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.
REQUIREMENTS OF UN RESOLUTIONS
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
RELEVANT IMO REGULATIONS
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.
GAPS AND EVASION PRACTICES
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.
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.
CLOSING THE GAPS
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.
- 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.