US Serves Fresh Sanctions To Starve the Houthis

New OFAC Sanctions On Houthis

The U.S. Department of the Treasury started the week on a good note by issuing sanctions aimed at the financial networks and illicit activities that support the Houthi movement in Yemen.

On June 10, 2024, the Office of Foreign Assets Control (OFAC) took action against the network of Sa'id al-Jamal, believed to have facilitated illicit shipments on behalf of the Houthis, an FTO group designated by the US Department of State.

This most recent set of sanctions is the seventh to be applied to the network since October of last year. The continued pressure illustrates the persistent threat from the network and the United States' determination to dismantle it.

These follow hard on the heels of the most recent Houthi attacks on shipping in the Red Sea and the Gulf of Aden, which caused shipping companies to divert their fleets to avoid the conflict area.

These are part of a broader effort to quell terrorism and other destabilizing actions within the Middle East, especially targeting entities, individuals, and vessels illicitly trading in oil and other commodities. This effort will serve the purpose of stabilizing the region and reducing the resources available to extremist, conflict-fueled groups.

The Houthi Movement - Middle East’s Middle Child

The Houthis, also called Ansar Allah, are a group of Zaidi Shia Muslim-led individuals based in northern Yemen. Since 2014, the Houthi group has been fighting their national government, which is officially led by President Abdrabbuh Mansur Hadi.

Their futile and inhumane manner has resulted in a significant calamity, as millions are starving and displaced from their own dwelling places. This attracted the attention of the US government, which is increasingly concerned about the disruptiveness of Houthi activities in the region.

Lately, the Houthis have gained a reputation for blocking shipping in the Red Sea and Gulf of Aden on such critical global trade routes, in particular over the shipping of oil. They have also targeted civilian vessels passing across this vital route of water. As a result, it puts the lives of sailors at risk, their freight in jeopardy, and threatens to disrupt global trade networks.

In response to them, the US sanctioned a network of individuals and companies alleged to be assisting the Houthis, with the intent of undermining their financial assets and limiting their ability to support the Houthis. The sanctions take away the ability of these organizations to participate in US financial markets and restrict US nationals from engaging in business with the sanctioned entities.

Targeted Individuals and Entities

The government of Iran heavily funds the Houthi militia. The United States Treasury Department has gone ahead to sanction a financial network connected to the government of Iran, related companies, vessels, and individuals, in support of the activities of the Iranian government. This, in particular, involved falling in line with illicit financial activities and the transfer and sale of Iranian oil.

The sanctions have been waged among different actors within the network that facilitates the exchange of illicit oil that the Houthi enjoys. These actors include the following:

1. Sa'id al-Jamal Network: This is a key network facilitator; Sa'id al-Jamal, also identified as "Rainbow," is connected to the IRGC in Iran, and uses a network of foreign marine firms to facilitate the traffickers/sale of commodities for sale to the Houthi rebels in various countries like China and Syria. The network conceals the network it originates from, counterfeiting vessel certificates, among other functions, for vessels operating on behalf of the network.

2. Shark International Shipping L.L.C.: This is a company based in the UAE. Its owner is John Britto Aruldhas; the company has been found to have issued forged shipping documents of vessels involved in the trafficking of commodities on behalf of the Houthis.

3. Rayyan Shipping (OPC) Private Limited: An Indian-based company that serves as the managing owner of the vessel OLYMPICS and remains active in carrying cargo on behalf of the al-Jamal network.

4. Lainey Shipping Limited: A Hong Kong-based company involved in transferring sanctioned cargo on behalf of the Hizballah-owned Concepto Screen SAL Off-Shore to Southeast Asia.

5. Louis Marine Shipholding Enterprises S.A.: A Panama-based entity, also engaged in these illicit activities.

Other vessels and their captains are also on the list. Further details on those sanctioned can be found on the OFAC website. These U.S. actions are part of a still broader international campaign to pressure the Houthis. Other countries could follow suit with similar sanctions or take other measures to help address the Yemen conflict.

Illicit Activities and Tactics Used

The reasons why people or corporations fell into the trap of aiding Houthis are varied. They can be anything from shared ideology with Houthis, getting monetary benefits, to fear of retaliation. The network applies several tactics to avoid detection and make the illicit trade possible. This involves

1. Concealment of Cargo Origin: Falsification of shipping documentation allows the network to obscure the true origin of the cargo, thus the ability for the authorities to trace the shipment back to its origination point.

2. Forged Shipping Documents: This allows the network to create the façade of legitimacy the goods require to travel in international waters unobstructed.

3. Providing Services to Sanctioned Vessels: The network offered a range of services to vessels that have been blacklisted, ensuring that they can continue to operate despite international sanctions.

What are the Implications of the Sanctions?

The sanctions carry meaningful implications both for the targeted people or entities and the broader scene of geopolitics.

1. Financial Isolation: The sanctions involve asset freezes for these individuals and entities under U.S. jurisdiction and usually prohibit any U.S. person from undertaking any transactions with them. This financial isolation is intended to choke off revenue streams that fund activities by the Houthis.

2.Operational Disruption: Hit the logistical and financial networks that support the illicit trade to prevent the Houthi from functioning in an organized manner and reduce the damage they are doing.

3. Pressure on International Partners: The involvement of entities in countries like China, Turkey, and the UAE highlights the international dimension of the problem. The sanctions put pressure on these countries to align with U.S. efforts and crack down on illicit activities within their jurisdictions.

By preventing the Houthis from accessing resources, the United States hopes to diminish the group's ability to disrupt shipping or engage in violent activities. Global supply chains will witness these sanctions as a commitment to enforcing international law and promoting stability.

Being sanctioned also directly impacts their ability to conduct business worldwide, including financial transactions, and global partnerships. The cutting down of financial support to groups like the Houthi will hopefully mean a reduction in violence and conflict in places like Yemen, contributing to broad efforts for peace and stability.

Likewise, the Houthis being subjected to these sanctions may create more pressure for them to participate in peace talks and reach a settlement in the conflict. However, the effectiveness of that strategy is debatable.

What are the Broader Goals?

The sanctions are part of a larger, comprehensive U.S. strategy toward fighting against terrorism and all destabilizing activities in the Middle East, which will encompass:

1. Military Actions: In conjunction with economic sanctions, the U.S. has conducted military strikes to degrade the capabilities of groups like the Houthis. These strikes target key infrastructure and personnel involved in planning and executing attacks.

2. Diplomatic Efforts Continue: The U.S. still keeps up with its partners worldwide to create a coalition against the Houthi and its backers. Diplomacy now aims at building international support and cohesion by implementing sanctions and other measures.

3. Humanitarian Concerns: Even though the fight against terrorist networks is a priority, the US has put provisions in place to ensure that humanitarian aid still reaches the Yemeni people. This is inclusive of exemptions for exporting items such as food, medicine, and medical supplies.

In the same way, the recent sanctions imposed are a significant step toward eliminating terrorism and destabilizing activities in the Middle East. While these sanctions may not conclusively end these operations, targeting the primary individuals, entities, and vessels that have played a key role in facilitating them can disrupt the financial and logistical support systems that sustain Houthi military operations.

Such is the nature of measures that would help maintain regional stability while ensuring that international maritime routes are protected from the threat of terrorism. Only time will tell whether this is enough, and if the US will have to release new names to starve the Houthi further.

What’s Next for Businesses Globally?

With growing geopolitical tension and stricter consequences for parties not adhering to such sanctions by the US government, it becomes imperative to implement sanctions compliance measures and policies into the corporate vision. Companies worldwide have started to hire permanent compliance officers for this purpose. The Bureau of Labor Statistics has projected an employment growth of 4.6% for compliance roles between 2022 and 2032.

One way to significantly scale sanctions compliance is to leverage sanctions screening software to continuously screen vendors, customers, and other stakeholders for restricted and denied parties. This has been one of the most important mitigating factors and compliance considerations by the OFAC for companies globally, especially the ones found in violations of such sanctions.

For instance, the most recent OFAC enforcement action was against SCG Plastics Co., Ltd., which settled with OFAC for $20,000,000 for violations of the Iranian Transactions and Sanctions Regulations.

The remedial factors include hiring a new sanctions compliance officer who will permanently remain within the corporate structure, as well as implementing sanctions screening policies and procedures, which are important for adopting a risk-based OFAC sanctions compliance policy. Organizations should start taking such steps proactively to avoid heavy fines, civil lawsuits, and reputational damage that can severely affect business operations globally.