AS Western nations intensify sanctions on trade linked to Russia, Asian banks and shipping entities are finding themselves grappling with increasingly complex and stringent compliance demands.

At a compliance seminar hosted by Lloyd's List Intelligence in Shanghai, panellists emphasised the substantial compliance pressures on trade participants, as they have to conduct thorough reviews of ownership structures, shareholders, and capital flows while staying updated with rapidly changing sanctions lists.

Sanctions have evolved from targeting specific cargoes and individuals during the campaign against Iran nearly a decade ago, to encompassing brokers, insurers, and financial institutions now.

“This transition has left them apprehensive and obligated to carry out thorough compliance measures,” said Wang Kun, Asia Pacific claims director of North Standard, at the event.

Wang pointed out that the latest trend involves a broadening scope of entities issuing sanctions, ranging from international organisations such as the United Nations and regional jurisdictions like the European Union, to individual countries such as the US.

This trend has resulted in complexity and occasional conflicts in rules, significantly complicating compliance for shipowners.

For more than a year, the G7 and Australia have enforced oil price caps on Russian seaborne crude oil and products to keep Russian crude in the global market while imposing costs on Russia for its invasion of Ukraine.

At the Shanghai event, Lou Jiawei, a senior manager at Bank of Ningbo, highlighted the impact of the US Executive Order 14114, issued in December last year, which imposed comprehensive sanctions with a broad scope and a frequently updated list of sanctions.

EO 14114 broadens the US Office of Foreign Asset Control’s reach by applying secondary sanctions to foreign financial institutions involved in transactions linked to Russia’s military-industrial base, penalising entities or individuals in another country for engaging with primary sanctioned entities.

Given the intricate and broadened sanction regulations, compliance reviews must now encompass the entire trade chain, including logistics, to identify the ultimate buyer. This involves navigating potential multi-layer counterparties, he explained.

Liu Siyuan, vice-president of Shanghai Jiuhe Marine Tech Co, specialising in vessel sales, emphasised the importance of being “clean” to engage in vessel transactions amid the heightened sanctions.

He said under the current sanctions regime, if an individual has been listed, any companies they are currently involved with or may join in the future will also face risks, indicating an expanded impact and restrictions on capital flow.

Liu also mentioned that a decade ago, vessel sales could circumvent sanctions by using currencies other than the US dollar and euros, but such methods are no longer available today.

Chen Youmu, senior partner at Wintell & Co, highlighted that the broadening of sanctions could even result in collateral damage. Vessel buyers could face punishment if they are unaware that the acquired vessel had been involved in sanctioned shipments.

Another risk arises with shipmanagers who are now frequently targeted by sanction regulators, as beneficial owners are often hidden behind complex corporate ownership structures.

Chen said some vessels may have long since left the fleets of sanctioned shipmanagers, yet they become implicated because regulators rely on outdated vessel databases that have not been updated promptly. 

The broadening of sanctions makes it even more necessary for shipping companies to establish their own compliance systems, according to Zhuang Wei, Asia head of  BIMCO.

This not only helps them better understand sanctions regulations, but also demonstrates their compliance efforts to regulators, he added.