Regional Focus: UK shipping: public-private cooperation is working

If ever there was a time where government and industry were so closely aligned when it comes to growing and selling the maritime message, it has to be now with at least 13 UK Government departments working hand-in-hand with the UK and international shipping sectors in promoting global maritime through the ever-popular London International Shipping Week.

The UK Government sees maritime as central to its policy of growing world trade, at a time when all signs point to a possible ‘no deal’ Brexit. The UK will need new trade deals to fill the gaps and as we all know, trade is shipping and shipping does contribute handsomely to the UK’s tax coffers. It is also a growing employer of young people in the country as well.

But with the coming into power of Boris Johnson and his new largely Brexit Cabinet the emphasis on trade and shipping is in even more sharp focus.

But as Harry Theochari, Chair of Maritime UK, emphasised in a letter to the new Prime Minister, as an island, maritime nation, the UK’s maritime sector contributes £37.4bn to GDP and supports 957,300 jobs. “Today, the UK is one of the leading maritime centres in the world. As one of Britain’s leading generators of economic benefit, the maritime sector is uniquely placed to support government in delivering its ambitions. Indeed, due to its size and truly national spread, to support you in delivering against many of the pledges you made during your leadership campaign. There are monumental opportunities for our sector – whether on technology, meeting environmental challenges, coastal economic development, attracting more maritime business to our shores or for the people that underpin our success. Whilst industry will do all it can, there are definite areas where government must do what only government can do.

“Given recent events, we must ask first and foremost, that the UK Government does everything necessary to protect merchant shipping. There is an urgent need for decisive action by the UK Government to implement practical measures to restore confidence in the shipping industry to ensure the Gulf does not become de facto closed to UK business. The Royal Navy does a first-class job in supporting our international trade, and beyond, but there are real concerns about resources and capacity to do the job that is asked of it in an increasingly unpredictable geopolitical context.

“Clearly the most pressing issue facing your new administration will be to deliver the UK’s departure from the European Union. Like you, the maritime sector has been clear that it has a preference to leave the EU with a deal but has been working closely with government to prepare for all eventualities. Pressingly, significant parts of the economy are not ready for Brexit and are facing difficulties in becoming so. The Government must do four very practical things as a matter of urgency to speed the preparation of UK business for Brexit.

“Reset the short-term border measures that were in place for March 29th to October 31st, so industry has more certainty on what it’s preparing for; substantially step up the public information campaign on getting ready for Brexit and look at proactively issuing international trader registration numbers; make sure that short-term border measures for ferry ports apply to all ports so British business has the widest possible range of options for easier post-Brexit trading; and deliver the upgrades to common customs IT systems necessary for handling substantially higher volumes of declarations.

“Regardless of what happens in the coming weeks, one thing is certain; Britain’s future success and prosperity will depend upon its ability to trade across the world. Our maritime sector, the engine of trade, will therefore be central to this mission,” he said.

It is this ability to trade which is important and you only need to look at the events surrounding the detaining of the tanker in Gibraltar and the subsequent hijacking of vessels in the Gulf by Iranian forces to understand the issues surrounding shipping and international sanctions.

But are owners and charterers becoming more aware of the issues surrounding sanctions? According to David Watts, Global Commercial Manager at Polestar, in a simple word, yes. “But much broader than that. Everyone involved in the management and operation of the ship from the charterer to the seafarers, are, as far as the US State dept is concerned, directly in the cross hairs of organisations that will be penalised from sanctions.

When it was set up in 1998, Pole Star was the first company to use satellite data  to monitor and  track maritime vessels in real time, and as Mr Watts stressed, 21 years ago that was a big thing. Using technology and market knowhow, the company is able to undertake a full check of the vessel, owner, operator, manager, flag and ports it has visited, and then compare this data to an international sanctions check list.

“And based on the customer’s risk profile, we can then respond in 15 seconds to determine whether a vessel has contravened pre-defined criteria. If a client doesn’t want to charter a vessel that has ever been to Iran, how would you know. The system can do that, or see if it is beneficially owned in a certain country etc. if it has no issues then it is given the green light,” said Mr Watts.

On the issue of international sanctions, one of the sector’s major law firms, Hill Dickinson, was cited for the speedy resolution of a sanctions case surrounding trade with Venezuela. In one of the fastest delistings in recent Office of Foreign Asset Control (OFAC) history, on 3rd July 2019, the US Department of Treasury and OFAC, delisted PB Tankers S.p.A and its five owned and one managed vessels, removing them from the sanctions listing in relation to trade with Venezuela.

The company’s continued commitment to strong compliance policies and procedures, as well as the support of the Italian authorities and the quality of the information provided by the company and its professional advisors (Julian Clark and Siiri Duddington from Hill Dickinson and Matthew J Thomas of Blank Rome) were cited for the speedy resolution of the case.

By way of background, on 12th April 2019, the company and its fleet was designated to the US Specially Designated Nationals (SDN) List, triggered by the delivery of oil products on one of its vessels, Silver Point, from Venezuela to Cuba during March 2019. When the sanctions were imposed on PDVSA, the vessel was on long-term time charter to Empresa Cubana Importadora de Combustibles  Lubricantes (Cubametales). At the time the Company and its fleet was designated, the company was working to amend or cancel the charter, to require Cubametales to stop using the vessel for carriage of PDVSA-origin cargoes. The company had no contracts or other commercial dealings with PDVSA itself and was acting in accordance with legal advice obtained in relation to the sanctions position. The company sought to take those steps notwithstanding the fact that the text of E.O. 13850 did not bar non-US persons from transporting PDVSA-origin cargo, and there was no clear secondary sanctions regime banning non-US shipping from Venezuela.  Moreover, OFAC guidance indicated that non-US persons were not barred from dealing with PDVSA exports.

The company is a wholly family-owned shipping company with a history stretching back to the 19th century, owned and based in Italy. The designation was made without notice and, understandably, had a catastrophic effect on the company, its workers and counterparties. It immediately halted the company’s (and the vessels’) operations, hindering the provision of supplies and services to the vessels, precluding repatriation and replacement of crew members, caused the termination of insurance cover that is necessary to protect third parties and the environment in case of an incident, cut the company off from banking services, and created an imminent risk of a grave financial crisis for the company, so much so, that the company was pushed towards bankruptcy administration.

The company’s strategic response to the listing under the guidance of Hill Dickinson’s shipping lawyers and Blank Rome, was key to the result. This involved co-ordinating with the company, its embassy both in Rome and Washington DC, as well as various Italian and EU institutions, to maintain pressure not only through formal channels, but also by way of strategic lobbying. Throughout this process, the shipping team implemented an action plan that managed the delisting application to OFAC and the US State Department, and ensured the best possible protection for the company’s existing contractual relations and third party service providers, as well as its continued existence during this difficult time, particularly with regard to its crews, vessels and the environment. Finally, the team assisted generally with steps to protect the company’s future, while ensuring that the focus remained on achieving a formal delisting. It is important to note, however, that what was never lost in this process was the fact that the company is a family-owned shipping company, with a real heritage and standing in the community, and this gave further urgency to a particularly dire situation.

As Hill Dickinson said: “The case is a stark warning of the sometimes-unexpected reach of sanctions regimes, and the dire consequences of falling foul of those sanctions, even unknowingly. The starting point for ship owners is ensuring that robust sanctions clauses are included in all their contracts to protect their position particularly in the ever-changing sanctions landscape.”