The maritime industry faces some tough anti-financial crime compliance challenges, including the need to keep up-to-date with potentially thousands of agents around the world, having multiple voyage-associated parties across various jurisdictions and facing the opaque ownership of ships and assets.
Additionally, anti-financial crime regulations can vary significantly across countries and can change almost daily. The current fluid compliance environment is expected to last, so inaction isn’t an option for Operations Directors who want to sleep well at night. We will set out here some generally accepted guidelines which can assist with managing compliance:
Follow the funds
The US Government issued a 35-page Guidance in May 2020 that provides specific guidelines on due diligence and other compliance-related activities.
It lays out a non-exhaustive list of best practices companies can adopt to prevent sanctions violations, providing clear guidance to insurers, ship owners, operators, brokers, crewing companies, and ship captains. It recommends that companies appropriately assess their sanctions risk, implement compliance controls to address any gaps in their compliance programs, and adopt best practices (view the full list of best practices in this report).
The International Group of P&I Clubs notes that the guidance places heavy emphasis on the need to perform proper know your customer (KYC) and know your customer’s customer (KYCC) procedures. The way in which many commodities are traded renders this a complex area, and the consequences of not complying with US primary and secondary sanctions legislation can be severe.
Know your counterparty (KYC)
KYC procedures include identifying politically exposed persons (PEPs) and other high-risk individuals when engaging the services offered by shipping agents. Even engaging a well-established agent in a seemingly low-risk port involves some level of risk and the legal and financial circumstances of an agent and other service providers can change at any time.
A PEP is an individual who holds a prominent public position or role in a government body or international organisation. Immediate family members and/or close associates of these individuals are also considered PEPs. Examples of PEPs include government ministers and senior executives, judges, military leaders, or senior executives or board members of a government-owned organisation. Because they hold positions of influence, they can be a target for corruption, bribery, or terrorism financing activities. However, being a PEP doesn’t automatically mean someone is involved in criminal activities.
Shipping companies can take inspiration from the US Financial Crimes
Enforcement Network (FinCEN) Customer Due Diligence (CDD) Rule issued in May 2018, designed to improve financial transparency and prevent criminals and terrorists from misusing companies to disguise their illicit activities and money laundering.
The CDD Rule has four core requirements:
- identify and verify the identity of customers
- identify and verify the identity of the beneficial owners of companies opening accounts
- understand the nature and purpose of customer relationships to develop customer risk profiles
- conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, maintain and update customer information
Cost of compliance
Compliance comes at a cost. However, in the words of Former Deputy US Attorney General Paul McNutty: “If you think compliance is expensive, try non-compliance.”
Deloitte recently noted that organisations have to choose how advanced they want their compliance functions to be and what return they expect for the investment it takes to get them there? At DA-Desk, we have an industry-leading answer.
This is an extract from the report: How to reduce your maritime anti-financial crime risk.