On their face, the new U.S. sanctions look very targeted toward the Russian government. However, when we look closer at the measures, we see the wide-ranging risks they pose to the shipping industry and the sizable challenge maritime actors face to manage the new risk.
The new sanctions come in three main prongs for the shipping industry: Crimea, sanctions evasion, and a new Executive Order. The designations related to Crimea remind the maritime sector of the continued risks of any activity near the peninsula, and the sanctions evasion targets highlight the expansive transcontinental networks used to circumvent sanctions.
With the help of Windward, we can look at the sanctions evasion risk around the Crimean peninsula, which is sizable. In March 2021 alone we have seen suspicious activity from over 500 vessels conducting 3327 ship-to-ship meeting.
305 of those vessels having 682 instances of lost transponder activity around the peninsula. While this activity is suspicious, knowing which of these vessels pose unacceptable risks is a determination that must be made by each maritime actor applying these insights to a strong and well-defined sanctions risk appetite and management program.
Looking at the third prong, the new Executive Order (E.O.) “Blocking Property With Respect To Specified Harmful Foreign Activities Of The Government Of The Russian Federation” establishes a new expansive framework for sanctions on Russia. The initial use of the E.O. has been limited, but the Biden administration has made it clear the scope for future action is vast, with the U.S. Treasury stating in their press release, “the E.O…elevates the U.S. government’s capacity to deploy strategic and economically impactful sanctions to deter and respond to Russia’s destabilizing behavior.”
The new E.O. now enables the U.S. to designate any sector of the Russian economy, any company operating at the direction of the Russian government, as well as any Russia-linked efforts to aid sanctions circumvention of governments designated by the U.S. Looking comprehensively at these new authorities and the powerful role of the Russian state in the country’s commerce, maritime actors are faced with sanctions risks that have never been greater.
In trying to define the scope of the potential sanctions risk for the shipping sector, we gain confirmation of the challenge facing the shipping industry. Considering that any “instrumentality” of the Russian government can now be designated, if we look just at active Russian flagged vessels, we find a pool of 1766 vessels owned by 971 companies across the full spectrum of vessel types from tankers to ROROs (roll-on/roll-off). Certainly not every Russian vessel will be a priority or meet the criteria for designation, but even when trying to look more narrowly at the economic sectors most likely to be targeted future designation rounds, we still face the challenge of assessing the risk of 650 vessels with 392 owners that handle crude, gas, petrochemicals, mined materials and timber.
The silver lining to the expansive problem is that because the measures have been defined, maritime actors are in the fortunate position to proactively understand their exposure and prevent risks from becoming financial, reputational, and regulatory consequences. Gaining the business advantage from seizing this opportunity can effectively be done by using the insights provided by Windward to define and understand the scope of the exposure, including understanding ownership structures to better identify links to the Russian government, with the help of Sanctions Advisory to maintain a robust sanctions risk management framework that is able to apply our unique insights of Washington’s likely next moves.
The materials contain supportive data and insights provided by Windward Ltd. (the “Windward Insights”). Windward Insights are provided “As Is”, for informative purposes only. Windward Insights are the result of Windward’s internal processes and evaluations only and are based on machine learning and artificial intelligence models, which, by nature, do not attest in any manner or form, to any compliance or non-compliance with any external standard, provision, regulations or law. Windward does not warrant that the Windward Insights referenced here are error free. The recipient is encouraged to examine the information provided here together with additional means at his disposal, before reaching any conclusion and/or taking any actions.
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