Brief Discussion on the Compliance Matrix for International Ship Sales and Purchases

Compliance Matrix for International Ship Sales and Purchases

Brief Discussion focusing on Engineering Vessels such as Second-hand Dredgers, Hopper Barges, Floating Cranes, and Piling Barges

Author: Yanyang Marine

1. Definition of Compliance Matrix

A Compliance Matrix is a standardized checklist document, serving as a core risk control and verification tool for ship transactions. Its core function is to match the actual conditions of a
vessel—including its design, construction, equipment configuration, and certificates—against target laws, regulations, technical standards, and contract clauses item by item. It clearly marks whether each requirement is met, the supporting basis for compliance, and corrective measures for non-compliance items. As a critical document for verifying compliance, controlling quality,
and communicating with shipowners, inspection institutions, and regulatory authorities, it is also a mandatory key compliance certificate for suppliers.

In short, a Compliance Matrix is a three-in-one checklist of "Requirements + Actual Matching Status + Supporting Evidence", allowing relevant parties to quickly grasp the vessel’s compliance status and corresponding supporting documents.

2. Compilation Logic of the Compliance Matrix

2.1 Compliance Benchmarks (Requirement Side)

1. Buyer’s Technical Specifications (Key Features, Documentation)

2. International Conventions: SOLAS, MARPOL, MLC, IACS Rules, etc.

3. Classification Society Rules (CCS, BV, LR, DNV, etc.)

4. Contract Clauses (MOA: NSF, SHIPSALE 22, etc.)

2.2 Actual Status (Implementation Side)

1. Vessel certificates, construction drawings, and equipment lists

2. Various inspection reports and actual vessel condition data

2.3 Internationally Accepted Standard Column Structure

1. Requirement (Original text of the requirement clause)

2. Source (Regulation/Chapter/Contract Number)

3. Compliance Status (Complied/Partially Complied/Non-Complied/Not Verified)

4. Evidence/Reference (Supporting documents + serial numbers)

5. Remedial Action (Rectification plan, timeline, responsible party)

6. Owner (Person in charge)

7. Risk Level

3. Core Functions of the Compliance Matrix

1. Quantify compliance gaps: Clearly list the shortages of certificates and equipment when converting a domestic vessel to an international vessel.

2. Basis for contract negotiation: Non-compliance items directly affect pricing, rectification costs, and delivery schedules.

3. Clarify responsibility boundaries: Suppliers are fully responsible for the reported compliance status and supporting evidence.

4. Verification document for acceptance: A mandatory document for classification society surveys, PSC inspections, and host country supervision.

5. Core risk control tool: A key document for international buyers to assess transaction risks, which is commonly lacking in domestic ship transactions.

4. Six Core Compliance Modules for International Ship Sales and Purchases

4.1 Vessel Physical Compliance (Technical, Classification, Statutory Certificates, Equipment Standards)

Corresponding Compliance Matrix Module: Technical Compliance Matrix

4.1.1 Classification Society Compliance

Verify the validity of classification, class notations, absence of major damage remarks, and inspection deadlines; confirm the feasibility of class transfer and certificate renewal
(mutual recognition among IACS members such as CCS, BV, and LR).

4.1.2 Statutory Certificate Compliance (IMO + Flag State)

Comply with requirements of international conventions including SOLAS, MARPOL, COLREG, Load Line, ISM, ISPS, and MLC; verify complete statutory certificates such as IOPP, ITC,
safety equipment, radio, and pollution prevention certificates.

4.1.3 Equipment and Modification Compliance

Verify that major modifications have been approved by the classification society and flag state; dredging equipment, pump systems, pipelines, lifting appliances, etc., must comply with construction specifications.

4.1.4 Integrity of Technical Records

Keep complete logbooks, maintenance records, damage repair records, and dry-docking records for full traceability.

Document Compliance

Complete Set of Compliance Documents to be Provided by the Seller

• Notarizable and authenticated bill of sale proving a clean and unencumbered title

• Delivery and Acceptance Protocol

• Seller’s board resolution and power of attorney

• Undertaking for vessel deregistration (complete deregistration and provide proof within 4 weeks after delivery)

• Commercial invoice and certificate of no outstanding dues

• Certificate proving the vessel has no blacklist records, no grounding, and no underwater damage

• Full set of valid classification certificates, statutory certificates, technical drawings, and manuals

• Undertaking for settlement of crew wages and repatriation responsibilities

Compliance Documents to be Provided by the Buyer

• Buyer’s board resolution and power of attorney

• Copy of company registration certificate

4.2 Legal and Title Compliance (Ownership, Registration, Export Control, Sanctions, Applicable Law)

Corresponding Compliance Matrix Module: Legal & Title Compliance Matrix

4.2.1 Clean and Unencumbered Title Compliance

Confirm the seller is the sole legal owner with a complete ownership chain; check for no mortgages, seizures, detentions, maritime liens, financial lease disputes, hidden co-owners,
or implicit debts.

The seller warrants that upon delivery, the vessel is free from mortgages, liens, maritime claims, and any debt disputes; the vessel is free from charter party constraints, port state

detentions, and administrative seizures; the title is clear and legally transferable to the buyer.

4.2.2 Vessel Registration Compliance

Verify the validity of original registration, settle all taxes and debts, and complete deregistration smoothly; select compliant flag states, verify entry requirements, and avoid high-risk flags;
check registration data such as IMO number and construction information to ensure consistency with the actual vessel.

4.2.3 Export Control Compliance

Comply with the Export Control Law of the People's Republic of China, Regulations of the People's Republic of China on Export Control of Dual-Use Items, and Regulations of the People's Republic of China on Technology Export Control. Special vessels such as dredgers, hopper barges, and self-unloading sand barges are under key supervision, requiring advance export
licenses and filings; avoid sanctioned areas and restricted entities, declare truthfully to customs, and complete export declaration procedures.

Export Control and End-Use Compliance (Key for Engineering Vessels)

• End-use commitment: The consignee warrants that the technology is only used for peaceful civil and commercial purposes, not for prohibited projects.

• Inspection acceptance: Agree to cooperate with competent Chinese authorities in verifying end-users and end-uses.

• Compliance commitment: Abide by China’s export control regulations, and shall not illegally transfer or abuse design technology.

Special Export Control Compliance (Core Focus, Exclusive for Dredgers)

Pursuant to the Export Control Law of the People's Republic of China and Regulations on Export Control of Dual-Use Items, the buyer’s obligations are agreed as follows:

• Provide complete proof of end-user, end-use, and official project approval documents

• Issue a written commitment that the vessel is only used for civil purposes, not for military use, and will not endanger China’s national security

• Guarantee not being listed on China’s Unreliable Entity List

• Shall not privately change the end-user or end-use

• Provide import declaration documents in a timely manner and cooperate in reporting the operating location

Reference Link (Webpage parsing failed): https://www.yanyangmarine.com/news/q-how-to-apply-for-a-dredger-export-license.html

4.2.4 International Sanctions Compliance

International sanctions are a red line in cross-border ship transactions. Comprehensive sanctions risk screening is required to avoid violating sanction regulations. Verify whether
counterparties, shipowners, management companies, crews, and destination countries are on the sanction lists of international organizations such as the UN, EU, and OFAC; check
whether the vessel’s calling ports, sailing routes, and operating areas involve sanctioned regions; strictly prohibit transactions with sanctioned entities and avoid using sanctioned
financial institutions or shipping routes. Once sanctions are violated, the transaction will be terminated, and severe consequences including heavy fines, asset freezes, and reputational
damage will be incurred. Special attention shall be paid to strict screening for engineering vessel transactions.

4.2.5 Applicable Law and Dispute Resolution

English law is the mainstream applicable law in the industry. Maritime arbitration under LMAA (London Maritime Arbitrators Association) or SCMA (Singapore Chamber of Maritime
Arbitration) is preferred; the contract shall specify jurisdiction, arbitration rules, and award enforcement clauses to avoid legal disputes.

Reference Link : https://www.yanyangmarine.com/news/international-secondhand-ship-sale-and-purchase-contract-moa-formats-core-clauses.html

4.3 Financial and Payment Compliance (AML, KYC, Sanctions, Taxation, Payment Security)

Corresponding Compliance Matrix Module: Financial & Payment Compliance Matrix

4.3.1 Anti-Money Laundering (AML) Compliance

Strictly control the legality of fund sources, prohibit illegal fund transfers, split large payments, and underground bank transactions; keep complete payment vouchers and cooperate
with anti-money laundering verifications.

4.3.2 Due Diligence (KYC)

Conduct comprehensive identity due diligence on both transaction parties, penetrate and verify the actual controllers and beneficial owners, and prohibit anonymous transactions or
nominee transactions; verify the authenticity of business licenses, qualification certificates, and authorization documents, and check personal identity information and credit status; for
corporate clients, verify the ownership structure, operating status, and illegal records to ensure legitimate identities and good creditworthiness, and prevent fake or fraudulent entities from participating in transactions.

Core Points: Penetration verification of actual controllers, legal and compliant fund sources.

4.3.3 Sanctions-Related Financial Verification

Verify the qualifications of paying banks, settlement channels, and guarantee institutions, and avoid financial entities related to sanctions; ensure full compliance of the fund settlement

chain to prevent fund freezes.

4.3.4 Tax Compliance

International ship transactions involve taxes in multiple countries. All taxes must be paid in accordance with the law to avoid penalties for tax evasion. Core taxes include
value-added tax, stamp duty, capital gains tax, ship transaction tax, and withholding income tax. The taxpayer, tax rate, and declaration process shall be determined based on
the transaction location, flag state, and domicile of both parties. Understand national tax incentives and bilateral tax treaties in advance to conduct reasonable and compliant tax
planning, and strictly prohibit tax evasion. All historical taxes and late fees must be settled before delivery to ensure the vessel has no outstanding tax debts, so that the buyer
will not bear historical tax liabilities after taking over.

4.3.5 Payment Security Control

Adopt secure payment methods such as bank guarantees, third-party escrow, and installment payments; tie fund payments to delivery and inspection milestones, and prohibit private
transfers or cash transactions.

4.4 Transport and Delivery Compliance (Towing/Underway, PSC, Insurance, Port Compliance)

Corresponding Compliance Matrix Module: Transport & Delivery Compliance Matrix

4.4.1 Towing/Navigation Compliance

For self-propelled vessels, ensure intact equipment and certified crews; for towed vessels, obtain towage suitability certificates and towage permits, and entrust formal tugboat
companies; plan compliant routes, obtain canal passage permits, abide by navigation rules, and complete international single-voyage navigation permits for non-unlimited navigational area vessels.

4.4.2 PSC Inspection Compliance

Rectify historical PSC deficiencies and detention records to meet international convention requirements; prepare complete certificates and documents, cooperate with port
state inspections, and strictly prevent vessel detention.

4.4.3 Insurance Compliance

Arrange complete insurance coverage including hull and machinery (H&M) insurance, protection and indemnity (P&I) insurance, and towage insurance; clarify insurance liability
nodes, and complete transfer, renewal, and cancellation procedures in a timely manner to avoid insurance gaps.

4.4.4 Port Compliance

Complete port entry and exit procedures, abide by port scheduling and environmental protection regulations; settle all port fees, pilotage fees, and other charges, and cooperate
with border control and customs inspections.

4.5 Contract and Process Compliance (MOA, Due Diligence, Document Closure, Delivery and Termination)

Corresponding Compliance Matrix Module: Contract & Documentation Compliance Matrix

Reference Link :
https://www.yanyangmarine.com/news/international-secondhand-ship-sale-and-purchase-contract-moa-formats-core-clauses.html

https://www.yanyangmarine.com/news/secondhand-vessel-delivery-the-complete-handover-guide.html

4.5.1 Standard Memorandum of Agreement (MOA)

Adopt standard contract templates such as NSF and SHIPSALE22; clarify core clauses including vessel information, price, delivery, breach of contract, and termination, and add special agreements for special engineering vessels.

4.5.2 Full-Process Due Diligence

Conduct comprehensive technical, legal, and financial due diligence, entrust professional institutions to issue reports, and identify all potential transaction risks.

4.5.3 Closed-Loop Document Management

Organize a complete set of transaction documents, including sales contracts, power of attorney, certificates, inspection reports, tax payment certificates, and delivery receipts, to ensure all documents are authentic, complete, traceable, and retrievable.

4.5.4 Delivery and Termination Compliance

Complete vessel inspection, sign delivery receipts, and finalize title transfer in accordance with the contract; exercise termination rights pursuant to contract clauses, keep complete
evidence of breach of contract, and properly handle all disputes.

4.6 Host Country Entry Compliance (Construction Permits, Local Regulations, Import and Operation)

Corresponding Compliance Matrix Module: Flag State & Host Country Compliance Matrix

4.6.1 Construction and Operation Permit Compliance

Obtain special permits for construction, dredging, and offshore operations, and strictly prohibit unlicensed operations; abide by operating areas, time limits, and environmental protection requirements, and complete crew entry and work procedures.

4.6.2 Compliance with Local Maritime Regulations

Comply with the host country’s safety, pollution prevention, and labor management regulations, and restrictions on coastal operating rights; strictly abide by ecological environmental
protection requirements and protect crews’ legitimate labor rights and interests.

4.6.3 Import and Operation Compliance

Complete import declaration, inspection and quarantine, and vessel registration procedures, and pay all taxes in accordance with the law; complete regular inspections and certificate
renewals during operation, and go through deregistration and exit procedures in accordance with regulations after suspension.

5. Key Compliance Pain Points of Domestic Vessels

Common Industry Statement: There are no specific compliance matrix documents issued by suppliers... lacking a standardized compliance matrix table.

Core Status: Domestic ship transaction processes are relatively extensive, with sellers only providing basic certificates and no standardized item-by-step verification documents.
A compliance matrix is mandatory for international ship transactions to quantify risks and define responsibilities.

Major Gaps:

• Engineering vessels (dredgers, hopper barges, floating cranes, piling barges, etc.) severely lack complete international statutory certificates such as IOPP, IAPP, and ISPS.

• Document shortage: No standardized compliance matrix document to accurately quantify transaction risks.

6. Summary of Six Compliance Matrix Volumes

1. Technical Compliance Matrix

2. Legal & Title Compliance Matrix

3. Financial Compliance Matrix

4. Transport & Delivery Compliance Matrix

5. Contract & Documentation Compliance Matrix

6. Host Country Compliance Matrix

Important Note: The six compliance modules are closely interconnected. For cross-border transactions of second-hand vessels and engineering vessels (especially dredgers),
full-process compliance control shall be implemented, and detailed verification measures shall be taken to ensure transaction compliance and subsequent operational compliance.