Paul Henty, Partner, Beale & Co. Image Credit: Beale & Co

The EU's 21st sanctions package has done something to physical suppliers that no previous round managed: it has made a company's own trading history a source of sanctions risk.

Until last week, physical suppliers generally approached EU sanctions risk stem by stem. They screened the vessel and the counterparty against the list, and if neither appeared on it, they supplied. If that check was done correctly, the risk was considered managed.

The criteria for listing vessels now extend to ships that provide services to already-designated vessels, including bunkering and towage, as well as ships that conduct ship-to-ship transfers with them. The Council applied the new ground immediately. Five bunkering vessels were designated on the basis that they had regularly refuelled tankers already on the list. A crewing agency was listed for the first time among fleet service providers.

Supply a designated vessel and you were in breach. Supply designated vessels often enough and you can end up on the list yourself.

That is a change in kind rather than degree. The consequence is not a penalty but a status, and it carries the port access ban and service denial that every operator here already understands. The distinction matters more than it sounds. A penalty, however heavy, is finite and looks backwards; it prices conduct that has already happened. A listing looks forwards and prices nothing. It removes the ability to trade, which for a physical supplier is closer to a commercial death sentence.

The commercial question is how often is often enough, and nothing in the package answers it. There is no numerical threshold, no measurement period and no safe harbour. The Council established a pattern in the first cases it brought, but no supplier can read across from those cases to know what will attract attention next, or assume the frequency proved there marks the floor of the criterion.

The difficulty is not that suppliers screen badly. It is that this fleet is built to defeat screening. Names change, flags change, AIS positions are manipulated, and a stem that came back clean on every check available at the time can turn out to have been supply to a vessel already on the list. One such stem is a breach to be managed. Several is the pattern those five vessels were designated for, and no check run before a stem can see a pattern that exists only across a supplier's own record.

Sanctions compliance in physical supply has moved from a point-in-time exercise to a relationship management exercise.

What if the supply was innocent? There is some comfort in the first designations, which reached vessels that had refuelled tankers already on the list. A customer that was clean when you fuelled it and designated a month later is not caught by that ground. The comfort stops there. Designation is a preventive measure rather than a penalty, and a listing criterion does not ask what the supplier knew. Innocence answers enforcement of the breach, where intent or serious negligence matters. It does not obviously answer the listing. Every safeguard that exists operates after the port access ban has already bitten.

None of which means a listing has simply to be absorbed. A designation is an administrative decision taken on the material before the Council, and the material is sometimes wrong. Vessels change names, IMO numbers are transposed, and a pattern inferred from manipulated positional data may not survive contact with a supplier's own stem records. The Council must give reasons capable of being tested and must have a sufficiently solid factual basis for each ground it relies on. A listed operator can ask the Council to remove it and can bring annulment proceedings before the General Court. That is the strongest practical reason to keep the records described above, because a delisting argument is fought with documents that existed before anyone was listed. The first challenge will test two things rather than one: whether the Council has proved this vessel's dealings, and whether a service-provider ground of this breadth is sufficiently delimited to be applied at all.

Hold bunkering history in a form that can be interrogated by counterparty and by vessel over time, not merely filed by stem.

That is the practical shift, and it is worth naming plainly. Sanctions compliance in physical supply has moved from a point-in-time exercise to a relationship management exercise. It is why bunker screening, trading records and counterparty systems, which have generally sat apart, now have to talk to each other.

The Court of Appeal's decision in The Catalan Sea in May acquires a second life here. While every case turns on its facts, the court there accepted that a party could rely on an objectively reasonable judgment that it faced a real risk of sanctions exposure, without proving a breach had occurred, and the contemporaneous record carried the day. That reasoning concerned somebody else's risk. The new ground turns it inward. The risk-management logic is the same. What changes is the subject, because a supplier must now weigh the exposure created by its own course of dealing.

Three things follow for Monday morning. Hold bunkering history in a form that can be interrogated by counterparty and by vessel over time, not merely filed by stem. Set internal triggers on repeat dealings rather than on single deliveries, so that a run of individually clean stems still reaches a decision-maker with authority over the relationship. And record the reasoning whenever a relationship is paused or ended, because on the Court of Appeal's approach that record is what turns a commercial decision into a defensible one.

None of this makes the designated list less important. It makes the list an incomplete answer to the question that actually matters, which is whether the next delivery is safe. The list tells you who is caught. It no longer tells you whether you are about to join them.

Which is why the last document to review is not the compliance manual but the contract. The hardest decision will arise before any vessel has been designated: whether an emerging pattern is serious enough to justify refusing the next stem, when the revenue is lawful and the consequences of getting it wrong run in both directions. English law gives no freestanding right to stop performing because sanctions risk has increased. The right to suspend or terminate is the right the parties have written for themselves. So the test is quick to run. Read your sanctions clause and ask what has to have happened before you are entitled to stop. If the answer is a breach, a designation or a listing, the clause does not reach the risk this package created, because all three of those arrive too late.

Paul Henty is a partner at Beale & Company Solicitors LLP, London and Dublin. He advises suppliers, traders and owners on sanctions compliance, contractual sanctions protections and challenges to EU designations.

Ship & Bunker News Team. To contact the editor responsible for this story email us at [email protected].