Shadow fleet
A shadow fleet, also referred to as a dark fleet, is a ship or group of such shadow ships, "...that uses concealing tactics to smuggle sanctioned goods". Shadow fleets are a direct response to international or unilateral economic sanctions. The term therefore more broadly refers to practices of sanction-busting in the maritime domain through the use of unregistered or fraudulent vessels. Goods commonly exported and imported include raw materials such as oil and iron, luxury goods, weapons and defense technologies, etc.
Shadow fleets use a wide range of techniques in a complex layer, aimed at obscuring their activities or keeping plausible deniability. Though those techniques are well documented and are similar across actors, they create enforcement problems for authorities due to lack of coordination, cooperation, or resources and political will. Moreover, shadow fleets operate in legal grey zones, often on the high seas beyond the jurisdiction of coastal states, making arrests and seizures difficult.
Since the Russian invasion of Ukraine in 2022, the Russian shadow fleet smuggling Russian oil for export has drawn renewed attention. This has led to growing concerns about the geopolitical impacts of such fleets, their significance with regards to sanctions' enforcement and efficacy, and the safety and security risks they create. Indeed, as 'dark' vessels use deceptive practices and often constitute ageing vessels, they "present a serious threat to maritime security, safety and the marine environment". The International Maritime Organization signaled its desire to create new enforcement mechanisms against grey ships, signing a resolution in October 2023 that defined for the first time the term 'dark' ship. It noted that:
Practices and techniques
Various techniques are employed by shadow fleets in order to mask the identity of the vessels, their destination and origin points, or to fabricate paperwork for trading purposes. Such techniques are often used in a layered and complex manner making enforcement more difficult and generating additional compliance costs and risk for private companies across the maritime supply chain. Those practices may exploit legal flaws in the International Maritime Organization registration and transmission requirements, insurance loopholes, and the lack of cooperation between geopolitical adversaries.Automatic Identification System manipulation
or AIS is an IMO-mandated transponder aboard all registered vessels which transmits the identity and location of ships. This is publicly accessible data. The technology allows data-tracking for ships on the high seas, and underpins the system as both a "regulatory weapon and compliance shield". Yet its limitations have been exploited thoroughly by sanction busting actors. Because of the voluntary nature of the system, AIS-data transmission can be turned off, allowing for ships to 'disappear' when engaging in illegal or illicit activities.Sanction enforcement can counter such practices by including AIS switch-off clauses in insurance contract. They can also track the AIS switch offs with satellite imagery or artificial intelligence to track suspicious ships. However, the system allows for plausible deniability, as for example the transponder could have been switched off for security reasons, or due to power-outages on board.
Spoofing, which is largely used by Iran's ghost fleet, has been defended by industry experts as a means to counter piracy, and can involve the large-scale transmission of data to drown sensitive information. This explains the industry pressure for the transmission system to remain voluntary and not mandatory, which would help enforce sanctions. AIS spoofing also refers more generally to the deliberate manipulation of ship location or identification data to mask a 'shadow' vessel illegal activity.
Failure to broadcast or malfunctioning AIS can also have serious consequences and decreases safety at the seas.
Ship-to-ship transfers
Ship-to-ship cargo transfers refer to the use of intermediary vessels to bring goods to shore. This allows shadow fleets to stay on the high seas, avoid detection and seizure by coastal authorities, and smuggle their cargo in.Bunkering refers to the re-fueling of ships at sea through an intermediary tanker. This allows illegal vessels to remain on the high seas for extended period of time and avoid detection.
Both practices are legal but regulated in the territorial waters of coastal states. The use of such strategies on the high seas exists in a legal grey zone and is difficult to detect, though sanctioned entities are often prohibited from benefiting from such transfers.
In a report in 2013, the International Maritime organization acknowledged that such practices generated considerable risks to commercial shipping, safety, and environmental security:
Registration and identity laundering
Generally speaking, vessel identity tampering refers to the process of masking 'shadow' vessels real identities in order to trade sanctioned goods, and make detection more difficult.The concept of vessel identity laundering represents a new and more sophisticated method employed by several North Korean ships, and likely vessels from other sanctioned states. Unlike traditional identity tampering, which involves blurring the ship's physical, digital, and registered identities, vessel identity laundering exploits flaws in the IMO numbering system to create a complete shell identity. Direct identity laundering refers to the creation of a new legitimate ship identity by registering an unclean vessel under a new clean identity. Indirect laundering refers to the use of a second 'clean' ship loaning its identity to the dark ship.
Those techniques are efficient due to a multitude of factors. First, it leaves plausible deniability to companies involved, therefore encouraging reduced due diligence by private actors. Second, it exploits the flaws in the IMO registration process which does not require in-person verification of a new vessel identity. Third, it profits from the weak protection granted by AIS and MMSI numbering systems.
Vessel identity laundering is also tied to routine flag changes aimed at obscuring a vessel's origin. A U.S. Department of The Treasury report detailed that out of the six vessels involved in sanction evasion, three were sailing under the flag of Cameroon, one under Liberia, and two under the Russian flag at the time of the report. Currently, none of these vessels, identified by their IMO numbers, are registered under their previous flags. Instead, six out of the seven have switched to the convenience flag of Cameroon, while one has opted for the flag of Tanzania.
Financial
As soon as shadow ships have made a delivery, the question arises how this delivery will be reimbursed. Many sanctioned entities face here the difficulty of being effectively paid. US and EU sanctions can seriously restrict the use of the international banking system and access to Dollars and Euros, the two main currencies used in international trade. Sanctioned countries and their trade partners must therefore be inventive to circumvent the financial aspect of a sanctions regime. This shows that the intended functioning of a shadow fleet is dependent on a complex layer of on-shore strategies. Shadow fleets are therefore often deeply intertwined with illicit activities beyond the maritime domain like financial and administrative fraud.For example, in the case of North Korea, Stanton points out that "long before North Korean vessels conduct ship-to-ship transfers under the cover of night, on-shore operatives go to extraordinary lengths to establish anonymous shell companies, falsify financial and ownership records and bribe customs officials".
Common methods to circumvent financial sanctions that can be employed for the reimbursement of sanctioned goods, at least in the case of Iran, include:
Front companies
Sanctioned entities may decide to found shell companies in non-sanctioned countries through which business with the rest of the world can then be further facilitated, on behalf of the in-reality sanctioned entity. For trade partners it is often, at first glance, not necessarily obvious anymore that they do business with a sanctioned entity. When links to the sanctioned entity are uncovered, the front company will in many cases be struck by secondary sanctions. Front companies will therefore be usually set up in countries where compliance oversight is low and/or where political elites generally disagree with the imposition of sanctions.Local and cryptocurrency use
A sanctioned entity might just accept the local currency of the country it ships goods to. The problem here is that these currencies are often less useful on international markets than, for example, the US Dollar. It can still be used for purchases within that specific country and money transfers can happen through non-Western financial mechanisms. The relative anonymity of cryptocurrencies offers a new way to get around financial sanctions.Exchange offices
offer an opportunity to launder a "weak", local currency into a hard one. Exchange offices can also technically serve as bank branches when a money transfer is carried out by one person paying in a certain amount of money in one office and another receiving the equivalent amount of money in a hard currency on the other end. Again, limited oversight is important for such operations.Bartering
ing describes the practice of the direct exchange of goods. That way, exports can be reimbursed non-monetarily. These exchanges can theoretically include specifically requested goods, consumer products or goods of generally assumed value, like gold.Flag states
Flags of convenience, also referred to as open registries, are maritime flags associated with countries that impose minimal to no nationality requirements on vessel owners and operators. These registries, predominantly managed by approximately forty states worldwide, are thought to prioritize profit over safety, environmental protection, and compliance with international regulations.Flags of convenience serve as a central component in facilitating maritime sanctions evasion by offering a streamlined process for flag registration. Vessels registered under these flags frequently engage in deceptive shipping practices, including flag hopping, disabling vessel identification systems, and conducting ship-to-ship oil transfers, particularly involving aged tankers operating in sanctioned oil trades.