The U.S. and U.K. guidance documents released in 2020 identify the entire maritime ecosystem as stakeholders who must step up and “Monitor ships throughout the entire transaction lifecycle; Know Your Customer and counterparty; and exercise supply chain due diligence.”
While the regulators are shifting the burden of responsibility to encompass commercial organizations, the nuances of meeting these expectations and their practical implications are less clearly defined.
In a joint webinar between Windward and Kharon, industry innovators from both companies, as well as Maersk and Blank Rome, came together to discuss key challenges and opportunities the maritime industry faces, focusing on how new sanctions advisories have altered the responsibility of organizations and the way organizations must examine behavioral and organizational aspects of vessels to ensure best in class due-diligence practices.
Advisories: Do they stay or do they go?
Matthew J. Thomas from Blank Rome discussed the role of the new Biden administration, noting that the U.S. maritime foreign policy is currently under review and that the China-linked sanctions issued at the later part of the Trump administration are one of the key things that the new government will examine.
U.S. Government officials have also signaled that the new administration will likely not reverse sanctions or snap back to Obama administration policies. The U.S. will be taking a “multilateral approach” to the current policy, examining the effectiveness of sanctions, such as those imposed on Venezuela.
The direction the U.S. Government takes regarding the maritime domain has critical implications for global trade and may impact USD value, import and export of goods, and more. The current signals received indicate that the increased focus on maritime, particularly energy shipping and regulatory advisories, will likely continue to grow. This will substantially impact the global maritime ecosystem, with many countries likely to follow suit.
Regardless of potential regulatory developments and enforcement efforts, the core tenets of recent advisories focus on how sanction evasions are detected and which organizations are active stakeholders in the discovery process, which are unlikely to be reversed.
The advisories focus on deceptive shipping practices, and as a result, implementing best practices is critical for organizations. It is imperative to note the context of suspicious behavior and evaluate multiple factors to determine risk levels effectively. This requires organizations to update compliance and Know Your Customer (KYC) programs or risk facing financial and reputational damages down the road.
1 billion data points; One insight you can’t afford to miss
The seven types of risk listed by the U.S. and U.K. advisories cannot be viewed as stand-alone risks as they do not “exist in a vacuum.” As a result, all deceptive shipping practices should be examined in their relevant context to understand the true risk they pose. A lost AIS signal is not a red flag on its own; however, if the vessel has voyage irregularities, has hopped between multiple flags, and has an excessively complex ownership structure, going dark contributes to the entity being highlighted. This is why the broader context of the risk must be examined, and due diligence must go beyond the vessel itself to provide organizations with the bottom line go/no-go answers to their risk questions.
The best practices that need to be implemented must address these issues and other anomalies to protect an organization’s operations and ensure it can continue to thrive. The challenge seen by many organizations is managing the complexities of these new risks. Dedicating teams to oversee the workload manually is not feasible for many institutions. This is why businesses must implement a holistic approach to data across the entire maritime domain.
Jeff Nielsen, Senior Legal Counsel – Foreign Trade Controls for Maersk, mentioned how industry leaders are changing their approach to data as a result of the advisories. For organizations such as Maersk, it has become crucial to approach the maritime landscape from a triad perspective, examining the sanctions, their complexity, and the enforcement actions as one unit. The advisories have forced Maersk to shift their compliance programs and make sure they are aligned with the sophistication of the activities they engage in. This challenges the way organizations interact with partners on a daily basis, who they engage with and conduct trade with, how they contractually protect themselves, and how deep into the data they have to dig for answers.
Data vs. insights in real life
Megi Hakobjanyan from Kharon and Dror Salzman from Windward detailed two case studies showcasing the need to go beyond data and examine behavioral patterns and structure as part of the due diligence and Know Your Vessel (KYV) processes.
In both case studies, seemingly innocent entities (in one case of the MT Freya and the other an entire fleet) were eventually discovered to be engaging in sanctionable activities. Examining both vessels’ behavioral patterns and ownership hierarchy reveals that such an event should not have been surprising; the vessels in question engaged in suspicious behavior, including going dark and flag hopping. Most interestingly, the behavioral changes occurred following flag hopping events. Both case studies also involved vessels with extremely complex ownership structures that revealed additional links to vessels engaged in deceptive shipping practices.
Examining vessels individually would not have revealed the complete picture and might not have provided a clear answer whether one should conduct business with said companies or vessels.
At the end of the day, the recent advisories are just the start, and the need for data-powered insights will continue to grow. To unveil critical information in real-time, it is essential to have the right tools that digitize risk management processes and adopt best practices that enable businesses to look beyond data and create context that delivers go/no-go answers and facilitates trade.
To view the webinar on-demand, click here.