Freight Forwarders and Common Carriers: As You Look Ahead to 2024, Do You "Know Your Cargo"?

Venable LLP

As federal regulators have recently made clear, steamship lines, non-vessel-operating common carriers, indirect air carriers, freight forwarders, and others involved in the global movement of cargo must ensure that their current compliance measures appropriately address U.S. sanctions and export control requirements, as malign actors persist in seeking to evade restrictions through transshipment and other tactics. Last month, the Departments of Commerce, Treasury, Justice, State, and Homeland Security issued a Quint-Seal Compliance Note ("Note"), identifying warning signs and providing recommended best practices for all modes of the transportation sector, with a special emphasis on maritime.

For companies engaged in the movement of cargo in U.S. foreign commerce, this Note serves as important warning in the new year: implement robust compliance measures to "know your cargo" or risk becoming involved in a U.S. government enforcement action.

What to Know About Your Cargo

Common carriers, freight forwarders, and other parties involved in the transport of cargo to and from the United States are advised to proactively review their operations and examine whether any of the following red flags are present in their business operations. Moreover, they are warned to scrutinize shipping transactions that transit certain identified high-risk jurisdictions, including Russia, Iran, and North Korea (each being subject to broad U.S. sanctions and export controls), as well as China (as a major transshipment point).

The red flags highlighted in the Note include:

  • Lack of Transparency on Key Data. Malign actors will interfere with internationally mandated vessel tracking, navigational position data, unique vessel identification numbers, and other related data to obscure the movement or location of a carrier.
  • Falsified Transportation Documents. Those attempting to evade legal restrictions may rely on falsified documents to obscure the origin and destination of their cargo, including bills of lading, commercial invoices, insurance documents, packing lists, proof of insurance, lists of last ports of call, and other forms necessary for the import and export of cargo.
  • Ship-to-Ship Transfers. Ship-to-ship (STS) cargo transfers (i.e., when two vessels position alongside each other while at sea and transfer cargo from one vessel to another) are another evasion method, particularly those occurring in high-risk regions or at night.
  • Irregular Transportation Routes. Deviations from ordinary shipment routes, including the use of abnormal or circuitous shipment routes, and especially irregularities lacking legitimate explanation (e.g., extreme weather), are another warning sign for potentially illegal conduct. Parties are advised keep an eye out for shippers or carriers that prefer indirect routing, unscheduled detours, and unexplained transshipment through third countries.
  • Frequent Reregistration of Vessels. Vessels engaged in "flag hopping" (i.e., frequent re-registration under different state flags) is another likely evasion method warranting additional scrutiny.
  • Intentionally Complicated and Confusing Ownership Structures. Controls-evading shippers and/or consignees use opaque ownership structures as a means to hide the identity and location of the ultimate beneficial cargo owner, end user, or other entities involved in the movement of cargo.

Potential Legal Exposure for Companies in the Maritime and Transportation Industries

If any of the above-mentioned red flags appear in a transaction, parties should further investigate whether any compliance issues are in play. The potential cost of weak compliance is high: sanctions and export controls impose a strict liability standard, meaning that violators may be held liable even when their prohibited conduct was inadvertent. Even common carriers, freight forwarders, and others involved in cargo transportation must exercise appropriate due diligence to minimize their own exposure to civil and criminal enforcement actions, which can be pursued by an array of U.S. government agencies, including the Department of Justice (DOJ), the Department of Commerce's Bureau of Industry and Security (BIS), the Department of State's Directorate of Defense Trade Controls (DDTC), and the Department of the Treasury's Office of Foreign Assets Control (OFAC).

Certain U.S. sanctions apply extraterritorially, meaning beyond U.S. borders: even non-U.S. persons are prohibited from causing a U.S. person to violate sanctions and are barred from engaging in sanctions-evading conduct themselves. With regard to OFAC's Iran- and Cuba-related sanctions programs, foreign subsidiaries owned or controlled by U.S. companies are also bound to abide by sanctions regulations.

The Note underscores the following considerations with respect to legal enforcement for noncompliance:

  • The DOJ may pursue criminal prosecution and/or civil enforcement actions for violations of U.S. law that occur through bad actors' evasion of U.S. sanctions and export controls. BIS, DDTC, and OFAC support the DOJ in criminal investigations.
  • BIS may pursue administrative enforcement actions for violations of the Export Administration Regulations (EAR), which can result in significant monetary penalties and the loss of export privileges. Primary compliance responsibility rests on the "principal parties in interest" for a transaction (usually the U.S. seller and foreign buyer), but regulators warn that freight forwarders and other agents involved in a transaction also have compliance obligations, including ensuring that their export filings are complete and accurate.
  • DDTC may conduct civil enforcement actions against violators of the International Traffic in Arms Regulations (ITAR), with potential consequences that include monetary penalties and/or disbarment from engaging in ITAR-controlled activities, effectively excluding violators from supporting the U.S. defense sector.
  • OFAC conducts enforcement actions resulting in civil or criminal penalties, which can be significant: last year OFAC imposed a cumulative penalty of U.S. $6,131,855 against an international (non-U.S.) freight forwarder for causing U.S. financial institutions to unknowingly violate sanctions when these U.S. persons or their foreign branches received payment related to shipments involving sanctioned persons and embargoed regions such as North Korea, Iran, and Syria. The seven-figure settlement amount in this matter, found by Treasury to be non-egregious and voluntarily self-disclosed, was only a fraction of the $826,431,378 statutory maximum penalty for the violations.

Best Practices for Those in Maritime and Transportation Industries

To minimize risks under U.S. sanctions and export control laws, the Note highlights a non-exhaustive list of compliance practices, as follows:

  • Implement a Robust Compliance Program. Common carriers, freight forwarders, and other parties involved in the transport of cargo should ensure they have standard operating procedures, policies, and other written safeguards in place to provide internal guidance to employees and identify when issues should be escalated and to whom. The Note urges entities to leverage compliance resources issued by relevant U.S. government agencies. Experienced trade and logistics counsel can help to drive this process.
  • Adopt Location Monitoring Best Practices. Parties are advised to examine the location history of vessels, vehicles, and aircraft to identify any possible manipulation or attempts to obscure the movement of cargo. The Note calls on insurers and financial institutions involved in the maritime and transportation industries to play their part in uncovering shipping data manipulation. These participants should encourage continuous broadcasting of shipment tracking data by their counterparties.
  • Include Compliance Provisions in Contracts. Parties should ensure contracts include provisions requiring compliance with applicable U.S. laws, including sanctions and export controls, and expressly prohibiting parties from any transactions restricted under U.S. law.
  • Know Your Customer. As is routine in regulated industries, parties should apply KYC standards to new counterparties. This need for risk-based due diligence applies to entities providing services throughout the life cycle of cargo transactions, including insurers, financial institutions, managers, and charterers.
  • Use a Risk-Based Approach Across the Supply Chain. In addition to checks at onboarding (KYC), parties across all transportation industries are advised to exercise risk-based due diligence to ensure transactions involving transported cargo do not run counter to any trade controls under U.S. law. Requesting shipping documentation, licenses, and other information allows parties to verify information against publicly available databases and other resources.
  • Engage in Industry Information Sharing. The Note encourages information sharing between industry groups and organizations across the supply chain, as appropriate, to raise awareness of trends in challenges, threats, and mitigation efforts.
  • Report Red Flags to the U.S. Government. Parties are encouraged to report red flags to the relevant U.S. government authorities for further investigation, to protect their own business interests and promote national security. We recommend consulting with experienced counsel ahead of this process.


The recent Quint-Seal Compliance Note makes clear regulators' expectations for common carriers, freight forwarders, and other parties involved in the transport of cargo to "know the cargo" they are transporting or arranging on behalf of their customers. We recommend that all entities involved in the international movement of goods—especially common carriers and freight forwarders—carefully review the Note and referenced U.S. government guidance and enforcement materials to stay apprised of red flags and compliance best practices in a fluid trade landscape. The Note is the latest in a series of guidance materials issued by the U.S. government underscoring the breadth and depth of trade compliance obligations for those in the transportation sector and the significant legal and reputational risks at stake for failing to exercise an effective level of due diligence and controls.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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