(F pg1) Calypso Graphics - 2022

The Impact of Sanctions on Shipping and Trade

JTJB Trade Sanctions Article Featured Image

An economic sanction is a restriction on trade. It can have a far-reaching and detrimental impact on the economy and business interests including in the maritime sector.

Taking the example of Russia, the US, UK and the EU decided, to varying degrees, to target Russia’s energy sector which impacted the shipping industry and its insurers in a range of ways, such as:

  • Blockages in and around the Black Sea;
  • A continued rise in container freight rates due to record highs in oil prices;
  • The ongoing threat of a Russian cyber-attack on global supply chains;
  • Potential delayed payments in the shipping sector as several Russian banks have been banned from using the SWIFT payment system.


Singapore, which historically has sought only to give effect to United Nations Security Council sanctions, last year opted to follow Western jurisdictions and enacted its own targeted sanctions against Russia. Although Singapore doesn’t engage in significant direct trade with Russia, export controls could have a big impact.

The Monetary Authority of Singapore (MAS) has further issued directions to financial institutions reminding them to manage risks and to stay vigilant to suspicious transactions. While there is no blanket prohibition against all Russian related business and the sanctions remain targeted at specified entities and sectors, it is expected that financial institutions in Singapore will take a cautious approach.

JTJB Partner Rafizah Gaffoor commented: “Sanctions have a big impact on how payments work in the shipping world. We have encountered situations where banks stop payments which reference the IMO number of a ship which is suspected of trading with Russia, even though it is not officially under sanctions. This highlights how banks sometimes use strong and wide-ranging safety measures. The IMO number stays with the ship no matter if its name changes. So, when people buy or trade ships, they should pay attention to the IMO number, not just the name to prevent any issues in the future. Even if the ship changes hands, banks may flag associated vessel transactions owing to sanctions attached to the IMO number.”

Letters of Credit: A Case Study

In the recent Singapore case of Kuvera Resources Pte Ltd v JP Morgan Chase Bank, NA [2022] SGHC 213, Kuvera advanced funds to a seller for the purpose of funding the shipment of coal to a buyer. It was agreed that the buyer was to make payment by issuing two letters of credit (“LCs”) naming Kuvera as the beneficiary. Upon the request of Kuvera, JPMorgan Chase Bank’s Singapore branch agreed to be the confirming bank of both LCs.

However, subsequently, JPMorgan prepared a ‘sanctions screening’ of Kuvera’s documents and informed Kuvera that it would not pay out on the LCs as the transaction fell within the United States Office of Foreign Assets Control (“OFAC”) sanctions regime with respect to Syria as the vessel in this case was owned by a Syrian company.

JPMorgan’s confirmations contained a ‘sanctions clause’ providing that the bank had to comply with US sanctions, even though the transaction was being carried out by the bank’s Singapore branch. The Singapore High Court decided that the foreign sanctions clause was valid and enforceable and thus, JPMorgan’s refusal to make payment under the letter of credit was justified in this case. [Kuvera has appealed against this decision and the appeal is pending.]

Parties involved in international trade, including shipping insurers, have to closely monitor how certain sanctions affect a particular trade and consider how to mitigate their risk.

Commenting on how parties can mitigate risks, JTJB Managing Partner K. Murali Pany, notes: If there is any potential sanctions risk, sufficient due diligence must be carried out on all material aspects of the transaction – the parties, vessels, cargoes, and source funds involved. Contracts should also contain a tailored sanctions clause to address foreign sanctions risks or limiting liability for contractual default due to complying with sanctions.”

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