The sanctions that have been and are being imposed on Russia by the EU, UK and US, as well as other nations, have created difficulties for compliance departments immeasurably larger than any problems relating to sanctions on Venezuela, Iran or North Korea, according to members of a panel at Tuesday’s Marine Insurance London, moderated by Neil Roberts, Head of Marine and Aviation at the Lloyd’s Market Association and member of IUMI’s Policy Forum & Ocean Hull Committee.
Michelle Linderman, partner with international law firm Crowell and Moring, said that people and businesses in Europe in particular were so closely tied up with the Russian economy that when a large and ever-expanding package of sanctions are brought in within a few weeks, it was “completely unprecedented”. She said that anyone working in legal compliance was being flooded with queries. A further problem was that, although there was a degree of harmonization between the UK, the US and the EU, as well as other jurisdictions (including Australia, Canada and Singapore), the sanctions were not particularly in alignment.
The three broad categories of sanctions were geographic, people and businesses, and sectoral. Countries were adding to each of these at a staggering pace, so a compliance officer needed to check on where a trade was taking place, with whom it was taking place, and what was being traded.
Rosana Boyle, Head of Product, Risk and Compliance, Lloyd’s List Intelligence, said that there were about 2,500 Russia-affiliated commodity-carrying vessels, about 3% of the commodity-carrying fleet. She noted that, on top of the sanctions imposed by governments, there was a considerable amount of self-sanctioning going on. The panel members said that the reasons for this included taking a moral stance on the Russian invasion of Ukraine, concerns about reputational risk, and concerns that, even though something might be legal today, it might not be legal by the time the trade takes place. Finally, there was the degree of uncertainty as to whether something would be ruled as sanction-busting or not.
Daniel Tadros, Chief Legal Officer at American P&I Club, said that there were so many new sanctions coming out on a daily basis that “there was a lot of confusion out there”. As a result, owners and charterers were erring on the side of caution. He noted that many vessel operators didn’t have their own compliance teams. And at the moment it was not enough to know your client, “you need to know who your client’s client is”.
Ruth Hosking from Quadrant Chambers said that there was currently a strong desire not to be on the wrong end of sanctions. Shippers were aware that more sanctions could be imposed, so they were being very careful about what business they would accept.
Linderman observed that for companies involved with Russia, there had to be a balancing of risks. Did you want to risk being prosecuted for (unintentionally) contravening sanctions rules, or did you want to risk being sued by your counterparty for defaulting on a trade where it transpired that the sanctions rules did not apply? She and other panel members observed that in the UK the word “control” was one that had no predefined meaning in English Law (Tadros observed that this was different in the US OFAC regulations), and that in the US there was strict liability, while in English Law that was not (yet) the case. Another phrase, “connected with Russia”, left compliance officers unsure of their position.
The panel observed that parties were tending to err on the side of caution, particularly if no contract had yet been signed. Hosking also noted that in the UK there had been a significant lack of guidance. She said that on February 28th the UK government had said that it would produce guidance on the new laws, but, nearly a month later, nothing had been forthcoming.
The panellists also agreed that, whenever a fast-moving situation such as this emerged, there would always be some people “looking to make a fast buck”. Tadros agreed, and said that the “bad actors” in the shipping trade had become increasingly sophisticated in the past few years when it came to concealing trades with Iran and Venezuela.