Steering clear of Iran petroleum sanctions
11 Jun 2020

July 14, 2015 was a landmark date in the long-running feud between Europe, the US and Iran. Iranian officials agreed to terminate the country’s nuclear programme, and in exchange, would benefit from the removal of crippling sanctions – including on petroleum exports.

Trade with the EU soared. Over the following three years, the total value of the bloc’s goods exports from Iran increased almost eightfold, from €1.25bn in 2015 to €9.45bn in 2018, according to European Commission figures.

But that momentum stalled in May 2018, when US President Donald Trump announced the US would withdraw from the agreement, officially termed the Joint Comprehensive Plan of Action (JCPOA).

Though the EU remained keen to keep the JCPOA alive, tensions continued to escalate between the US and Iran, and after Qasem Soleimani – commander of Iran’s elite Quds Force – was killed in a US air strike in January 2020, Iran’s government formally announced it too was abandoning the deal.

Because of the US’ fearsome secondary sanctions regime – which means non-US companies carrying out non-US activity can still be the subject of enforcement action – the end of the JCPOA made legitimate trade with Iran near impossible, aside from the provision of humanitarian aid such as medical supplies.

However, there are signs that the country’s potentially lucrative petroleum export industry has continued to stay active – meaning oil traders, banks and insurers could be at risk of unwittingly supporting sanctioned trade.

Suspicious vessels

Windward Maritime Analytics, a Tel Aviv-headquartered firm that carries out tracking and behavioural analysis on potentially suspicious ships, warns in a February report that it is becoming “increasingly difficult for companies operating in the maritime ecosystem to know which vessels are safe to do business with”.

In the six months prior to April 2020, Windward says 1,280 unique vessels exhibited suspicious behaviour in the waters around Iran – far higher than the equivalent figure for Russia, Venezuela or North Korea, which are also subject to US-imposed restrictions on trade. Of those, 496 were tankers and 784 were cargo ships.

Specific examples cited include two general cargo ships under the flags of Russia and Panama that were spotted “loitering” close to Iran, a port call from a Russian-flagged oil or chemicals tanker, and a port call from a Togo-flagged cargo ship. Port calls were the most common suspicious activity detected, with more than 3,500 taking place between November 2019 and April 2020.

Another sign of potentially illicit behaviour is vessels switching off their automatic identification system (AIS) transponders. Though initially developed to prevent collisions, AIS signals are now used to monitor ships’ whereabouts, and must remain switched on at all times.

In a case study of potential sanctions evasion linked to Iran provided to GTR, Windward says that in May 2019, 19 crude oil tankers – 3% of all crude tankers operating in the Gulf – switched off their AIS and “went dark” while operating in the area.

Between May and June, those 11 tankers made 68 ship-to-ship meetings in UAE waters, which included the transfer of cargo to other tankers.

That does not necessarily point to illicit activity – ship-to-ship transfers are not prohibited and AIS signals can easily be lost, particularly in crowded seas – but it is not always straightforward to identify which ships are conducting legitimate trade and which are not.

“While eight of those [19 tankers] were Iranian flagged and obviously a no-go for trade, the other 11 aren’t as easy to screen: seven were Panamanian, two Liberian and two Vietnamese,” Windward says. “None of them is registered by an Iranian company or made port calls in Iran, making them almost impossible to detect using existing vessel tracking and list-based screening.”

Sometimes, illicit activity only becomes apparent after the event.

One of those 19 vessels was the notorious Grace 1, which at that time was picking up cargo offshore then transporting it to Singapore. But shortly afterwards, Grace 1 found itself at the centre of a diplomatic row between the UK and Iran.

The ship was seized by British Royal Marines in July 2019 amid claims it was transporting 2.1 million barrels of Iranian crude oil to Syria. Foreign secretary Dominic Raab described the alleged sale as “part of a pattern of behaviour by the government of Iran designed to disrupt regional security”.

Though released after Iran’s government promised the ship’s load would not be delivered to Syria, Windward’s report says that prior to that incident its ties to the country would have been difficult to detect.

“Investigating its ownership would lead nowhere. According to Equasis, it is owned and managed by Singaporean companies, and its real, beneficial owner remains unknown, passing screening against databases of sanctioned entities (such as SDN lists) and rules relating to the country of registration,” it says.

“Going beyond ownership to investigate the vessel’s port calls and historical locations would also lead to a dead end. The Grace 1 was last detected in port almost two years ago, in Qingdao, China. Since then, it’s been operating continuously at sea; any port calls it may have made have been masked by turning off its mandatory AIS transmissions.”

For Windward, traders and banks can limit their potential exposure to illicit shipping activity by adding behavioural analysis to existing due diligence checks. In the case of Grace 1, it says “signs were there for at least six months”, including a 10-day period when the ship went dark near Bushehr, a port city in south-west Iran.

According to Ron Crean, Windward’s vice-president for commercial business, that shift towards behavioural analysis of ships’ movements is already being noted by regulatory authorities, including the US’ fearsome sanctions regulator, the Office of Foreign Assets Control (OFAC).

“We expect OFAC’s focus to become much more focused on ships’ behaviour, which is the hardest and most opaque element of this pattern analysis,” Crean tells GTR.

“You may be exposed as a company if you’re doing business with a vessel even if it’s not on a sanctions list. Additional checks for sanctioned activities based on vessel behaviour are now a minimum requirement.”

By John Basquill, Global Trade Review, 8 June 2020

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