On 16 April, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned a China-based independent “teapot” refinery for its role in purchasing more than a billion dollars’ worth of Iranian crude oil.
As announced, OFAC is also imposing additional sanctions on several companies and vessels responsible for facilitating Iranian oil shipments to China as part of Iran’s “shadow fleet.”
“Any refinery, company, or broker that chooses to purchase Iranian oil or facilitate Iran’s oil trade places itself at serious risk,” said Secretary of the Treasury Scott Bessent. “The United States is committed to disrupting all actors providing support to Iran’s oil supply chain, which the regime uses to support its terrorist proxies and partners.”
This also marks the sixth round of sanctions targeting Iranian oil sales since the U.S. President issued National Security Presidential Memorandum 2 (NSPM-2), instituting a campaign of maximum economic pressure on Iran.
Furthermore, OFAC has also issued an updated sanctions advisory to assist the global shipping and maritime industry in identifying sanctions evasion practices related to the shipment of Iranian-origin petroleum, petroleum products, or petrochemical products and in implementing sanctions compliance best practices to guard against such sanctions risks.
Flag registry trends with shadow fleet vessels
Shadow fleet tankers rely on flag registries with lower operating and due diligence standards. These tankers will regularly (1) move their registration to flag states known to be providing services to other sanctioned tankers, (2) illegitimately claim to fly a flag they are not registered with (i.e., a “false” flag), or (3) be flagged by registries that are not authorized to provide flagging services for a particular jurisdiction (i.e., fraudulent registries). Maritime sector stakeholders should consider the flag registry and registration history of a vessel and conduct enhanced due diligence to ensure vessels with which they and their counterparties engage are not participating in trade of Iranian petroleum, petroleum products, or petrochemicals.
Ship-to-ship transfers
While ship-to-ship (STS) transfers are often conducted for legitimate purposes, sanctioned Iranian tankers utilize STS transfers outside of the territorial waters of a coastal state with non-sanctioned vessels to transport Iranian petroleum to third-country buyers. Iran often uses multiple STS transfers—usually three to five—in a single shipment to obfuscate the origin of crude oil and/or the involvement of sanctioned tankers. Successive STS transfers serve little commercial purpose and are a strong risk factor for sanctions evasion, especially when these operations are also conducted at night, in unsafe waters, near sanctioned jurisdictions, terminal, or refineries, or involve a vessel with missing or manipulated Automatic Identification System (AIS) data. (LPG shipments tend to be more efficient and involve fewer STS transfers, but they still rely on “clean” or non-sanctioned vessels to ultimately deliver cargo to third countries.)
Falsifying vessel and cargo documents
Iranian-linked networks have been known to falsify vessel and cargo documents to obscure the origin and destination of petroleum shipments. This is achieved by manual manipulation or by obtaining new cargo documentation issued by a relevant competent authority, thereby concealing the Iranian nexus by exploiting lax jurisdictional oversight and established customs processes. Complete and accurate shipping documentation is critical to ensuring all parties to a transaction understand the counterparties, goods, and vessels involved in each shipment. Bills of lading, certificates of origin, invoices, packing lists, proof of adequate insurance, and lists of last ports of call are examples of documentation that typically accompanies a shipping transaction that can be modified or indicative of potentially evasive practices.
Manipulating vessel location and identification data
Vessels carrying petroleum from Iran have been known to intentionally disable their AIS transponders or modify transponder data to mask their movements, including port calls and STS transfers in certain waters. This is also commonly done in conjunction with other data manipulation, including Iranian vessels reporting the Maritime Mobile Service Identity (MMSI) number of a different, non-sanctioned vessel or the International Maritime Organization (IMO) number of a vessel that has been scrapped and is no longer in operation. This tactic can conceal a cargo’s Iranian origin, create uncertainty regarding the location of Iranian vessels, and/or obfuscate STS transfers of Iranian cargo. When investigating vessels for AIS manipulation or involved in successive STS transfers, it is essential to research all involved vessels not only by name but also using multiple identification and location data points. If a ship needs to disable its AIS in response to a legitimate safety concern, the ship should document the circumstances that necessitated disablement, and stakeholders including shipowners, charterers, ship managers, and flag registries should receive documentation as appropriate.
