Category Archives: Guidance

Discussion Paper: UN Maritime Sanctions and the International Maritime Organisation

By  Ian J Stewart & Stephen Osborne


This paper examines the interplay between sanctions adopted pursuant to Chapter VII of the UN charter and rules governing the maritime sphere. This paper demonstrates that UN sanctions adopted on DPRK and Iran, and expanded by national measures, place requirements on maritime actors that go beyond those of IMO rules. Moreover, the paper demonstrates that IMO rules as presently constituted are poorly designed to facilitate the effective implementation of sanctions. As such, it is argued that maritime governance arrangements run counter to international peace and security requirements. In this context, a number of issues and opportunities are identified for leveraging IMO regulations.



The UN Security Council has adopted a number of binding resolutions under Chapter VII of the UN charter that impose obligations in the maritime domain. These obligations are principally aimed at the programmes of countries subject to UN sanctions, which in recent years has included Iran and North Korea. However, the obligations also require that other actors in the maritime space take certain actions to deny sanctioned parties access to services. UN sanctions thus impose a global compliance obligation in the maritime space that is over and above any existing requirements set down by the International Maritime Organisation or other treaties to which states might be party.


The existence of such extra compliance requirements raises questions about their compatibility with existing rules. These questions include whether the sanctions are consistent with these existing rules and, if appropriate, which takes primacy. The questions also include whether IMO regulations are capable of supporting and facilitating implementation of the Security Council requirements. This paper will argue that IMO rules and regulations are presently poorly suited to implementation of UN sanctions requirements and thus that IMO rules and practices should evolve to better account for threats to international peace and security. In this paper, specific recommendations are identified to this end.


In order to ground these findings and recommendations, this paper proceeds as follows. First, the paper examines the scope of the maritime sanctions compliance requirement imposed through Chapter VII of the UN charter together with complementary national measures. Second, the paper examines the functioning of the IMO together with its rules and regulations in areas affected by sanctions. This is used to inform an analysis of the gaps in the system. Third, the paper identifies areas where IMO regulations and practices could improve to facilitate sanctions implementation. These recommendations consider governance opportunities beyond IMO regulations which, in practice, includes possible national actions and company-specific actions.


The paper draws on research into North Korean maritime sanctions evasion undertaken by Project Alpha at King’s College London. The paper also draws to some extent on research into Iranian sanctions implementation and evasion up until the nuclear deal in 2016 which saw sanctions eased.



UN sanctions resolutions adopted against a number of countries including Iran and North Korea in recent years have increasingly imposed obligations in relation to the maritime domain.  These measures are generally targeted at the programmes, activities and vessels of the target country. However, they impose an obligation on all other states not to provide certain services or assistance to certain sectors or designated parties. In the case of North Korea, the requirement goes somewhat further as some entities linked to North Korea in third country jurisdictions have also been designated. The requirements of UN resolutions include:

  • Not to provide flag services to North Korean Vessels
  • Not to provide financial services to North Korean vessels, including financial services such as insurance and port services
  • To prevent ship-to-ship transfers
  • To stop and inspect vessels suspected of carrying proscribed goods to or from North Korea



The International Maritime Organisation (IMO) is the body that regulates the high seas. It is a specialized agency of the United Nations and describes itself as the global standard-setting authority for the “safety, security and environmental performance of international shipping. Its main role is to create a regulatory framework for the shipping industry that is fair and effective, universally adopted and universally implemented.” 1 The IMO also audits states to ensure compliance with the states’ commitments to the IMO as laid down in the many conventions and treaties associated with the organisation. The IMO is thus a primary standard setter with regards to maritime issues.

The IMO has 174 members including countries that have recently been subject to UN sanctions including North Korea and Iran. There are a vast number of requirements resulting from the conventions, some relevant ones includes:

  • Vessels larger than 100 tonnes must operate an AIS (automatic identification system) transponder
  • Vessels operating in international waters must be registered with a flag state
  • All cargo vessels of 300 tonnes or more must have a unique 7-digit number issued by the IMO (I.e. IMO number) and use only this number for its entire life
  • Companies owning, managing and operating vessels must also have an IMO number (i.e. an IMO company number)

It should also be noted that the IMO is funded largely by membership fees which are calculated annually based upon the volume of vessels registered by each shipping registry; and the IMO generally takes decisions on a consensus basis in its committees and council which include all member states.



As sanctions are imposed, efforts to evade them often emerge. Effective implementation, therefore, is not merely a question of enactment of legal requirements set out in a UNSCR, but also of identifying and countering sanctions evasion. In both the cases of Iran and North Korea, there are well documented examples of evasion of sanctions.  Indeed, in both cases it could be argued that there has been a widespread and systematic effort by both countries to evade the controls. Whilst these efforts have included crude physical measures, such as concealment of illicit cargoes underneath legal ones, or mis-description of goods or ports of lading on crates or manifests, there have also been ways in which the international administration of shipping has been exploited to evade sanctions. Any ship, whatever its activity, must have a flag state; must provide information to the IMO; and must provide regular position information. If ships can operate in breach of sanctions, perhaps that activity points to systemic weakness in administrative processes.


Flagging Issues  

The IMO requires that all vessels operating in international waters be registered with a flag state. UN sanctions require flag states not to provide flag services to vessels subject to sanctions (i.e. vessels owned or operated by North Koreans or engaged in illicit trade with a sanctioned country). In practice, however, sanctioned vessels are often able to obtain flag services through open registries. In such circumstances, the flag registry is not always wilfully non-compliant with the requirements of UN resolutions. It could be the case, for example, that the vessel manager presents false documentation to the flag registry or that the vessel becomes sanctioned after being listed on the registry. However, research at King’s College London suggests that many flag registries have in place inadequate processes and systems to conduct due diligence for potential sanctions issues. Many registries appear not to conduct a review of vessels other than at the time of registration, for example, and flag registries often do not require companies to provide registration documents to confirm their legitimacy. In many cases, open registries are run by private contractors, and the government may not have sufficient oversight in the running of the registry.


Presently, IMO regulations do not standardise the requirements of flag registration. Moreover, the IMO does not have a role in ensuring flagged vessels are not North Korean vessels, leaving the obligation instead to its members. Additionally, it appears that IMO audits of states currently do not check what measures states take to ensure they are not flagging North Korea vessels or indeed that the state is complying with any other aspect of UN maritime sanction. IMO regulations, while requiring vessels to have a flag, are thus not helpful in implementing UN sanctions in relation to flag issues.


Another phenomenon relevant to sanctions implementation, but also with wider applicability across the broader issues of lawful activity at sea, is the use of false, fake, or unauthorised shipping registries. Congo, Fiji, Samoa and the Federated States of Micronesia have all been reported as falling prey to a fraudulent registry activity.2 Previously, Mongolia and Tuvalu both contracted the services of a private company, Sovereign Ventures, to run their registry, which was reported to have ties to North Korea.3 In November 2014 the government of Zanzibar terminated its contract with the company Philtex (Belize Ltd), which it had authorised to manage its open shipping registry following allegations that Iranian oil tankers were operating under its flag. These cases are challenging for the IMO and for the relevant member state. It might be impossible for the IMO to detect the activities of a fake registry, but the IMO could take useful steps against the practice. This might include warning all mariners and other stakeholders about the prevalence of the practice; maintaining a standing request for any information suggesting such practice was going on; and acting forcefully on receipt of information to warn all stakeholders, giving full details. More strategically, the IMO could set standards for the relationship between the government and a private contractor appointed to run the registry.


Ownership and Management Structures  

UN sanctions can extend to individuals and entities known to be involved in prohibited activities. Generally, this requirement is limited to listed individuals and entities. However, in the case of North Korea, it extends to all North Koreans. The requirement includes an obligation not to provide financial services to individuals and entities owned and controlled by sanctioned persons. In the maritime domain this means that before any vessel can be mortgaged, insured or enter a port, confirmation is needed that the individuals and entities linked to it do not fall into this category.


In practice, this obligation can be partially met through the use of software that screens the entities associated with a vessel against the lists of sanctioned parties. Such software is increasingly being used by maritime flag service providers. Here, again, IMO regulations appear inadequate. An IMO service provider issues company certificates for companies wishing to be listed as the owner of a vessel. However, presently, it does not appear that the IMO requires sanctions screening at this stage, leaving the responsibility to member states.


Additionally, the entity legally responsible for a ship is the beneficial owner, sometimes seen as the group beneficial owner or ultimate owner. It appears that IMO regulations do not require information on beneficial owners and most databases that draw on IMO data to provide details of ship ownership do not include details of the beneficial owner. In the case of those that do offer group beneficial owner as a data field, this information is rarely available. It appears that either the IMO does not collect such data, or that it does not make it available either on a free or subscription basis.


A result of this is that, in the case of North Korean-owned ships, the data trail often leads only as far as a one-ship company. As one of many such examples, the North Korea-flagged Dai Hong Dan (IMO 7944695) is given in databases as owned by Daihongdan Shipping Co Ltd. Details of the ultimate owner are not available. Consequently, ship owners wishing to conceal their identity for any purpose can do so by setting up such companies. Additional layers of anonymity can be achieved by giving a care-of address, or naming a shareholder, director, or other nominated third party, as the beneficial owner. The IMO, in compiling its register, may be best placed to instigate greater transparency in the matter of ownership, by at least insisting that ultimate owner information be provided for publication.


Identification and Tracking (including at-sea transfers) 

A final area where tension exists between IMO regulations and UN sanctions is in vessel identification and tracking. Two separate systems for ship identification and tracking have been introduced by the IMO under Chapter V of the 1974 International Convention for the Safety of Life at Sea (SOLAS). One is the Automatic Identification System (AIS), the other is the Long-Range Identification and Tracking (LRIT) system. The two systems have different purposes, (the former being primarily for collision avoidance, the latter for security) but provide similar information. Presently, IMO regulations require every cargo vessel over 300 tonnes to report its position using LRIT at least every 6 hours; vessels of this size are generally also required to transmit using AIS.


A key difference between AIS and LRIT is that AIS is a broadcast system, meaning that data can be collected and made public. Access to LRIT data, on the other hand, is granted only to those authorised by contracted governments. The availability of AIS data on the internet has given rise to a number of free-to-use and subscription-based services providing near-real-time positional information. There are a number of reasons that vessels may wish to hide their position, including to avoid piracy and to evade authorities. As a result, ships may disable AIS to prevent exploitation by nefarious actors such as pirates, or to evade detection when undertaking unlawful activity; such as smuggling, illegal exploitation of natural resources, or sanctions evasion. Furthermore, insurance providers charge premiums for vessels that enter certain areas, so it has become common for vessels to disable tracking when operating in these areas. Furthermore, it is often difficult to determine whether AIS signal loss is the result of deliberate disablement or whether it is a result of signal range, or technical malfunction. Nonetheless, AIS disablement as a means of sanctions evasion is increasingly common. At-sea transfers with sanctioned vessels are prohibited but are regularly undertaken when AIS is disabled on both participating vessels. Examination of recent AIS data indicates that almost no AIS data is broadcast around North Korean ports, or from North Korean-flagged ships irrespective of location. Assuming that vessels are indeed entering and leaving North Korea, and that North Korean flagged vessels are indeed to be found in other locations, all such wilful disablement of AIS represents a breach not only of UN but of IMO requirements. Better implementation and enforcement of IMO requirements would strengthen implementation of UN requirements.


Given the potential justification for AIS disablement in certain circumstances such as anti-piracy, it is understandable that the UN panel of experts has been quite specific in asking commodity trading companies to ensure that their vessels transmit when operating close to Korea rather than in other areas of the world where vessel tracking is often disabled for other purposes.


The fact that, unlike AIS, LRIT data is only available to parties authorised by a participating government, should rule out its use by pirates, thereby removing legitimate or semi-legitimate grounds for switching it off or failing to make a scheduled or unscheduled broadcast. This potentially makes it a stronger asset to sanctions implementation in the following areas:


  • Flag States may request information on the location of their vessels. Either a location within an area of concern, or failure by a ship to report its position, might trigger a query being sent out to the vessel or its associated onshore companies; investigation by the flag state using other due diligence sources; reporting to the UNSC or the IMO.
  • States may request information on ships of any flag near their coasts; historical data as well as current data would be necessary to form the information picture.
  • Port States may request information on ships that have declared one of their ports as a destination; historical data as well as current data would be necessary to form the information picture.
  • Other service providers potentially involved in a transaction concerning a ship (trading companies, banks, etc.) may wish to know locational information; historical data as well as current data would be necessary to form the information picture.


Thus, there are some obvious opportunities to improve vessel tracking practices to aid sanctions implementation. Vessels could be required to transmit LRIT signals more frequently in areas used for ship-to-ship transfers to reduce the risks of unauthorised transfers or clandestine port visits, for example.


National and International Implementation

While UN sanctions and IMO regulations place obligations first and foremost on its member states, the member states in turn are required to distil these obligations through national legislation to the private sector. Given that much of the maritime sector is operated on a commercial or private sector basis rather than by governments, the question of effective implementation is central to the question of whether security council regulations can be effective.


A key challenge here is that neither the UN nor the IMO has set out clear guidance on what member states or service providers must do in order to comply with the requirements of UN sanctions. Indeed, while the United Nations Security Council (UNSC) has gradually provided more information and guidance on its own website, and issues implementation assistance notices, there is presently no information on the IMO website about UNSC sanctions at all. Guidance issued by the IMO, which sought to integrate sanctions compliance processes with other compliance processes, would evidently be helpful to the IMO’s members.


This lack of mention of UN sanctions on the IMO website, in particular, raises questions about why the IMO has not been more responsive to UNSC decisions. According to the UN Charter, it is after all the Security Council that has primacy in relation to international peace and security and its decisions are binding on all UN member states. The answer to this question is not yet fully clear. Certainly, it is apparent that the structure of the IMO, which usually requires consensus among its membership and includes countries subject to sanctions such as North Korea and Iran, does not lend itself to proactive decision making on sanctions issues. However, this would not necessarily prevent the IMO secretariat from hosting or publishing guidance from the UNSC on sanctions issues.


Another key challenge relates to information sharing. Presently, some governments have decided to list the vessels they have de-flagged as a result of connections with North Korea. Other governments have published examples of vessels conducting at-sea transfers. However, presently there is no requirement for member states to share information with the IMO or with other states when action is taken against a vessel or company as a result of UN sanctions. Addressing this gap would make evasion of sanctions more difficult by reducing information asymmetry between states.




Having examined the requirements of both UN Security Council sanctions and the IMO, it is apparent that UN sanctions and IMO regulations are disjointed. Sanctions are of course intended to be a limited duration event (or at least not permanent) and it might thus be acceptable that sanctions compliance requirements are not fully integrated with enduring IMO regulations. However, as the proceeding sections have highlighted, there are numerous areas where action to leverage the IMO could make sanctions compliance easier for member states. In this context, the IMO at the very least should be involved in the promulgation of UN guidance to its members.


There is also an opportunity to better leverage the IMO to improve sanctions implementation. These moves would likely require either a decision of the UNSC or a decision by the IMO’s own governing bodies and would thus require championing by states.


Vessel Tracking 

  • Vessels operating in areas relevant to sanctions could be required to transmit LRIT on a more regular basis so that flag states can identify suspicious activity.
  • States should be encouraged to investigate and report on suspicious activity by its vessels in areas relevant to sanctions.
  • Encouraging, or requiring, states that operate open flag registries to become contracting governments for the LRIT system.
  • The IMO might specifically require AIS activation at all times when vessels are outside areas agreed as being prone to piracy. This would provide the same  benefits LRIT above and would additionally permit an automated comparison of the position data from LRIT and AIS, disparity could then trigger challenge or investigation.


  • The IMO could improve transparency in the matter of ownership by requiring and publishing ultimate owner information.
  • The IMO should require its service provider to conduct its own due diligence before issuing company IMO numbers, including by screening the company against the UN sanctioned entity list.
  • The IMO should require its service provider to screen flagged vessels against sanctions lists and proactively raise any resulting concerns with flag states.
  • The IMO should share information among its members on vessels that have been de-flagged in connection with sanctions.


  • The IMO should include sanctions requirements when conducting its audit of member states.




This paper sought to examine the compatibility of IMO regulations with the requirements of UN Security Council resolutions (UNSCRs). This examination has shown that sanctions implementation does not appear to have been part of the IMO’s calculus in the international maritime administrative structures it has set up. In many cases, however, these could be adapted to make them directly supportive of UNSCRS. Likewise, it seems likely that the UN Security Council has passed Resolutions on maritime issues concerning North Korea without fully considering the mechanisms for implementing them. As the setter of standards for the industry, the IMO is perhaps uniquely placed to include in those standards the compliance with UNSCRs.

New Alpha Report: Examining intangible technology controls

itt(Source: ICFITT)

by Ian Stewart, with contributions from Dominic Williams and Nick Gillard

Project Alpha is today releasing a report on Intangible Technology Controls (ITT), examining the utility of ITT in managing the spread of proliferation-relevant technologies. Continue reading New Alpha Report: Examining intangible technology controls

Sanctions Compliance for the Maritime Transportation Sector

The transportation sector provides vital services for the furtherance of economic prosperity, and as a result, international peace and security. There is a real risk that the sector could be misused by proliferators in order to transfer sensitive commodities. In order to counter this risk and ensure that the business community is prevented from contributing to activities that could threaten international peace and security, the UN often relies on the imposition of so-called “targeted sanctions” (or “smart sanctions”) on designated individuals, entities or States, which the Security Council has reason to believe are involved in the proliferation of weapons of mass destruction, human rights abuses or terrorist activities that may threaten international security.

Continue reading Sanctions Compliance for the Maritime Transportation Sector

European Parliament Report on the Review of Regulation 428/2009

Although EU Regulation 428/2009 setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items system is in line with the main export control regimes and is seen as a model for others to follow, there are a number of ways in which the regulation could be enhanced and refined. Part One outlines the current state of play, purpose and implementation of the current regulation. In Part Two, against the backdrop of the European Commission’s reform proposal, the effectiveness of the EU’s dual-use export controls regime is explored further with regard to its potential contribution to international, national and human security, as well as their impact on EU economic and trade interests. The study concludes that the system’s effectiveness could be improved in a number of ways, but that this requires an effort to mobilise political will at different levels and across different institutions within the EU and its Member States, and to enhance human resources, cooperation and capacity-building. The European Parliament should also give consideration on a regular basis to issues relating to the scope and implementation of the regulation, in order to ensure that the objectives continue to be achieved.

Download attachments: e-study_dual_use_workshop

Global trade sanctions and the freight forwarding industry: Implementing compliance good practices in the face of changing requirements

Global sanctions regimes

  • The direction of growth of global commerce is greatly influenced by international sanctions and control regimes. These change constantly in response to geopolitical or other developments.  International agreements for example may include provisions for targeted and phased lifting of sanctions over lengthy periods (this is likely to be the case for any long-term agreement between Iran and the P5+1). To maintain a competitive edge in such an environment, companies in freight forwarding and related industries need a smart and adaptive approach to compliance.

Continue reading Global trade sanctions and the freight forwarding industry: Implementing compliance good practices in the face of changing requirements

Non-proliferation and the Shipping Industry


Those charged with obtaining equipment and materials for illicit nuclear, biological and chemical weapons programmes have been known to make use of black market procurement and smuggling techniques on occasion.  However much of the illicit procurement of ‘dual use’ equipment and materials seen in recent years involves purchasing through conventional commercial transactions, albeit with the buyer or the ultimate customer providing misinformation regarding the true destination or end use.

Once a purchase has been agreed, the items are then usually transported internationally through conventional commercial logistics arrangements.  The international shipping/logisitcs industry comprises a diverse range of commercial entities of different types, with various (sometimes overlapping) functions.  Any of these commercial entities, whether forwarder, haulier, cargo handler, carrier, broker or other, can potentially be involved (unwittingly or not) in facilitating the delivery of required goods to an illicit chemical, biological, nuclear or radiological weapons programme.

There are various legal, regulatory and reputational liabilities faced by companies involved in shipping that relate to both national and international non-proliferation efforts (and to efforts aimed against terrorism, human rights abuse and so on).  Although the commercial entity generally deemed to have primary responsibility for ensuring that an export is legitimate is the seller, those others involved in the various stages of the shipping chain also have legal obligations.  Companies need to be alert to the possibilities that their services may be exploited by those engaged in procurement for illicit ends, in order to comply with both the letter and spirit of the law.  However, companies may be presented with opportunities to contribute materially to non-proliferation efforts above and beyond practicing compliance to avoid legal and regulatory penalties and reputational risk.

Guidance from national and international authorities on compliance and contribution to non proliferation is available and is broadly applicable to all involved, but appears to be  generally aimed at consignors and freight forwarders (or those performing similar functions).  Measures involve staying abreast of sanctions and embargoes in place, and of relevant designated entities lists produced by authorities whose jurisdiction is relevant (and notably many companies will wish to keep abreast of entities lists produced by the US government, even where they and those they do business with are outside of the US).

The requirement for entity screening and due diligence activities is clear, however the extent to which it is reasonable to pursue these, in the absence of a clear match to an entity or destination of concern, may call for difficult judgments at times.  The response from national authorities to reported possible matches appears to be variable.

Both the positive effects for non proliferation purposes of compliance activities by companies in the shipping industry, and of the financial and commercial burden on those companies of undertaking compliance activities, are difficult to determine at this time.

Moves to develop integrated seamless data pipelines for international commercial logistics, involving information technology and partnerships between commercial entities and national authorities, may present opportunities to make compliance activities by the shipping industry easier and more effective for non proliferation purpose.


Information Available to Commercial Actors and Guidance from Authorities

Movement of a consignment is often a complex process involving multiple actors with varying functional, contractual and legal relationships with each other.  These may include truckers, cargo handlers, trusted agents for security screening, customs clearance agents, international carriers (maritime, air, road and rail), and ship and aircraft brokers.  Individual companies may perform multiple functions. Financiers and insurers will also be involved and are discussed elsewhere on the Alpha website.  This complexity usually leads to hiring a freight forwarder to arrange and coordinate the actions of the different companies.  Alternatively a large “integrator” may be employed for a complete door-to-door service.

All entities involved in the web of arrangements around a consignment may have information that could indicate that goods may be heading for an illicit end use.

However information held may not give rise to suspicion until combined with that held by authorities.  Identity and/or contact details of the consignee or its agents may flag a risk if they are associated with illicit activity. Names of some of the individuals and organisations of interest are given in ‘designated entities lists’ that are openly published by certain national authorities, notably the US., and which often include entities connected with either terrorism, human rights abuses or proliferation. Equivalent classified lists are sometimes held by various national authorities but not made openly available.

In some cases sanctions may be in place preventing the export of any goods, or goods of a particular type, to any consignee or location in certain countries.

Guidance from national authorities is often that every entity involved in the shipping of a consignment is responsible for adhering to relevant laws and regulations. Companies are usually required to report whenever they know, or have reasonable suspicions, that goods are going to an illicit programme, a designated entity or to a sanctioned/embargoed destination, or that rules and regulations are otherwise not being adhered to.

Advice is generally provided in some amount of detail to exporters/consignors on steps they should take to be compliant with laws and regulations. This will usually involve checking the type of goods against control lists to see whether an export license may be required, screening the details of the procurer and their agents against entities lists (where applicable), and checking for any sanctions and embargoes that may apply.

Guidance is often provided on know-your-customer best practice. This includes factors that may give rise to suspicion (sometimes termed ‘red flags’) which should prompt exporters to seek further information and, if this does not resolve the issue, to discuss the deal with national authorities. [Red Flags are discussed in more detail elsewhere in the Alpha website, at link]. In some countries with ‘end use’  clauses in export controls, having grounds for suspicion means that a company should not proceed even when the goods are not on control lists, unless they have consulted national authorities.

The need for companies to exercise ‘due diligence’ is often discussed in official guidance.  Examples of due diligence activity that should be considered (such as measures to check customers bona fides) can be found on various websites and publications.

The extent to which enquiries should be taken by exporters is usually not specified in fine detail – it would obviously be problematic to formulate detailed guidance for all situations.  Published guidance from some national authorities  acknowledges that due diligence efforts should be ‘proportionate’.  However often much will be left to the company to make a judgment on what is reasonable and proportionate, both with regard to the exact nature of enquiries and the lengths that they should go to. The subject of exporters and anti-proliferation measures is covered in more depth elsewhere on the Alpha website.

WIth regard to entities within the shipping industry, specific guidance for companies fulfilling a particular function (haulier, carrier, broker etc) is generally not as prominent as it is for exporters/consignors.  Advice given to exporters will obviously be relevant if a company has been employed to carry out functions that the consignor is usually responsible for (eg export license arrangements).

Some national authorities also give guidance directed specifically at freight forwarders (or similar), which typically focuses on checking whether any sanctions or embargoes apply, and screening entities involved against any entities lists that may be applicable.  Forwarders are generally encouraged to be familiar with the guidance given to exporters on factors which might reasonably give rise to suspicion, and to consider what due diligence may be merited. In common with written guidance to  exporters, forwarders will often have to judge for themselves the nature and extent of activity that is reasonable.

Entity Screening

Appropriate levels of effort may be difficult to determine in the initial screening of the consignee and others acting for/with them.  The extent to which forwarders should take further enquiries when a possible match to a listed entity occurs (eg a name is similar not identical to one on an entities list) can be difficult to determine with confidence.

Detailed screening may take into account things such as phonetic matching of a name or possible transliteration errors between languages, or may simply flag entities with names similar but not identical to those listed.  This will tend to generate a significant number of possible matches that may call for further investigation. Subsequent enquiries may identify many ‘false positives’, but may also identify indeterminate cases.

Companies that report possible matches to national authorities may find that the relevant authorities have insufficient resources to respond in a timely fashion.  In such cases there may be tensions between the commercial imperative not to refuse business without due cause, and the desire to ensure that the company has done everything reasonably possible to remain in compliance with laws and regulations.

Large companies such as the international logistics integrators and major freight forwarders may devote considerable manpower with specialist education and training to dealing with compliance issues and performing additional due diligence where this seems advisable.  However the extent to which much smaller companies are able to shoulder the compliance burden and make similar efforts to their larger brethren is unclear.

One possibility is to outsource some of the work – at least one commercial company has been set up to keep track of changes to all published sanctions, embargoes and designated entities lists, both from international and national authorities, worldwide, and to provide an entity screening service against this body of information. However, usage of such a service obviously entails additional financial cost, and potentially other impacts if possible matches are identified, even if subsequent investigation reveals these to have been false matches.

Bottom Line

Within the world of commercial shipping and international logisitics, forwarders and integrators are prominent at the forefront of export control compliance and wider antiproliferation activity. However, all types of commercial actors throughout the wider shipping industry have obligations in this sphere and the potential ability to contribute to the international community’s non-proliferation objectives. It is difficult to generalise about the exact shape of best practice for the large diversity of entities throughout the industry given multiplicity of arrangements involved, the variety of regulations and guidelines in different jurisdictions, and the varying capacities of different companies to perform antiproliferation activities. The key challenge is for companies to determine what are reasonable and proportionate ‘due diligence’ efforts in the particular situations they find themselves in.

Regulations and guidelines from national authorities can be somewhat vague in practice.  While it is unlikely to be feasible to produce definitive, tightly written guidance that will cover all situations, current guidance is often difficult for industry to interpret in terms of practical, concrete procedures and actions required.  Some commercial entities, especially very large companies, may be able to practice what can be thought of as ‘overcompliance’, devoting quite large resources to compliance activity and erring on the side of caution, but the burden to smaller operators may be more difficult to bear.

The ability of national authorities to respond in a timely and agile fashion when possible instances of illicit procurement are reported by commercial entities appears to be less than ideal.  In some instances it may be that a greater emphasis from national authorities on having clearly identified, adequately resourced first points-of-contact, with clearly laid-out missions and performance standards, may be a useful step.

Export Controls 101

Strategic Trade Controls: What Do Firms Need to Know?

  • Export controls are in place to prevent technology and goods from being acquired by those seeking to used them for  illicit military-related end uses and are an important tool of national security
  • Firms need to be aware of the control status of their products and of the potential uses of their goods in military or WMD programmes
  • A licence is required when exporting controlled goods and potentially when exporting non-listed goods to sensitive destinations
  • There are significant legal and financial risks associated with deliberate and inadvertent involvement in illicit transfers
  • A systematic approach to compliance is required to mitigate risks effectively
  • If firms have questions about the scope and requirements of export controls, they should contact Project Alpha at
  • A link to your licensing authority can be found on this page

The Purpose of Export Controls

Export controls and sanctions are in place in order to allow national authorities (various departments of the British government in the UK case), an opportunity to assess the international security and proliferation risks associated with the export of certain sensitive military-related technologies. They allow a country’s government to act to safeguard the national security of that country and to avoid fuelling conflict or internal repression overseas.

More specifically, some of the purposes of export controls are:

  • To prevent goods from contributing to WMD programmes
  • To prevent the transfer of goods which could contribute to sanctioned military programmes or cause regional instability
  • To prevent those goods, for example as weapons, from contributing to human rights abuses
  • To prevent those who support or direct the activities above from accessing the British, European, US, or international marketplace

The Scope of Export Controls

Export controls cover ‘technology’ which is taken to mean both tangible goods, as well as the intangible technology associated with controlled goods.

The EU maintains a military list and a dual-use list. Military goods are largely what you might expect: arms, tanks, missiles, and other equipment specifically designed or prepared for a military end use. The dual-use list includes a relatively broad range of technologies that can be incorporated either into military goods or into weapons of mass destruction programmes.

However, export controls can also encompass non-listed technologies. This typically occurs in cases where exporters ‘know or suspect’ that technology is destined for sanctioned entities or programmes of concern. A ‘catch-all’ control exists to allow uncontrolled goods to be prevented from reaching such destinations.

Country-specific Restrictions

In addition to export controls which impose a licence requirement on any country regardless of destination, a range of country-specific restrictions or ‘sanctions’. These measures can restrict trade in a number of ways:

·         Introducing a presumption of denial for export licences

·         Prohibiting trade with certain entities in specified countries (designated entities)

·         Restricting investment in certain industry sectors, such as Iran’s oil and gas sector

UK Government Departments Involved

In the UK, as in most countries, there are multiple government departments involved in the export control process. This is because export controls cover a number of policy areas.

The principal organisation in the UK system is the Export Control Organisation (ECO) which is a part of the Department for Business Innovation and Skills (BIS). This is the organisation with which exporters communicate with when applying for export licenses.

A second lead organisation is HM Treasury, which advises on trade with designated entities.

Other government departments are also involved such as: the Foreign and Commonwealth Office (FCO), which sets the strategic objectives and conduct diplomacy relating to the UK’s international commitments; the Ministry of Defence (MOD), which deals with military and technical issues; the Department for Energy and Climate Change (DECC), which deals with nuclear issues; the Department for International Development (DFiD), in cases where exports may have implications for UK development assistance; and HMRC and the UK Border Service, which undertake enforcement actions when necessary.

The Requirements of Export Controls

UK export control legislation usually requires that the exporter holds an export licence at the time of export. A valid licence is required, in most cases, if the goods are controlled or they are destined for a sanctioned destination or an end-user of concern.

Open licences are available in all EU countries, providing exporters with a more simple way to export less proliferation-sensitive goods to less sensitive destinations. With these types of licences, the emphasis is on registration, the record-keeping of the exporter, and compliance audits carried out by government representatives.

Licence applications are both made by exporters and assessed by government through the online Spire system.

The Consequences of Non-Compliance

There are significant risks associated with non-compliance with export controls. These include legal risks – fines of hundreds of thousands of pounds and imprisonment of several years – as well as reputational risks and associated financial costs. A number of case studies of UK prosecutions can be found on the ECO website.

However, exporters should be aware that compliance with export controls does not fully mitigate risks. Firms can be compliant with the law and still have their goods diverted to programmes of concern. Extra due-diligence is important in this regard. Exporters should contact their national authority or Alpha when in doubt.

Managing Compliance and Non-proliferation Requirements

Given the detailed and sometimes changing requirements of export controls, it is important that firms take a systematic approach to compliance and non-proliferation to mitigate risks fully. This should include ensuring that a senior official is responsible for trade compliance and include providing training to all relevant staff. More information about best practice compliance can be found here.

Each country maintains its own export licensing system. A link to yours can be found on the following page.

Many countries allow exporters to apply for licences electronically. For example, all UK licence applications must be submitted through the SPIRE system.

Entities of Concern

Key Points

  • It is only by conducting extensive due diligence that the risks posed by parties to a trade can be understood;
  • However, several authorities maintain lists of entities known to be of concern which must be taken into account. These are produced at United Nations (UN), National (including European Union (EU)), and non-governmental levels;
  • UN sanctions are binding on firms based in all countries, while national (or EU) lists are typically only binding to firms based within the relevant territory;
  • US measures often have an extraterritorial element, meaning that conducting business with US-sanctioned entities can have adverse business impacts for a firm even if based outside the US;
  • Companies should implement screening and due diligence systems to ensure that all entity-specific concerns are identified, understood, and addressed before entering business relationships.

What is an entity of concern?

Entities are typically identified as being of concern for one of three main reasons:

1)    They are involved in activities of concern – i.e. they have been designated as a terrorist organisation, they directly support or operate a Weapons of Mass Destruction programme in a country of concern, or they oversee an activity of concern (this can include individuals with responsibility for Iran’s nuclear programme, for example).

2)    They work on behalf of entities of concern, in capacities including procurement agents, brokers and financial service providers.

3)    They potentially supply programmes of concern, often by failing to implement appropriate trade compliance systems.

Note that not all entities of concern can be found on the various lists; firms should conduct due diligence to fully mitigate risk.

Where are entities of concern located?

This depends on the category of entity of concern. Those directly involved in programmes of concern are usually found only in sensitive countries (see country briefs), whereas middle men and suppliers to programmes of concern can be located anywhere around the world. The image below is a map highlighting the entities identified as being of concern by the US government in summer 2012.

What are firms’ responsibilities?

While legal responsibilities vary from country to country, the short answer is that firms must comply with the laws of the territories in which they operate. This means that if your national authority maintains a list of entities of concern you must ensure that you have a system in place to screen customers. In cases where national authorities do not provide national lists, firms should be screening potential business partners against the lists contained in UN resolutions.

How can firms avoid conducting business with entities of concern?

In practice, as US designations name firms worldwide, to ensure that you stay compliant with US extraterritorial measures, firms should maintain a designated entity screening system for trade to all destinations. A screening system or process which screens new and existing customers and other business partners against multiple relevant national and international lists is necessary to mitigate legal and reputational risk.

Nonetheless, while legally it may be permitted to do business with entities identified as being of proliferation concern outside jurisdictions in which the firms operate, there is an obvious need for caution: such trade is can lead to massive reputational risk and damage a firm’s public image.

Therefore, an effective screening system is one which screens against the relevant lists required for legal compliance, as well as takes into account possible reputational risks. An efficient system is one which effectively uses fuzzy logic to pick up matches whilst keeping a ‘false-positive’ figure low.

Partners Against Proliferation: Good Practice Guidance

The “Partners Initiative” is a voluntary and inclusive mechanism to share good practices between companies in the area of export and trade compliance. Participation will reduce the likelihood that your company’s goods or services will aid proliferation or that your company will breach trade control obligations.  At heart of the initiative are guidelines and a related peer-review mechanism. Firms undertake to work towards implementing the internationally-recognised[1] “good practice guidelines” (See below) and to demonstrate to other “Partners” how they go about this.

Other service providers and trade associations are encouraged collaborate with the partners initiative, by for example by creating working groups for their own members.

Involvement with the initiative will have the following benefits you company:

1.   Improving your company’s implementation of trade controls.  This is not just about complying with the law, but also about ensuring the compliance system you implement is robust, proportionate and effective. Getting implementation right may even reduce your company’s trade compliance burden.

2.   Enabling customers or suppliers to build confidence in your compliance system. Your business partners are dependent after all on your company’s implementation of trade controls either to safeguard their controlled technologies or to provide them with correct trade control information, such as control status the control status of the goods you sell to them. They care if your company ‘gets compliance’.

3.   Demonstrating to stakeholders that your company is socially responsible. Non-compliance with export controls is socially unacceptable and threatens international security. Your stakeholders will want to know if you are compliant, or perhaps worse, if you are not.  Participation in the Partners Initiative provides a route to demonstrate your commitment.

The Partners Initiative is a peer-based network and is governed by consensus. The initiative will be overseen by a “Partners Board”, membership of which will be determined based upon nomination and vote (with one vote being allocated to each participating institution). Presently there is no entry criteria to become a partner other than a willingness to work towards implementation of the good practice guidelines (see below).  Companies will be asked to demonstrate in what ways they implement each of the elements of the good practices to their peers on at least on an annual basis.[2]

Good Practice Guidelines on Export Compliance
These guidelines were submitted by the British government to the Nuclear Suppliers Group and have been recognised internationally. Enterprises are advised to:

1.0 Implement internal systems to ensure due-diligence checks are carried out on potential customers and business partners and on the goods, software and technology that they wish to acquire, utilising public information such as early warning lists, red-flag checklists and questionnaires provided by the United Nations, states and other parties with an interest in supporting the multilateral non-proliferation effort, and to consult with the relevant government authorities as necessary;

2.0 Monitor, collate and vet enquiries within the scope of due-diligence, relating to the acquisition of proliferation sensitive goods, software and technology;

3.0 Consult government export control authorities before having any dealings with entities identified as being of proliferation concern either from public sources, from corporate monitoring systems or from contact with relevant competent authorities in states themselves;

4.0 Implement best efforts to share information about illicit attempts to procure items for Weapons of Mass Destruction programmes with security and other relevant agencies in the state where they are established and with business partners and others in instances where the state judges that broader publicity would be appropriate;

5.0 Promote the adoption of due-diligence and information sharing within the supply chain and with other business partners within the boundaries of legitimate protection of business and company information;

6.0 Incorporate non-proliferation measures and export control compliance into existing corporate social responsibility statements;

7.0 Encourage relevant industry-wide trade and professional bodies to recognise the importance of supporting and encouraging the non-proliferation effort and the measures set out herein; and

8.0 Foster an open and transparent relationship with appropriate government and regulatory authorities.

9.0 Train all relevant staff against a trade compliance competence framework

[1] Adherence to the guideline has been recognised by members of the Nuclear Suppliers Group as a “good practice”.

[2] The Partners Initiative is a peer-based initiative intended to implement the good practice guidelines. Failure to work toward implementation of the guidelines or egregious examples of not working to the guidelines such as being found non-compliant with export control legislation can, based on a 2/3 majority vote of the Partners board, result in companies being excluded for a period of time to be determined by the board

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