Presentation used during thesis defense session for the Masters Ship Agency Management, Finance and Operations (2019, University of Genoa, Italy). Abstract When confronted with the introduction of new sanctions regulations, each potentially interested party, be it an individual or an organization, must adapt its behaviour. A commercial enterprise will pursue the goal of achieving sanctions compliance while limiting as much as possible disruption of its business operations. This compromise proves often a difficult objective to reach. The rigid operational constraints imposed by trade sanctions require special consideration because there is a lot at stake in our times. Even a single non-compliance incident can bring substantial damage to essential company values such as its reputation, its profitability and its relations with business partners... (full text available on Academia: https://www.academia.edu/42002230/Sanction_compliance_in_the_maritime_transport_industry_-_Focus_on_container_shipping_companies)

1. Genoa, 30 October 2019
Sala delle Lauree – Dipartimento di Economia
2nd level University Master
Ship agency management, finance and operations
1st edition
Sanction compliance in the maritime transport industry.
Focus on container shipping companies.
Supervisor: Prof. Pierangelo Celle
Candidate: Marna Parodi
UNIVERSITY OF GENOA
Italian Centre of Excellence on Logistics, Transport and Infrastructures
(CIELI)

2. Agenda
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 2
1 Introduction
2 Economic sanctions – general concepts
3 Current trade sanctions scenarios relevant for the shipping industry
(last update: October 2019)
4 Noteworthy non-compliance incidents involving shipping
companies
5 The role of state institutions in promoting a risk management
culture: the OFAC guidance
6 The impact of trade sanctions on operations (with insights from a
container shipping company)
7 Conclusion - next steps
8 Acknowledgments

3. 1 - Introduction
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 3
A single non-compliance incident can bring substantial damage
to essential company values such as reputation, profitability
and relations with business partners
Trade sanctions are of crucial importance for shipping
operators. Shipping companies must try to achieve a
difficult compromise:
minimize impact on operationsassure sanction compliance and
Why a shipping company should care about it?
What is at stake?

4. 1 - Introduction
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 4
Count Dracula smuggled itself
from Transylvania to London on
a cargo ship
A top of the line armoured
Mercedes found its way into
North Korea
one single non-compliance incident
Supply chain vulnerability

5. 2 - Economic sanctions – general concepts
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 5
What are economic sanctions and
how do they work
The European Commission explains sanctions as follows: “It is the
policy of the European Union to intervene when necessary to prevent
conflict or respond to emerging or actual crises. In certain cases, EU
intervention can take the form of restrictive measures or 'sanctions’.”
The United Nations Security Council uses the term “sanctions
measures” and defines them as “a broad range of enforcement
options that do not involve the use of armed force”.
The U.S. Office of Foreign Assets Control administers and enforces economic
sanctions programs primarily against countries and groups of individuals, such as
terrorists and narcotics traffickers. The sanctions can be either comprehensive or
selective, using the blocking of assets and trade restrictions to accomplish foreign
policy and national security goals.
(“Whati is OFAC and what does it do?”, online https://www.treasury.gov/resource-
center/faqs/Sanctions/Pages/faq_general.aspx#basic)

6. 2 - Economic sanctions – general concepts
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 6
Red flag Compliance mechanism
Falsifying Cargo and Vessel Documents Ship-to-Ship “know your vessel” checks.
Verify Cargo Origin
Ship to Ship (STS) Transfers Ship-to-Ship “know your vessel” checks
Disabling Automatic Identification System (AIS) Monitor for AIS Manipulation
Vessel Name Changes Vessel due diligence
Trade sanctions and the maritime business: warning signs
of sanction evasion and best practices for the sector
Best practices related to mitigation of sanctions evasion
Shipping documentation review
Clear communication of sanctions requirements to international partners
Know Your Customer due diligence

7. 3 - Current trade sanctions scenarios relevant
for the shipping industry (*)
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 7
(*) last update: October 2019)
Four sanctions frameworks and programs have been
causing considerable and long-lasting consequences for the
shipping industry
Iran Russia
Syria Venezuela

8. 3 - Current trade sanctions scenarios relevant
for the shipping industry – Iran (*)
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 8
The U.S. pressure on the international business
community and the maritime sector in particular
is ever-growing.
OFAC advisories are not exclusively intended
for the maritime petroleum business segment.
Iran
Iran Container Port Throughput | 2008 - 2017 | Yearly | TEU
The negative impact of
economic sanctions on Iran
related container traffic is
undeniable
(*) for detailed information about this sanction
framework, see Master Thesis, p. 14-22)

9. 3 - Current trade sanctions scenarios relevant
for the shipping industry – Russia (*)
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 9
While commentators seem to agree about the fact
that sanctions imposed on Russia did not achieve
the expected goals, opinions about their effect on
trade are rather divergent.
Russia Container Port Throughput | 2008 - 2017 | Yearly | TEU
Whatever is the stance
taken, it is undeniable that
economic sanctions against
Russia have had an
unsettling effect on the
operations of whichever
subject entertains business
relations with Russia.
Russia
(*) for detailed information about this sanction
framework, see Master Thesis, p. 22-25)

10. 3 - Current trade sanctions scenarios relevant
for the shipping industry – Syria (*)
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 10
Syria Container Port Throughput | 2008 - 2017 | Yearly | TEU
Shipping operators have
already noticed some
tentative signs of recovery
in Syria, but for the time
being, they keep aligning to
a very strict compliance
policy.
RussiaSyria
The role played by war and corruption in Syrian
economy cannot be underestimated, but
commentators generally agree on the disastrous
effects of sanctions for civilians and the
country’s economic outlook.
(*) for detailed information about this sanction
framework, see Master Thesis, p. 26-27)

11. 3 - Current trade sanctions scenarios relevant
for the shipping industry – Venezuela (*)
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 11
Venezuela represents an interesting and delicate
scenario because EU sanctions are still very mild
compared to the U.S. program, which […] is
constructed in such a way as to pose a risk of
sanctions for all trade with Venezuela in the
petroleum sector.
Venezuela Container Port Throughput | 2008 - 2017 | Yearly | TEU
The case of the Italian PB
Tankers and the cautionary
value given by OFAC to
this incident: “Delistings
Promote Positive Changes
in Behavior”
RussiaVenezuela
(*) for detailed information about this sanction
framework, see Master Thesis, p. 27-29)

12. 4 - Noteworthy non-compliance incidents
involving shipping companies
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 12
3,504,533
772,442,861
200,735,996
91,650,055
1,139,158,727
137,075,560
1,205,225,807
599,705,997
21,609,315
119,527,845
71,510,561
1,288,112,800
0
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
(YTD)*
OFAC Monthly Penalties/Settlements Total in USD
104
27 27
21
16
27
22
15
9
16
7
22
0
20
40
60
80
100
120
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (YTD)*
OFAC Aggregate Number of Penalties or Settlements
OFAC’s policy is currently showing an acceleration in the number of designations of
entities or individuals, and an increase of magnitude of the penalties imposed.
These trends in the U.S. sanctions policies are deeply felt by the business.
This is a global challenge for the private sector, especially when companies face
complex scenarios involving secondary sanctions or OFAC’s 50% rule.
Over the past 25 years, sanctions compliance has become a crucial
matter in the shipping world

13. 4 - Noteworthy non-compliance incidents
involving shipping companies
2010: Maersk Line Ltd and two other U.S. subsidiaries of
the Danish A.P. Moller-Maersk group paid to OFAC a sum of
$3,088,400 to settle allegations of violations of the Sudanese
and of the Iranian Sanctions U.S. regulations.
2019: Mid-Ship Group, a shipbroker based in Port
Washington, N.Y., agreed to pay $871,837 to settle
violations of sanctions involving financial transactions
from charter party agreements between the OFAC
designated Islamic Republic of Iran Shipping Lines
(IRISL) and two of its ships.
April 2019: the Italian family-owned company PB Tankers was
designated by OFAC under the accusation of having made possible the
delivery of oil products from Venezuela to Cuba. The company, after
having suffered extremely serious financial and reputation damages,
was delisted, in record time, in July.

14. 5 - The role of state institutions in promoting a
risk management culture: the OFAC guidance
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 14
In the “Guidance on the Sanctions Compliance Framework”,
OFAC sets out its views and expectations with regard to
commitments to be taken by any organization or entity that may
under any way be affected by U.S. sanctions programs
Five essential elements
of a Sanction
Compliance Program
Risk Assessment
Management Commitment
Internal Controls
Testing and Auditing
Training

15. 5 - The role of state institutions in promoting a
risk management culture: the OFAC guidance
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies.
15
OFAC also provides a non-comprehensive list of the most common
root causes for apparent violations of the regulations falling under
its administration
Root causes
for violations
2. Misinterpreting, or Failing to Understand
the Applicability of, OFAC’s Regulations
1. Lack of a Formal OFAC
SCP
3. Facilitating Transactions by Non-U.S. Persons (Including
Through or By Overseas Subsidiaries or Affiliates)
4. Exporting or Re-exporting U.S.-origin Goods, Technology,
or Services to OFAC-Sanctioned Persons or Countries
5. Utilizing the U.S. Financial System, or Processing Payments to or
through U.S. Financial Institutions, for Commercial Transactions
Involving OFAC-Sanctioned Persons or Countries
6. Sanctions Screening
Software or Filter Faults
7. Improper Due Diligence on
Customers/Clients (e.g., Ownership,
Business Dealings, etc.)
8. De-Centralized Compliance
Functions and Inconsistent
Application of an SCP
9. Utilizing Non-Standard Payment
or Commercial Practices
10. Individual
Liabiity

16. 5 - The OFAC guidance and two major
challenges for due diligence – US Nexus
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 16
In its Root Causes description, OFAC says: “several organizations
have failed to appreciate or consider […] the fact that OFAC
sanctions applied to their organization based on […] dealings with
[…] the U.S. financial system, or U.S.-origin goods and
technology”.
no cargo from or to certain sanctioned countries is allowed to
transit, including FROB, in the U.S.
U.S. originated cargo which is re-exported via a third country is still
considered as a U.S. cargo
transactions related to shipments involving certain sanctioned
countries cannot make use of the U.S. financial system (no
quotations, invoices, charges or bank transfers in U.S. dollar)
TANGIBLE:
CARGO AND
GEOGRAPHY
INTANGIBLE:
BUSINESS
TRANSACTIONS

17. 5 - The OFAC guidance and two major
challenges for due diligence – 50 Percent rule
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 17
In its Revised Guidance on the 50 Percent Rule (OFAC, 2014),
OFAC states that, “any entity owned in the aggregate, directly or
indirectly, 50 percent or more by one or more blocked persons is
itself considered to be a blocked person.”
even a non-majority ownership by an
SDN (*), especially if Russia is involved
can be regarded as highly suspicious
ownership structures are
often far from transparent
Challenges for shipping operators:
OFAC does not publish a list of
majority SDN-owned entities
(*) SDN = Specially
Designated National

18. 6 - The impact of trade sanctions on operations
(with insights from a container shipping company)
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 18
What is the impact of sanctions on the daily activities of container
shipping professionals?
How do they deal with sanction risk management?
Logistics
Sales and Customer
Service
Legal
how to remain commercially competitive
while performing sanctions due diligence?
How can we ensure a proper use of
the equipment?
How can we minimize risks of non-compliance on
a local level? What is the most suitable
organization for a compliance team or function?
how to trace identities of the real receiver and
screening cargo ?

19. 7 - Conclusion - next steps
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 19
BUSINESS
deeper integration of
compliance mechanisms
in business operations
REGULATORS
stronger involvement
of IMO (*) in
sanctions regulations
TECHNOLOGY
enhancements in data
screening allowing
faster cargo checks
(*) IMO = International Maritime Organization

20. 8 - Acknowledgments
Marna Parodi Sanction compliance in the maritime transport industry. Focus on container shipping companies. 20
University of Genoa:
Professor Pierangelo Celle (thesis promotor)
MSC Belgium NV:
Mr. Peter Loriers, Claims Legal Manager
Ms. Karin Jacobs, Logistics Manager
Ms. Cindy Kusé, Export Customer Service Manager
Ms. Kristien Böttcher, Export Med – Short Sea Customer Service Supervisor
Ms. Lesley Wallis, Business Transition Manager – One Vision Geneva Rollout
Team – Business Project Manager.
Mediterranean Shipping Company SA:
Ms. Justine Francheteau, Legal Counsel and Compliance Officer
Mr. David Pontoire, Compliance Officer at the Corporate Legal Department