to owners, charterers, crewing companies and even ship captains.  This more prescriptive guidance illustrates how OFAC expects each industry participant to expand its role in sanctions compliance.  It also highlights a laundry list of what it terms "deceptive shipping practices" that it encourages industry participants to be vigilant against,  and business practices to help identify sanctionable behaviour.  

Whilst the OFAC Advisory repeatedly states in footnotes that "is not intended to be, nor should it be interpreted as, comprehensive or as imposing requirements under U.S. law or otherwise addressing any particular requirements under applicable law," those in the shipping industry are well-advised to read the OFAC Advisory to mean that OFAC expects the maritime and commodities industries to be aware of the guidance and for industry participants to factor it into their sanctions compliance programs.  The adoption of some, or all, of the measures recommended by OFAC will no doubt be factors that OFAC would consider as mitigating any penalties if a violation occurred.  Over time, as industry participants adopt more stringent sanctions compliance measures, it will be difficult (and risky) for others not to do the same.

The OFAC Advisory reflects a heightened awareness of the shipping industry’s interest in cooperation measured with a balance of realism: The OFAC Advisory language reflects a measured approach based on feedback from ongoing discussion with industry sectors, including marine insurers among others.  However, it did not contain any list of questionable vessels and companies, as had been set forth in a prior Advisory, which caused confusion among marine insurers, flag states, shipowners and charterers alike, in assessing whether to continue business with such “suspect'' entities.

OFSI is a much newer body than OFAC; it has only existed in its current form since 2016 when it replaced HM Treasury's Asset Freezing Unit.  Like OFAC, OFSI has until now primarily focused on the financial services sector in leveraging private sector assistance to enforce sanctions.  It has produced helpful general guidance notes on financial sanctions as well as guidance for the charities and the import / export sectors.  But it has not, until now, turned its attention to the maritime industry.    

In common with the OFAC Advisory, OFSI identifies a number of what it terms "illicit and suspicious shipping practices," some of which are referred to by OFAC (AIS disablement, ship to ship transfers, falsified shipping documentation) and some of which are not (e.g. the use of cryptoassets).  Again, similarly to OFAC, it highlights country specific risk factors for the industry in relation to Iran, North Korea and Syria (although the Iran risks identified are notably different to OFAC's given the UK's continued commitment to the JCPOA). And, again similar to the OFAC Advisory, it sets out its views on what due diligence looks like for the industry, albeit at a high level: a proper understanding of the sanctions against high risk jurisdictions if you operate there, the appropriate use of AIS screening and "AIS switch off clauses", enquiries into ownership structures of counterparts and checks on suspected fraudulent documents.  

It is true to say that the OFSI Advisory is, overall, less specific and detailed than the OFAC Advisory.  For example, it does not provide the detailed lists of risk mitigation measures and due diligence protocols that the OFAC Advisory does for each specific industry participant, or as much detail on the structure of a sanctions compliance program for industry participants. 

But the overall thrust of the two Advisories is unmistakable: both governments expect the maritime and commodities industries to do their part in tackling sanctions evasion by the application of appropriate due diligence that identifies bad actors and acts on suspicious or deceptive shipping practices in much the same way as banks and insurers have borne the burden of identifying bad actors using the financial services industry.  The reach of the two enforcement bodies is extensive: OFSI has jurisdiction over a number of key maritime insurers who are based in the UK.  OFAC is responsible for the enforcement of US secondary sanctions that have the capacity to block and designate as sanctioned persons anywhere in the world, not just US persons.  The fact that these two notes have followed each other in short order is instructive: the industry has been put on notice that the two enforcement bodies are looking closely at it.  If the industry continues to aid sanctions evasion by not implementing the risk mitigation tools identified by OFAC and OFSI, the business can expect the sort of attention that the banking industry have received in recent years - - and had to improve their level of due diligence and compliance to match the regulators’ expectations. 

Further notes in this series will look in more depth at particular aspects of the two advisories and the latest developments on the sanctions front lines, including an analysis of what might constitute a reasonable risk-based program for sanctions compliance and due diligence in shipping sectors in light of OFAC and OFSI's focus on deceptive shipping practices, the evolving impact of US sanctions on non-US persons and companies, how to use (and not use) sanctions clauses in maritime agreements and marine insurance policies, and how AIS switch off clauses might (and might not) work.


Photo credit:
Fathromi Ramdlon
Published: 7 August, 2020

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Alternative Fuels

SMW 2024: All hands on deck to overcome net-zero fuel transition challenges, says panellists

Ammonia is touted as the long-term fuel solution, but safety concerns and novel technology could hinder its widespread application.

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SMW 2024: All hands on deck to overcome net-zero fuel transition challenges, says panellists

The article ‘All hands on deck to overcome net-zero fuel transition challenges: panellists’ was first published on Issue 4 of the Singapore Maritime Week 2024 Show Dallies; it has been reproduced in its entirety on Singapore bunkering publication Manifold Times with permission from The Nutgraf and the Maritime and Port Authority of Singapore:

By Matthew Gan

Ammonia is emerging as the key net-zero fuel of the future, but the maritime industry faces several challenges in its large-scale adoption.

A critical concern is safety. Ammonia poses safety  risks because of the high volume of explosive engine combustions, and the gas’ toxicity.

“Safety is the most crucial thing – both environmental and operator safety,” said Mr Hiroki Kobayashi, Chief Executive Officer at heavy industries firm IHI Asia Pacific, at the Net-Zero Fuel Pathways Panel during the Accelerating Digitalisation and Decarbonisation Conference on Wednesday.

Given the focus on safety, a substantial proportion of resources should be spent on ensuring ammonia technology is safe, added Mr Nicolas Brabeck, Managing Director at energy provider MAN Energy Solutions Singapore.

What will help, noted Mr Kenneth Widell, Senior Project Manager (Smart Technology Hub) at marine and energy solutions provider Wartsila, is having stakeholders share information on safe ammonia usage.

Another challenge is training seafarers to use novel technology. But panellists agreed that it should not deter the industry from pursuing the widespread adoption of ammonia.

“All this is new to us, but we can start training early, collect feedback, and adjust accordingly,” said Mr Leonardo Sonzio, Vice-President and Head of Fleet Management and Technology at global shipping company Maersk.

Stakeholders should also collaborate more, said Mr Robert van Nielen, Vice-President (Growth) at liquid storage logistics provider Advario. “There are many things to set up – supply chains, logistics, safety protocols and training – but we need to transition. And if we want to make this change in time, we must work together,” he said.

As moderator Mr Knut Orbeck-Nilssen, Chief Executive Officer (Maritime) at registrar and classification society DNV, put it in his closing remarks: “The fuel of the future, really, is collaboration.”

Singapore Maritime Week 2024 was organised by Maritime and Port Authority of Singapore from 15 to 19 April. 

 

Photo credit: Knut Orbeck-Nilssen / DNV
Article credit: The Nutgraf/ Maritime and Port Authority of Singapore
Published: 24 April 2024

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LNG Bunkering

TotalEnergies announces FID for first LNG bunkering hub in the Middle East

LNG production from LNG liquefaction plant in port of Sohar, as part of Marsa project, is expected to start by first quarter 2028 and is primarily intended for LNG bunkering in the Gulf.

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TotalEnergies announces FID for first LNG bunkering hub in the Middle East

Energy company TotalEnergies and Oman National Oil Company on Monday (22 April) announced the Final Investment Decision (FID) for the Marsa LNG plant project.

TotalEnergies had signed a Sale and Purchase Agreement (SPA) with Oman LNG to offtake 0.8 Mtpa of LNG for ten years from 2025, making the company one of the main offtaker of Oman LNG's production.

Finally, TotalEnergies (49%) and OQ Alternative Energy (51%), the national renewable energy champion, have confirmed being at an advanced stage of discussions to jointly develop a portfolio of up to 800 MW, including the 300 MWp solar project that will supply Marsa LNG.

Through their joint company Marsa Liquefied Natural Gas (Marsa), TotalEnergies (80%) and OQ (20%) launch the integrated Marsa LNG project which combines:

  • upstream gas production: 150 Mcf/d of natural gas, coming from the 33.19% interest held by Marsa in the Mabrouk North-East field on onshore Block 10, which will provide the required feedstock for the LNG plant. Block 10 production started in January 2023 and reached plateau in April 2024. The FID allows Marsa LNG to extend its rights in Block 10 until its term in 2050.
  • downstream gas liquefaction: a 1 Mt/y capacity LNG liquefaction plant will be built in the port of Sohar. The LNG production is expected to start by first quarter 2028 and is primarily intended to serve the marine fuel market (LNG bunkering) in the Gulf. LNG quantities not sold as bunker fuel will be off-taken by TotalEnergies (80%) and OQ (20%).
  • renewable power generation: a dedicated 300 MWp PV solar plant will be built to cover 100% of the annual power consumption of the LNG plant, allowing a significant reduction in greenhouse gas emissions.

The Marsa LNG plant will be 100% electrically driven and supplied with solar power, positioning the site as one of the lowest GHG emissions intensity LNG plants ever built worldwide, with a GHG intensity below 3 kg CO2e/boe. (for reference, the average emission intensity of LNG plants is around 35 kg CO2e/boe - this represents a reduction in emissions of more than 90%).

The main Engineering, Procurement and Construction contracts have been awarded to Technip Energies for the LNG plant and to CB&I for the 165,000 m3 LNG tank.

The Marsa LNG project will generate long-term employment opportunities and significant socio-economic benefits for the city of Sohar and the region.

The first LNG bunkering hub in the Middle East

The ambition of the Marsa LNG project is to serve as the first LNG bunkering hub in the Middle East, showcasing an available and competitive alternative marine fuel to reduce the shipping industry's emissions. 

“We are proud to open a new chapter in our history in the Sultanate of Oman with the launch of the Marsa LNG project, together with our partner OQ, demonstrating our long-term commitment to the country. We are especially pleased to deploy the two pillars of our transition strategy, LNG and renewables, and thus support the Sultanate on a new scale in the sustainable development of its energy resources”, said Patrick Pouyanné, Chairman and CEO of TotalEnergies.

“This very innovative project illustrates our pioneer spirit and showcases the relevance of our integrated multi-energy strategy, with the ambition of being a responsible player in the energy transition. By paving the way for the next generation of very low emission LNG plants, Marsa LNG is contributing to making gas a long-term transition energy.”

 

Photo credit: TotalEnergies
Published: 24 April 2024

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Biofuel

Carras “Aquataurus” bulker becomes world’s first vessel to receive ABS Biofuel-1 notation

Notation is assigned to vessels that use a biofuel blend of up to and including 30% bio fuel in compliance with IMO and ABS requirements, says ABS.

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Carras “Aquataurus” bulker becomes world’s first vessel to receive ABS Biofuel-1 notation

Carras (Hellas) S.A. received the ABS Biofuel-1 notation for its Aquataurus ultramax bulk carrier, the first vessel in the world to qualify, according to the classification society on Tuesday (23 April).

The notation is assigned to vessels that use a biofuel blend of up to and including 30% biofuel in compliance with IMO and ABS requirements.

ABS said biofuels’ suitability with existing power generation systems makes them a drop-in solution without the need for equipment retrofits or vessel redesign. 

The Aquataurus is equipped with a Wartsilla main engine and three auxiliary Yanmar engines and will serve trade routes worldwide.

“We are very proud to support Carras (Hellas) S.A. in their initiative to use biofuels as part of their sustainability strategy. Drop-in biofuels are a ‘here-now’ solution since they take advantage of existing fuel transport and bunkering infrastructure. ABS is well-positioned to use our deep industry knowledge of alternative fuels to support clients along their decarbonization journey,” said Stamatis Fradelos, ABS Vice President, Regulatory Affairs.

“Carras (Hellas) S.A. is pleased to be working with ABS to support our common goal of  reducing fleet emissions for the benefit of the environment. The use of biofuels allows shipowners to reduce their fleet carbon intensity without the cost of expensive retrofits or investments in newbuildings, and we are excited to be pioneers, together with ABS, of obtaining the assignment of the Biofuel-1 notation to Aquataurus,” said Captain Costas Liadis, President of Carras (Hellas) S.A.

 

Photo credit: ABS
Published: 24 April 2024

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