23JUL

Treasury sanctions a Panama law firm

3 min read

19:27UTC

OFAC sanctioned Karnakis and Karnakis, a Panama City law firm it says set up shell owners for shadow-fleet ships, and licensed repairs for just seven vessels.

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EconomicAssessed

Key takeaway

OFAC sanctioned a Panama law firm over shadow-fleet shells and licensed repairs for only seven ships.

The US Treasury's Office of Foreign Assets Control (OFAC) on Wednesday 21 October designated (put on the US sanctions list) Karnakis and Karnakis, a law firm in Panama City with an office in Piraeus, under Executive Order 13902⁠¹. Treasury says the firm set up shell companies that own shadow-fleet ships (vessels that hide their ownership to carry sanctioned cargo) moving Iranian steel, oil and petrochemicals, and that its staff sat as their nominal directors (directors in name only)⁠². Its sanctions entry reads "Organization Type: Legal activities".

OFAC's earlier October rounds hit ships and their managers. This one goes a layer down, to the people Treasury says sign the incorporation papers. The same action named five Panamanian individuals and three firms, and blocked nine ships. Roxette Maritime Shipping and Trading manages seven Panama-flagged dry cargo ships; Amigoz Singapore is a port agent; Dubai's Whales Shipping Line has two support vessels flagged in the United Arab Emirates. "Either you are with us or against us," said Treasury Secretary Scott Bessent⁠³.

OFAC also issued General Licence HH, which allows crew-safety measures, emergency repairs, bunkering (refuelling) and salvage until 20 November, but only for the seven Roxette ships and never in an Iranian or Russian port⁠⁴. No general authority of that kind has existed since General Licence DD lapsed on 23 September with no successor. A ship in distress near Iran that Treasury has not blacklisted still has no such cover, and the two Whales vessels are missing from the licence's annex.

On 19 October Energy Secretary Chris Wright told a Citadel Securities event in New York that the administration will let investors buy sanctioned tankers and refit them to carry other oil. "We are converting dark tankers to legitimate tankers. There is no removing of sanctions," he said, putting the shadow fleet at about 1,600 ships⁠⁵. Two arms of the same government are now working the fleet from opposite ends: Energy wants hulls bought out and cleaned up, Treasury keeps adding them to the blacklist.

Deep Analysis

In plain English

Some ships carry oil from countries under sanctions, such as Iran, while hiding who really owns them. People call this the shadow fleet. To hide ownership, the ships are owned by shell companies, which are firms that exist only on paper. The US Treasury says a law firm in Panama set up such shell companies and let its staff appear as their directors. The Treasury has now frozen the firm's US assets and barred Americans from dealing with it.

Deep Analysis

Root Causes

Shadow-fleet owners register each ship in its own company, so that a sanctions action against one hull cannot reach the rest. A firm that can create those companies cheaply and supply nominee directors is what lets one owner run dozens of ships while appearing as dozens of owners.

The General Licence HH annex shows a second constraint. Treasury cannot leave crews without repairs or fuel without risking a disaster at sea, so every blocking action now needs a carve-out, and gaps in that carve-out fall on ships left off the list.

What could happen next?

Precedent
Sanctioning an incorporating law firm sets a template that Treasury can apply to other ship registries in Dubai, Hong Kong and the Marshall Islands.
Medium term · Assessed
Risk
Ships missing from the General Licence HH annex, including the two Whales Shipping Line vessels, may struggle to buy fuel or repairs before 20 November.
Immediate · Suggested
Opportunity
The Wright plan could create a market in rehabilitated tankers if Treasury issues licences for their sale.
Medium term · Suggested

Source Landscape

This story draws on neutral-leaning sources from United States

United States

Primary parallel: The Panama Papers leak in April 2016 exposed Mossack Fonseca, a Panama City law firm that had registered more than 200,000 offshore companies. Banks and clients dropped it, and the firm closed in March 2018 without ever being sanctioned.

Counter-parallel: No positive parallel exists for Chris Wright's plan to convert sanctioned tankers wholesale. In August 2020 the US Justice Department seized and sold about 1.1 million barrels of Iranian fuel from four tankers, but it took the cargo, not the hulls; none of the four ships was impounded.

Blocking a law firm freezes access to every company it administers until counterparties can prove they are clean, which raises compliance costs across Panama's ship registry. Banks serving Greek and Panamanian shipping will screen nominee directors more closely.

Wright's plan would add tonnage to the legitimate fleet at a time when freight rates are high. If investors buy hulls at distressed prices, the discount comes from the sanctions risk now being priced out of the shadow trade.

Consensus view: Treasury's own release (sb0664) aims at the corporate layer: the firm it says set up the shell companies and supplied their nominal directors. A ship can be renamed and reflagged, but the companies on the firm's books still carry its staff's names as directors.

Counter-view: Energy Secretary Chris Wright told a Citadel Securities event that 'we are converting dark tankers to legitimate tankers', with no removal of sanctions. On his account, the answer to the shadow fleet is new owners for its hulls, not a longer blacklist.

Key tension: Whether naming one firm drives the shell business to unlisted rivals in other registries, or makes every Panama incorporator check who it serves.

First Reported In

Update #182 · Iran says it mined Hormuz and hit 7 ships

US Treasury· 22 Oct 2026

Read original →

Causes and effects

Caused by

OFAC targets LPG carriers tied to India

OFAC moved from ships and managers in early October to the firm Treasury says set up their owners.

Occurred 8 Oct 2026

Read story →

OFAC lets the ship repair licence lapse

General Licence HH gives seven designated ships the safety cover that lapsed with General Licence DD.

Occurred 23 Sept 2026

Read story →

This Event

Treasury sanctions a Panama law firm

Treasury has moved from sanctioning ships and managers to the lawyers it says incorporate their owners, while still leaving most distressed ships without repair cover.

Different Perspectives

Gulf oil producer

Secured OPEC's confirmed 188,000 b/d September increment with the next meeting set for 6 September, but the Secretariat's own 2 August release says nothing about the fourth quarter. Output guidance beyond September remains undisclosed even as delegate sourcing keeps filling that gap.

Money manager positioned in WTI

Added 28,964 lots to a 92,943 net long in NYMEX WTI in the week to 28 July, against just 1,485 added to Brent's 15,740, a roughly twenty-to-one split. Conviction sits in the American benchmark even as the European diesel story sets the record.

Indian refiner buying Urals

Bought Russian crude at a discount that narrowed to $1-2 a barrel in the week to 29 July from over $10, as Hormuz risk pushed it toward Urals. If that risk eases with the strike now called off, the discount it is currently enjoying could re-widen just as fast.

Russian diesel exporter

Novak tied any lifting of the diesel export ban, due to lapse 31 July, to an unspecified market recovery with no date, and pushed the gasoline ban to end-2026. An open-ended constraint suits an exporter benefiting from the record European crack it feeds.

War-risk underwriter

Withdrew war-risk cover for Saudi-linked hulls on 24 July and has not reinstated it, holding Bab el-Mandeb tanker transits near 7.5 a day. A cancelled strike does not by itself trigger the committee review needed to re-accept the class.

Northwest European refiner

Sources only 17% of diesel imports from Saudi Red Sea ports against the Mediterranean's 24%, so the ARA crack at $85.86 trails the Med print by $5.81. Lower Red Sea exposure is cushioning it against the rerouting cost, not eliminating it.

Written with AI from Lowdown's published reporting. Not individually reviewed by an editor. Editorial standards.