Phantom ships, sanctions evasion and potential links to financial crime mean seaborne business carries as many risks as those found on land. A new Refinitiv white paper examines the regulatory pressures and best practice solutions for mitigating maritime risk.
- A Refinitiv white paper on maritime risk by Rear Admiral Chris Parry CBE highlights the potential for illicit activity and financial crime to flourish at sea.
- Parry says that the Trump administration has significantly stepped up its regulatory focus on the maritime sector, including sanctions evasion.
- With a truly holistic approach to mitigating maritime risk, organizations can ensure that they do not inadvertently promote, facilitate or enable illicit activity at sea.
When companies transport cargo by sea, they run the risk of engaging a vessel that is compromised and inadvertently facilitating or supporting illicit activities.
This can result in seizure, financial loss, inclusion on anti-terrorist and anti-criminal watchlists, and possibly severe reputational damage.
Identifying potential risk is not straightforward either, because criminals often seek to obscure vessel ownership and/or the destination of shipments.
The author of “Safely Navigating Business at Sea“, Rear Admiral Chris Parry CBE, cautions that the “complex, ambiguous character and international footprint of the maritime sector and its networks” mean that there are plenty of opportunities for illicit activity to flourish.
Given this backdrop, organizations need to take appropriate measures to avoid both the direct and indirect risks of conducting business at sea.
Hijacked or stolen ships
Potential risks include engaging a vessel that has previously been associated with illicit activities; currently appears on a sanctions list, such as the U.S. Treasury Office of Foreign Asset Control; or is linked to either private or public interests in Iran or other embargoed countries.
A further risk involves engaging a ‘phantom ship’, which is a vessel that has been hijacked, stolen, leased or bought, and subsequently registered with false information about its identity, ownership, dimensions, and/or characteristics.
Parry also highlights the use of ‘flags of convenience’, in which a merchant ship is registered in a sovereign state, different from that of the ship’s owners, usually with the express purpose of enabling the owners to evade any onerous safety, employment or regulatory requirements.
He explains that the flag of convenience system provides ‘unregulated havens’, and that it remains easy and inexpensive for would-be criminals to establish a complex web of corporate entities where multi-layered corporate structures may span several jurisdictions and be used to obscure the identities of the ultimate beneficial owners.
Tighter regulatory focus
Parry says that the Trump administration has significantly stepped up pressure on illicit activity in the maritime sector.
He cautions that all parties with any direct or indirect vessel-related risk, including investors and agents, need to take particular note of this increased regulatory attention.
He cites the example of a November 2018 US Department of the Treasury global advisory note that was directed at the petroleum shipping industry and described the methods employed by sanctions evaders.
This note proscribed 35 vessels, with another 32 vessels added to the list in March 2019, and reminded the industry of their “responsibility to uphold maritime law and monitor illicit activity”.
Enhanced due diligence
Given the range of risks and increased regulatory scrutiny, what does a best practice response look like?
In order to fully screen for potential risk, companies need to adopt a rigorous approach, first identifying all individuals and entities related to, or associated with a particular vessel and then screening all parties against reliable risk intelligence data to flag any potential links to financial crime or illegal activity. The quality and reliability of the data used is of the utmost importance.
Parry concludes: “The best solutions incorporate enhanced due diligence as standard, and require the screening, tracking and monitoring of ship and cargo identity, location and ownership, backed up by comprehensive, dynamic databases relating to relevant sanctions, links to illicit activity, and persons and companies of interest to governments and regulators.”
Only by adopting a truly holistic approach to mitigating maritime risk can organizations ensure that they do not inadvertently promote, facilitate or enable illicit activity at sea.