By: Daniela Melendez (Associate at The Volkov Law Group) and Alex Cotoia (Regulatory Compliance Manager)

New guidance from the Biden Administration mandates that freight forwarders are responsible for complying with trade sanctions and export compliance. On December 11, 2023, the Biden Administration released a 10-page sanctions advisory (“advisory note”) detailing the critical role that freight forwarders occupy in maintaining compliant supply chains. The advisory note is a collective effort by the U.S. Departments of Justice (“DOJ”), Commerce, Treasury and State. The advisory note discusses the importance and relevance of various enforcement trends to freight forwarders and others involved in the logistics industry and reminds such parties of their obligations to comply with sanctions and trade controls. Importantly, the advisory note provides examples as to how unscrupulous actors undermine sanctions and trade controls by disguising the true origin, destination, or nature of cargo under shipment.

The advisory note goes on to emphasize the key role that freight forwarders play in “ensuring the security of the global supply chain, stemming the flow of illegal exports, and helping to prevent weapons of mass destruction (WMD) and other sensitive goods and technologies from falling into the hands of proliferators and terrorists.” According to the note, ”[f]reight forwarders [and] any company in the transportation business may not facilitate illegal transit of goods connected to individuals or entities in Russia, Iran, North Korea,” among other countries that are subject to export control laws. Although the government agencies point out that the “primary responsibility” for compliance rests with sellers and buyers, freight forwarders can be held liable when they are acting on behalf of those companies for breach of applicable U.S. trade and export control laws.

To mitigate the risk associated with violating U.S. export control and trade sanctions laws, the note emphasizes the importance of due diligence and careful assessment of common red flags involved in a transaction. By way of example, the advisory note describes what kind of red flags freight forwarders should be attuned to, including but not limited to, the utilization of foreign vessels to disguise the true origin or location of cargo; ships that flat out falsify cargo and vessel documents; and the utilization of unusual shipping routes that, in actuality, operate as transshipment portals. To that end, the advisory note strongly encourages logistics companies and freight forwarders to carefully review the location history of vessels, screen third parties involved in the transaction to ascertain whether or not they appear on any denied party lists, and conduct a thorough review of the exporting company’s licenses and shipping documentation (e.g., bills of landing, etc.) for evidence of any discrepancies. The advisory note further encourages companies to share information on challenges, threats, and mitigation measures.

It is important to note that the DOJ may pursue civil and criminal actions to enforce U.S. laws including violations or attempts to evade U.S. sanctions and export controls. For instance, the DOJ has brought actions against efforts by Iran to transport and sell oil products for the benefit of sanctioned Iranian entities such as the Iranian Revolutionary Guard Corps (“IRGC”). In addition, Commerce’s Bureau of Industry and Security (“BIS”) is empowered to bring administrative enforcement actions against freight forwarders when making misrepresentations on behalf of principal parties in interest.  Finally, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) can initiate civil enforcement actions to promote adherence to U.S. sanctions regulations imposed against countries, regions, and individual parties.

A survey of recent cases collectively highlight the importance of sanctions compliance:

• On September 8, 2023, the DOJ announced the first criminal resolution against a bareboat charter for transporting contraband Iranian oil and a deferred prosecution agreement with a second company that handled the operations of the vessel. The implicated companies facilitated the sale and transport of the Iranian oil for the benefit of the IRGC. Furthermore, the bareboat charter also caused a U.S. financial institution to process a transaction in dollars to the IRGC, thereby violating U.S. sanctions regulations.

• In July 2020, the DOJ filed a civil forfeiture complaint alleging that an oil cargo aboard four vessels was used to ship Iranian oil via ship-to-ship transfers to Venezuela. The company implicated in the underlying misconduct altered shipping documents and used a substitute shipper that changed names three times.

• In 2018, BIS imposed a civil penalty against a logistics company for exporting goods to entities in China and Russia that were included on BIS’s Entity list. Although the company had a sanctions screening program in place, when the company conducted preliminary sanctions screening, it used abbreviated names of third parties and the sanctions screening program failed to identify that certain companies were designated on the Entity List. The same party also blithely ignored a red flag that appeared when shipping liquid nitrogen plant to a Russian nuclear center. BIS determined that the company in question willingly ignored the red flags and imposed a rather significant administrative penalty of $155,000.

In sum, companies that operate in the transportation industry (maritime, air or ground) should take all the necessary steps to mitigate the potential for breaches of export control and sanctions laws. Joint efforts by federal agencies responsible for the administration of trade controls and sanctions regulations only serve to underscore the importance of taking appropriate action to ensure that a robust sanctions compliance program exists.