Red Sea Ship Attacks: The Sanctions Connection

By: Donna Wedgeworth, Senior Trade Advisor
Date: 01/30/2024

Global maritime shipping is the keystone of international commerce. So when international shipping is in crisis, global trade and supply chains are likewise brought into crisis. The shipping sector has faced many challenges to ocean transit over the last several years. As we can see from the current global news headlines, the shipping sector is facing yet another significant challenge from the Houthi rebel attacks on ships in the Gulf of Aden and the Red Sea, a necessary route for vessels transiting the Suez Canal.

Ansarallah, more commonly known as Houthis, attacks on ships have been ongoing since the start of the conflict between Israel and Hamas. Houthi groups are using the attacks to wave the banner of Palestinian solidarity in hopes that the chaos from the global commerce disruptions will encourage a ceasefire in Gaza. In the past several weeks, U.S. and ally countries have rallied together against the Houthis with both U.S. and U.K. forces launching air strikes on rebel targets in Yemen.

As military actions continue, international shipping companies are scrambling to reroute vessels around South Africa’s Cape of Good Hope to avoid the rebel attacks, but the change of course will add significant delays of goods delivery and increase costs for the circuitous transit.

On January 17th, the U.S. Secretary of State announced the designation of the Houthis as a “Specially Designated Global Terrorist,” (SDGT) stopping short of the more stringent designation of “Foreign Terrorist Organization” (FTO). In the press briefing, State Department Spokesperson Matthew Miller stated the SDGT designation was to “(1) maximize the deterrent impact on the Houthis while (2) mitigate the impact, any potential impact, on vulnerable Yemeni civilians.” Mr. Miller went further to explain that there was a concern the FTO designation may create a “deterrent effect” on humanitarian aid efforts to Yemen. The SDGT designation will go into effect on February 16, 2024.

This is not the first time the U.S. has acted against the Houthis. In January 2021, Former President Donald Trump placed the FTO designation on the Houthis near the end of his time in office. In February 2021, President Biden reversed that designation by rescinding the prior order citing concerns that the sanctions were creating a larger humanitarian threat to the Yemeni people.

But from a sanctions perspective, what is the difference between the SDGT and FTO designation? The primary difference is in the type of penalties imposed on the target entity. The SDGT designation is a financial focused sanction used to choke off the funding sources to the terrorist group. Once the SDGT designation is made, the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) initiates actions that block the assets of the targeted entity in the U.S. or in possession or control of any U.S. person, including U.S. financial institutions, and block the assets of any person or entity that supports or assists the target group. The entity is also listed on the Department of the Treasury’s “Specially Designated Nationals List” indicating that their assets are blocked and U.S. persons are generally prohibited from dealing with them.

In contrast, the FTO designation makes it unlawful (a criminal act) for any U.S. entity to knowingly provide “material support or resources”1 to the target group which essentially prohibits any type of support whether financial or otherwise. Additionally, individuals associated with the FTO entity are forbidden entry to the United States, and further, allows civil lawsuits to be filed against the designated entity by victims of terrorist attacks. U.S. persons found to be materially supporting the FTO entity may also be designated as a terrorist and subject to the same sanctions controls as the FTO.

On January 25, 2024, OFAC issued a press release announcing the imposition of sanctions on four key Houthi leaders in advance of the February 16th effective date of the SDGT designation. The four individuals are listed by name on the OFAC SDN List.

The terrorist attacks in the Red Sea are just one current example serving as a reminder of the importance of conducting transaction due diligence in cross-border transactions. Knowing who you are doing business with is not just sound business practice, it’s the law. OFAC’s regulations generally prohibit all transactions by U.S. persons or any person within (or transiting) the United States that involve any property, or interests in property, of designated or blocked persons. Regular checks of the U.S. restricted and denied parties lists are one of the simplest ways to prevent unauthorized transactions with designated parties. The lists are free of charge and publicly available. The U.S. Department of Commerce International Trade Commission maintains a Consolidated Screening List Search Engine that provides a simple single search location for checking all restricted/denied parties lists maintained by the U.S. government.

Have questions about how the imposition of sanctions may affect your business pipeline? Contact the Trade Attorneys and Advisors at Torres Trade Law.

1 The term “material support or resources” is defined in 18 U.S.C. § 2339A(b)(1).