Implications of China's Anti-Foreign Sanctions Law on the maritime sector and marine insurers

By Ronald Sum (Partner, Addleshaw Goddard (Hong Kong) LLP), Beryl Wu (Associate, Addleshaw Goddard (Hong Kong) LLP), Hannah Tsang (Trainee Solicitor, Addleshaw Goddard (Hong Kong) LLP), IUMI Asia Hub – Hong Kong

Sanction is a subject of concern to many sectors and the marine insurance industry is no exception.  The recent passage of the Anti-Foreign Sanctions Law of the People’s Republic of China has attracted much attention around the globe. The IUMI Asia Hub at Hong Kong has invited experts to share their professional insights on the subject.

-- Selina Lau, Chief Executive, The Hong Kong Federation of Insurers


Countries regularly impose sanctions on individuals or other countries because of international law violations and also as a manifestation of rising bilateral tensions. Shipping vessels carry various types of cargoes from various countries of origin to various destinations, and they may visit black-listed countries and ports, and marine insurers may underwrite entities which may be or are closely related to entities on the sanction list. These place operators in the maritime industry under tight scrutiny by sanction authorities. In recent years, the maritime industry has been at the forefront of the US sanctions regime. China passed the new Anti-Foreign Sanctions Law (hereinafter referred as "AFSL") on 10 June 2021. This AFSL is regarded as a "retaliatory" piece of legislation to other countries' sanctions.  Following this latest addition to China's sanctions law regime, the maritime industry and marine insurance underwriter need to start taking action to ensure sanctions compliance.

The maritime industry essentially concerns itself with regard to the movement of cargoes by shipping vessels across different countries and jurisdictions through multiple layers of operators. The complexity of shipping arrangements and the lack of data transparency could create an opportunity for sanctions evasion through concealing identities or disguising shipping information. Therefore, operators in the maritime sector need to be on alert for risk factors specific to the industry, for example, ship-to-ship cargo transfers or AIS manipulation. Shipping arrangements also vary from case to case, which would warrant different sanctions enforcement responses. Furthermore, government authorities in different countries may target marine underwriters in ensuring sanctions compliance in the marine insurance sector. Hence, marine insurers need to be vigilant in screening their clients, be on alert for individuals or entities designated on the sanctions lists, and perform "know your customer" checks.

Marine underwriters may also find themselves caught between opposing sanctions regimes. The sanction laws of some countries have extra-territorial applications, for example, the United States. Therefore, many commercial contracts, including marine insurance contracts, would require a contracting party to comply with the sanctions law of the countries relevant to the transaction. However, under the AFSL, any foreign or Chinese individuals or entities found to be implementing or assisting the implementation of such a foreign discriminatory restrictive measure against Chinese citizens or entities, may be in breach of the AFSL. This might lead to legal actions being instituted against the marine insurers. If the marine underwriter has branch offices in China, under the AFSL, the relevant government authorities are empowered to impose administrative sanctions. Marine underwriters may find themselves "caught between a rock and a hard place".

Marine insurers should consider implementing a comprehensive sanctions compliance programme to ensure sanctions compliance. They should collect the relevant information, including the shipping route, jurisdiction in which a vessel is flagged, country of origin and destination of shipped goods, access to end-user certification, whether the shipped goods are dual-use, and the details of the assured.

Tension between China and other countries, particularly the United States, will most likely persist or even be on the rise. Therefore, marine underwriters need to take sanctions compliance seriously and spend more resources to minimise sanction-related risks.