SHIP Experiences Increased Scrutiny of Payments by U. S. Financial Institutions In December 2010, MID-SHIP’s U.S. financial institution stopped an in-process transaction involving MID-SHIP due to a potential OFAC match. Around this time, on December 16, 2010, a MID-SHIP senior executive sent an email to a listserv group named “Brokers (MID-SHIP Group”) regarding OFAC clauses in charter party agreements. Earlier this year I had sent out an email regarding the inclusion of a new clause in all charter parties to assist in protecting our clients in case money transfers conducted in U.S. dollars are detained, delayed or arrested because of violation of USA law on foreign assets control. Basically, the U.S. Departments of Treasury and State (primarily acting thru [sic] the Office of Foreign Assets Control – OFAC) are trying to make sure that no monies are finding their way to North Korea, Iran, or other restricted destinations and they are holding up any questionable transfers that could appear to be in violation. The big concerns are 1) If the money transfer is held up, technically the shipowners may not be paid on time or at all in the worst case. If the freight is not received, then the owners could make a case that the charterers are defaulting under the [Charter Party Agreement] because the freight is not in the owners bank account in time [and] 2) Fighting with the US government/bank to get the money released…. In the last week we have had at least 3 transfers held up or questioned by OFAC and we it [sic] looks like they are stepping up compliance. Fortunately, 2 or [sic] the 3 had an OFAC clause in the [Charter Party Agreement]…. ***IMPORTANT NOTE*** Many brokers outside the [New York] office may think [the OFAC clause] is not needed for them as their clients do not trade to/from the USA. This is not a correct assumption. If the trade is executed and freight is paid in US dollars, then the funds can be arrested regardless of the trade [and] therefore it is important for all [Charter Party Agreements]. While the referenced email highlighted concerns with respect to OFAC compliance, MID- SHIP does not appear to have taken any additional steps or measures to determine whether the vessels associated with the transactions it processed were subject to U.S. sanctions. On February 18, 2011, MID-SHIP received a $41,700.19 outstanding commission payment due to a third-party broker for the M/V Adrian’s voyage. That same day, MID-SHIP initiated a $41,701.49 commission payment destined for the third-party broker. MID-SHI...
