VIEWPOINT: The Sanctions Policy Question

Chris Morgan is global head of credit at Delta. Image Credit: Delta Energy

It is fair to say that the last fourteen days or so have been amongst the most challenging in my 20+ years in bunkering thus far.

My first job in bunker credit for a bunker company was with a very well-known publicly-listed major who were then and still are viewed by many as the standard in terms of bunker compliance. I arrived on my first day as prepared theoretically as I could be having spent a decade writing marine and aviation credit reports for two of the big four credit report providers. However, I vividly remember being gobsmacked at how little of that actually mattered in the mechanics of the real world job and how critically important the compliance side was. Very few other bunker players took compliance that seriously back then. I had had almost no training or knowledge in it and it really drove home to me how much I had to learn. The lessons I learned there have never left me.

Things have changed a lot since then though and the global sanctions landscape has altered so much in that time. It is probably the most important risk factor for bunkering now.

It feels weird even writing that, but the stakes really are that high. (Intentionally) doing the wrong thing even once now can kill a company and the careers of its management stone dead whereas most bunker companies have at least some degree of ability to soak up a few major credit losses before things get existential, not least because we mostly all have credit insurance now to guard against credit misfortunes that can happen. The fines for sanctions evasion, or rather, provision of services to entities involved in sanctions evasion, (I.e.: fuel) are astronomical and those caught breaching sanctions can face criminal charges and even prison time under some circumstances.

The problem has been historically that there is no one recognized authority that advises sanctions compliance measures for bunker companies that the banks, insurers and financiers all also use. The banks are the arbiters of the trades and so policy is often shaped by "What will get stopped at the bank" rather than "what is the correct thing to do here?".

As with dealing with the Iran and Syria, North Korea sanctions etc, the first you will likely know about having got something wrong is when the correspondent banks hold your payment up and it doesn't appear in your bank account when it is supposed to. So too it is here for Russia. Either way, the banks will give you almost no opportunity to have any kind of discourse with them and in most cases you will not even be told what their issue is and why this particular deal or vessel has been held up. So it is vitally important to stay ahead of the game and ensure you have your bases covered. Nothing can slip through. But if the banks aren't telling you which bases to cover, then how can you really be sure you are doing the right things, much past the obvious OFAC stuff?

How long is your "firebreak" period? How do you view taking transactions in other currencies? How far do you take UBO chains? Can you broker deals instead of trading them? What if there is a UN Food Aid waiver and how can you communicate that to the correspondent bank ahead of time? What if the cargo is bulk and not oil?

All our sanctions policies are shaped by how we view the answers to these and several dozen more questions. What is right and what is wrong? The lawyers can help advise but ultimately it's a choice that needs to be made and you need someone who understands to make it.

The landscape as of now is that there are a raft of cross-theatre sanctions measures from the US and the EU and beyond, all with different meanings and intents and all with different effects on how the trade can work. The "right" response for one country may not be so for another one as the sanctions are different.

The lucky seniors amongst us get to mould and shape compliance as well as credit policy and I've been fortunate to have had the opportunity to do just that at Delta Energy. Drawing whole new credit and compliance policies up from nothing forces you to think about things differently again.

As mentioned earlier, there is no one approach or raft of measures that everyone can adopt. It requires a serious amount of thought and consultation with lawyers and management to reach a consensus that works for your business. It isn't just plucking measures out of the sky either; you have to do a detailed portfolio review of any customers and suppliers, other traders etc affected directly and indirectly by what has happened and an understanding of what your new sanctions policy measures mean for them. Then of course, no sooner have you made the adjustments to the compliance policy you have in house and got it signed off by the board, then it is outdated as more sanctions have come in and you need to tweak the response again.

There is also some conferring with other bunker companies in terms of seeking their views on how they see things. They say no man is an island and neither should any bunker trader be. It has never been more important for us all to work together as one than right now. Bunkering, hyper-competitive and occasionally a bit unpleasant between certain players, doesn't have the best record of this but we must do better. All of us.

Lastly, we need to ensure that the measures we take are applied consistently, fairly and with a proper checking process and oversight and that future moves to tighten or unwind sanctions measures are planned out in advance in a framework all stakeholders can agree on, so that moves and the decisions to make them can be made quickly if necessary.

Its really not a simple thing and it gets more complicated again once you factor in credit risk as well. Who might have been seriously impacted and weakened by these developments? How far down that rabbit hole do you go?

I've always been someone who overthinks things and this is, if nothing else, an exercise in training yourself to trust your decisions and not to overthink things too much.

Regardless, these are unprecedented times.

I saw on BBC World Business Report on Friday morning that Russia is already by far the most sanctioned country on earth, far eclipsing Iran and North Korea etc. IP Week in London just before it all kicked off seems a long time ago now, but it wasn't. The speed at which things have moved is bewildering and few could have predicted or prepared for how things worked out to this point. It seems churlish to even try to predict what will happen now but I hope we are at least much better prepared for whatever new horrors this awful war may unleash today, tomorrow, next week, next month etc.

Stay safe everyone.