Navigating shipping’s ever-changing sanctions landscape

With increasing sanctions, divergent programmes, and confusing regulations, shipping companies must adapt and invest heavily in compliance measures.

Speaking at a Reed Smith seminar at London International Shipping Week, Alexander Brandt, a partner in the law firm’s Transportation Industry Group and the lead member of its sanctions practice, highlighted the importance of proactive engagement in shaping the future of sanctions in shipping.

Keeping up with the evolving sanctions landscape has become a formidable challenge for industry players, Brandt said, emphasising three “inescapable truths” that have emerged in recent years.

First, he noted the surge in sanctions. “There are just more sanctions. There are more and they come out very quickly.” While the pace may have slowed somewhat of late, the sanctions environment remains dynamic, demanding constant vigilance from industry professionals.

Second, sanctions are divergent, with sanctions programmes diverging even among allied nations. The EU, the UK, and the US, while in regular communication, have been crafting increasingly distinct sanctions policies over the past two years.

Third, current sanctions programmes are confusing. Brandt noted: “The sanctions programs are confusing because they’ve been written by people who have been brought into the job and their department has been told ‘right, you’re up, you’re going to draft a sanctions policy’.” This lack of clarity can lead to unexpected consequences, as exemplified by the chaos caused by non-binding FAQs issued by the EU.

“The reality is the genie’s out the bottle on the EU and the UK side,” he said. “The US has been here more than a decade now and OFAC, the Dept of Justice, and the Homeland Security State Department are well organised departments. They work together and we know where we stand. On the UK and the EU side until February of last year this was a bit of a backwater, to be honest. As we move into more unsettled geopolitical times, those regulators have become more comfortable in their skin and so you will see more sanctions – that’s what happened on the OFAC side.”

Expanded scope

Brandt highlighted the significant changes occurring in the industry. He noted that “traditional safe harbours” like grain are no longer immune to sanctions, with even clothing being subject to restrictions in certain contexts. This expanded scope necessitates the development of robust compliance policies and infrastructure for shipping companies. Compliance, he said, is a non-delegable responsibility.

One of the key issues Brandt addressed is the challenge of dealing with different sanctions regimes in the UK, the EU, and the US. Shipping clients often operate in multiple jurisdictions, making it necessary to obtain licenses and authorisations from various authorities.

“In the last couple of months, my team has spent a huge amount of time and effort working to try and get authorisations across the US, EU and the UK. There is unanimity at government level that this needs to be done and this is a supply chain that needs to be protected, but actually the amount of money and time that is required to do that, not all clients can afford. That throws a lot of sand in the gears to trade,” he said.

Brandt acknowledged that while the playbook for dealing with sanctions is becoming increasingly familiar, he doesn’t underestimate the potential for upset on the horizon. “We now know what the playbook looks like. Sadly, I think there are other geopolitical storms approaching.” This statement underscores the unpredictability of international relations and the potential for sanctions to be imposed or lifted in response to rapidly changing geopolitical dynamics.

He expected that similar measures could be adopted in different contexts. This highlights the interconnectedness of global politics and the ripple effects that sanctions can have across various industries and regions.

Change afoot

Brandt also emphasised the rapid changes occurring in sanctions programmes, which he described as a significant headache for businesses. These changes necessitate constant vigilance and adaptability on the part of businesses engaged in international trade.

One of the most pressing issues that Brandt highlighted is the need for clearly drafted regulations. He advocated for regulatory clarity as a means to navigate the “grey” areas that often exist in sanctions policies. “The real battleground is all the grey,” he said. “The grey on the EU and the UK side is enormous.” These grey areas can lead to practical problems for businesses, especially when it comes to assessing risk and making informed decisions.

“If you’ve got the same law, then the law is the law and you follow it and that’s fine. But you’ve got a ship owner who says, ‘I can tolerate that much grey’, and then the insurer or the financier says, ‘actually the incentive for me to tolerate that much risk is just not there; my tolerances is here’. That has been the theme of the last few years,” he said.

“Then you have your contractual language that was effectively drafted in a pre-Ukrainian war era, when we were just worried about US secondary sanctions.

Brandt underscored the importance of aligning with regulators to ensure that everyone is on the same page. He believed that businesses can play a crucial role in helping regulators understand the nuances of their industries. “If there is one area that we can all help ourselves it is to try and help the regulators understand what it is they’re legislating for and provide meaningful guidance.” This collaboration between industry stakeholders and regulators can lead to more effective and practical sanctions policies.
Source: Baltic Exchange