OTHER THINGS YOU MAY HAVE MISSED – JULY 6

6th July 2018

US FORCES SMARTPHONE GIANT ZTE TO FIRE ITS CEO AND LEADERSHIP TEAM

Ars Technica on 5th July reported that Chinese smartphone giant ZTE has completely replaced its corporate leadership, naming new people to be CEO, CTO, CFO, and several vice presidents.  The move comes a week after ZTE named a new board of directors. The US government demanded that ZTE make these changes as a condition of lifting a crippling export ban against the company over the company’s sale of US technology to Iran and North Korea in violation of US sanctions rules.

https://arstechnica.com/tech-policy/2018/07/us-forces-smartphone-giant-zte-to-fire-its-ceo-and-leadership-team/

AUSTRALIAN BANKING ASSOCIATION REJECTS ADDITIONAL CASH LIMIT REPORTING

Investor daily on 6th July reported that the ABA had accepted the federal government’s proposal to limit cash payments to $10,000, but is resisting increased compliance reporting.  The government launched a consultation on 23rd May on imposing the $10,000 limit – transactions exceeding $10,000 would have to be made electronically or in cheque, with the aim to “stamp out opportunities for criminals to launder the proceeds of crime into goods and services and will make it harder for businesses to hide transactions to reduce their tax liabilities”.  As well as saying that additional reporting by banks was not necessary, the ABA also said that the rule should not apply to cash withdrawals, and that local shop owners, manufacturers and others must be given enough time to adapt to the new policy.

https://www.investordaily.com.au/regulation/43246-aba-rejects-extra-cash-payment-compliance-reporting

FBI: ENTREPRENEUR AGREED TO LAUNDER COLOMBIAN DRUG MONEY THROUGH TEXAS RESIDENTIAL DEVELOPMENT PROJECT

A local CBS station in Texas reported on 5th July that a luxury residential community — marketed as a 5-star resort built to withstand a nuclear war — is now at the centre of an FBI money laundering investigation.  Trident Lakes owner and manager John Eckerd reportedly faces 2 counts of money laundering and 1 count of conspiracy to commit money laundering.  It is alleged that he and an unidentified co-conspirator accepted $200,000 in purported drug money from undercover FBI agents over the past year in a that saw Eckerd allegedly agreeing to launder $1 million from Colombian drug dealers through Trident Lake.

https://dfw.cbslocal.com/2018/07/05/entrepreneur-agreed-launder-colombian-drug-money-texas-residential-development-project/

PUERTO RICO MAYOR AND OTHER OFFICIALS INDICTED FOR CONVERSION OF FEDERAL FUNDS, FRAUD AND MONEY LAUNDERING

Caribbean Business on 5th July reported that the mayor of Sabana Grande, Puerto Rico, Miguel Ortiz, has been indicted and arrested for his participation in a conspiracy to “steal federal funds involving fraudulently obtained contracts” from the island’s Education Department.  Separetly, Víctor Cruz, former director of finance, and Ángel Santos-García, former interim director of finance of the municipality of Toa Baja were charged with theft, conversion, and misappropriation of funds from the US Departments of Housing and Urban Development (HUD) and Health and Human Services (HHS).

http://caribbeanbusiness.com/puerto-rico-mayor-indicted-for-conversion-of-federal-funds-fraud-and-money-laundering/

VIRTUAL CURRENCY AND CANADA’S AML FRAMEWORK

On 26th June, Dentons published what it said was the first of a 3-part summary of the proposed amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFA), announced by the Department of Finance on June 9th.  Part 1 discusses amendments relating to virtual currency, money services businesses (MSB) and foreign MSB.  Part 2 will consider the amendments made to the Regulations to address money laundering concerns regarding open-loop prepaid cards. Part 3 will consider other notable amendments.

https://www.dentons.com/en/insights/alerts/2018/june/26/virtual-currency-and-canadas-anti-money-laundering-framework

LONDON COURT ORDERS SEIZURE OF VIJAY MALLYA’S UK ASSETS
The Economic Times in India on 5th July reported that a UK High Court judge has issued an enforcement order in favour of a consortium of 13 Indian banks, seeking to recover funds owed to them by liquor baron Vijay Mallya.  Mallya separately fighting extradition to India on fraud and money laundering charges.

https://economictimes.indiatimes.com/news/politics-and-nation/uk-court-grants-enforcement-order-in-vijay-mallya-assets-case/articleshow/64871256.cms

INTRODUCTION TO THE BELT & ROAD INITIATIVE, AND THE NEW SILK ROAD

On 5th July, Bird & Bird published an introduction to the initiative and shares its insights how this initiative will impact the financing of energy and infrastructure projects and the legal market for M&A.  It says that the Silk Road Economic Belt and the 21st Century Maritime Silk Road is a cross-continental development strategy conceptualised by the Chinese government in 2013.  The initiative is first known as the One Belt and One Road Initiative (BRI), now repackaged to Belt and Road Initiative (BRI).  The BRI aims to achieve better connectivity and economic co-operation among countries in Eurasia.

https://www.twobirds.com/en/news/articles/2018/singapore/belt-and-road-initiative

PNB FRAUD: MUMBAI COURT ISSUES NON-BAILABLE WARRANTS AGAINST GITANJALI GEMS BOSS MEHUL CHOKSI AND 5 OTHERS

First Post in India on 6th July reported an arrest warrant against Gitanjali Gems owner Mehul Choksi, accused of perpetrating the $2 billion Punjab National Bank (PNB) scam with nephew Nirav Modi.  This comes after an application for the court to confiscate Choksi’s assets.  Choksi and his firms – Gitanjali Gems Ltd, Gili India Ltd and Nakshatra Brand Ltd – have been charged with obtaining “fraudulently issued letters of undertaking (LoU) and fraud involving foreign letters of credit.

https://www.firstpost.com/business/pnb-fraud-mumbai-court-issues-non-bailable-warrants-against-gitanjali-gems-boss-mehul-choksi-five-others-4677211.html?src=ilaw

NORTH KOREA WANTS JAPAN TO LIFT SANCTIONS

Japan Today on 6th July reported that North Korea has said it will not comply with Tokyo’s demand for a resolution of the issue of Japanese citizens abducted by the DPRK decades ago unless Japan lifts unilateral economic sanctions.  The demand to Japan is said to have been made during behind-the-scene talks regarding the abductions of Japanese nationals in the 1970s and 1980s.  Japan officially lists 17 citizens as abduction victims and suspects the DPRK is involved in many more disappearances.  5 of the 17 were repatriated in 2002, but the DPRK maintains that 8 have died and 4 others never entered the country.

https://japantoday.com/category/politics/n.-korea-wants-japan-to-lift-sanctions-dangling-abductees’-probe?

DUBAI CONTAINER OF 100 KG OF SHARK FIN SEIZED IN HONG KONG

The Standard in Hong Kong reported on 6th July that Customs said they seized 100 kg of dried shark fin belonging to endangered species and 220 kg of undeclared dried sea cucumber from a container at the Kwai Chung Customhouse Cargo Examination Compound.  The container had been shipped from the UAE.

http://www.thestandard.com.hk/breaking-news.php?id=109999&sid=4

URANIUM: FROM EXPLORATION TO REMEDIATION

In June 2018, the International Atomic Energy Agency published a bulletin on ensuring the safe, secure and sustainable supply of uranium.  If countries opt for nuclear power or decide to explore the possibility of producing uranium, the IAEA’s job is to help them do so safely, securely and sustainably.  Through its advisory services, missions and expert advice, the IAEA helps national authorities to ensure that uranium, throughout its entire life cycle, is handled safely and securely.  This edition of the IAEA Bulletin discusses the status of the industry and its possible future.  It outlines the assistance provided by the Agency to countries in uranium mining, milling and mine remediation.  For example, uranium mining and production is explained, along with safeguards.

https://www.iaea.org/publications/magazines/bulletin/59-2

2018-07-02-africas-east-coast-heroin-route-infographic

https://enactafrica.org/interactive/videos-and-infographics/africas-east-coast-heroin-route

EU PARLIAMENT VOTES TO SUSPEND EU-US PRIVACY SHIELD

Paul Hastings reported on 5th July that on July 5th MEP passed a non-binding resolution to suspend the Privacy Shield Framework “unless the US is fully compliant” by September 1st.  The Privacy Shield Framework was designed by the US Department of Commerce and the European Commission to provide companies on both sides of the Atlantic with a mechanism to comply with data protection requirements when transferring personal data from the EU to the US and came into force in 2016 replacing the Safe Harbor similar but less restrictive agreement.  However, the Privacy Shield has drawn controversy as not providing an “adequate level of protection” under applicable EU data protection laws.

https://www.paulhastings.com/publications-items/blog/ph-privacy/ph-privacy/2018/07/05/european-parliament-votes-to-suspend-eu-u.s.-privacy-shield

https://www.privacyandsecuritymatters.com/2018/07/european-parliament-sets-a-deadline-for-reforming-privacy-shield-but-dont-panic-yet/

PORT OF DJIBOUTI OPENS FREE TRADE ZONE

Port Technology on 6th July reported that Africa’s newest free trade zone, the Djibouti International Free Trade Zones (DIFTZ), has launched with the aim of making the Horn of Africa a global trading hub.  The article says that this marks the next phase of a project that seeks to utilise the Djibouti’s place on many of the world’s biggest shipping routes.

https://www.porttechnology.org/news/port_of_djibouti_opens_to_global_trade

WHEN DO CRIMINAL STATUTES BIND THE CROWN?

An interesting article from the chambers at 6 King’s Bench walk on 17th April posed this question and explores the general principles to be applied when considering whether a criminal statute binds the Crown; it compares and contrasts the position in the Bribery Act 2010 and the Terrorism Act 2000, on the one hand, and the Offences Against the Person Act 1861 on the other.  The starting point is the general rule is that a statute does not bind the Crown (ministers, Crown servants, or, to use the modern terminology, individuals in the public service of the Crown) unless there is express provision to that effect or it arises by necessary implication.

http://blog.6kbw.com/posts/legally-binding-when-do-criminal-statutes-bind-the-crown

BRITISH COLUMBIA TO CRACK DOWN ON HIDDEN OWNERSHIP OF REAL ESTATE WITH NEW REPORTING OBLIGATIONS

Blakes Cassels and Graydon published an article on 4th July about the British Columbia Ministry of Finance releasing a white paper on draft legislation that will require reporting on beneficial ownership of land.  This follows the government’s announcement in the 2018 budget that it intends to collect and make available information about beneficial ownership of land in a public registry, with the intention behind the registry to end hidden ownership of real estate to prevent tax evasion, fraud and money laundering.  The consultation extends to 19th August.

http://www.blakesbusinessclass.com/b-c-crack-hidden-ownership-real-estate-new-reporting-obligations/

STATUS OF HMRC TAX POLICY CONSULTATIONS

On 6th July, HMRC published a schedule of current and past tax policy consultations and of any resulting legislation.

https://www.gov.uk/government/publications/check-the-status-of-tax-policy-consultations

STATE AID: EU COMMISSION OPENS IN-DEPTH INVESTIGATION INTO TAX EXEMPTIONS FOR COMPANIES IN THE MADEIRA FREE ZONE

On 6th July, the EU Commission announced an investigation to examine whether Portugal has applied the Madeira Free Zone regional aid scheme in conformity with Commission Decisions of 2007 and 20013 approving it.  It was created by Portugal in 1987 to support economic development in its outermost region Madeira, to attract investment to and create jobs in Madeira.  In this context, Portugal put in place a regional aid scheme providing support to companies establishing themselves in the zone through certain corporate income tax reductions on profits resulting from activities performed in Madeira; and other tax reductions, such as an exemption from municipal and local taxes.  The Commission has concerns that the Portuguese authorities may have failed to respect some of the basic conditions under the Decisions and in particular that tax exemptions granted by Portugal to companies established in the zone are not in line with the Commission Decisions and EU State aid rules.

http://europa.eu/rapid/press-release_IP-18-4384_en.htm

FORMER PAKISTAN PM NAWAZ SHARIF SENTENCED TO 10 YEARS IN PRISON

Deutsche Welle on 6th July reported that a court in Pakistan has handed a jail term to the former PM in a Panama Papers corruption case.  Sharif’s daughter, Maryam Nawaz, was given a 7-year jail term.  The case, which relates to the purchase of 4 flats in London, was filed against Sharif and his family by the National Accountability Bureau (NAB).  Sharif is currently in London to attend to his ailing wife. It is unclear whether Sharif would return to Pakistan.

https://www.dw.com/en/former-pakistan-pm-nawaz-sharif-sentenced-to-10-years-in-prison/a-44554176?src=ilaw

FORMER BILLIONAIRE BATISTA SENTENCED TO 30 YEARS IN JAIL FOR BRIBERY IN BRAZIL

Baker McKenzie on 6th July reported that Eike Batista, the former oil and mining billionaire who lost his fortune and spent time in jail last year for alleged corruption, has now been sentenced to 30 years after being found guilty of bribing former Rio de Janeiro governor Sergio Cabral.

http://www.riskandcompliancehub.com/brazilian-ex-billionaire-batista-sentenced-to-30-years-in-jail-for-bribery/

HOW FRENCH JOURNALISTS USED AN ICIJ DATABASE TO FIND LOCAL STORIES

On 6th July, ICIJ published an article on how a French local investigative website and a European collective of journalists based in Lyon, used ICIJ’s Offshore Leaks Database (into which information from the Panama Papers, Paradise papers etc are fed) to expose what they describe as “the banality” of tax evasion costing France millions of euros each year.  They compiled the names of less well-known individuals and companies in the Lyon region whose financial dealings appeared in the database to document tax minimization SME, family businesses and individuals – and not the usual high-profile names that normally get the headlines.

https://www.icij.org/blog/2018/07/how-french-journalists-used-the-offshore-leaks-database-to-find-local-stories/

INVESTIGATING AND PROSECUTING CASES OF THE NEXUS BETWEEN ORGANISED CRIME AND TERRORISM IN THE MIDDLE EAST AND NORTH AFRICA

On 4th July, the International Centre for Counter-Terrorism (ICCT) in The Hague published a report outlining the main themes raised in a workshop held in Qatar in April held to facilitate discussion between practitioners from Middle East & North African (MENA) and non-MENA countries on the nexus between organised crime and terrorism.  The themes explored included –

  • The stark imbalance between resources dedicated to terrorism over organised crime; with the latter suffering due to the focus on the former;
  • Dissolution of the Caliphate and the return of foreign fighters could stress the system and will present a host of new challenges;
  • Technology will continue to play an important role in the future of the nexus;
  • The nexus has both local and transnational dimensions, which makes it difficult to combat; and
  • A tactical focus hampers longer-term strategic planning in combating the nexus

The report outlined a number of recommendations and best practices, and lessons that had been learned.

https://icct.nl/wp-content/uploads/2018/07/ICCT-Clarke-Organised-Crime-Terrorism-Nexus-Report-July2018.pdf

A THIEF IS NOT NECESSARILY A FRAUDSTER. A FRAUDSTER IS NOT NECESSARILY A THIEF

A blog post from Corker Bining on 6th July starts off by saying that fraud and theft have the obvious common element of dishonesty.  Whilst the UK Supreme Court last year in Ivey v Genting ruled that the test for dishonesty in criminal cases should be an objective one, proof of dishonesty alone, whether for theft or fraud, is not enough to secure a criminal conviction.  A recent decision (R v Darroux) illustrates why it pays prosecutors to have long memories and signals a warning to those who fail to select the correct charge. It also demonstrates that the Court of Appeal will not necessarily come to the rescue of an errant prosecutor even where a jury has found a defendant to have acted dishonestly.  In that case, an employee filed false records so as to receive extra overtime and other payment.  She was charged with theft, alleging that she stole money from her employer.  The blog article says that those with long memories stretching would recall the problems that arose with prosecuting mortgage fraud cases under the Theft Act in the 90s.  After successful arguments that no property was obtained when funds were debited from the victim’s bank account and credited to a defendant’s bank account, the law was changed to cover such deception cases.  The Fraud Act 2006 was to replace such deception offences but were not charged in the Darroux case and on appeal it was argued that there had been no “appropriation” of property – which is an essential ingredient of the actus reus of theft.  It is not an ingredient of the actus reus of the offence of fraud by false representation under the Fraud Act.

https://www.corkerbinning.com/a-thief-is-not-necessarily-a-fraudster-a-fraudster-is-not-necessarily-a-thief/

IS HUNGARY THE NEW TAX HAVEN FOR INTERNATIONAL COMPANIES?

Hungary Today on 6th July carried an article saying that the Hungarian state doesn’t just provide financial aid (at a much higher level than neighbours, such as Poland) but also offers tax benefits.  Officially the tax rate is 9% – which is already the lowest rate in the EU – but according to the calculation of mfor.hu, the effective tax rate (the most important number for investors) is around 5%.  The newspaper asserts that with this level of taxation Hungary could make it a tax haven.

https://hungarytoday.hu/is-hungary-the-new-tax-haven-for-international-companies/

UK: THE IMPORT OF SALAMANDERS AND NEWTS

On 6th July, a UK Government news release told you what you need to do to import live members of the order Caudata (salamanders and newts): the appropriate establishments and the health certificates needed.  EU law requires that, to import salamanders and newts from outside the EU, or to export them to another EU country you need access to a registered appropriate establishment.  Imports also require the requisite health certificate from the country of origin.

https://www.gov.uk/government/publications/the-import-of-salamanders-and-newts

INDIAN LAW COMMISSION RECOMMENDS REGULATED GAMBLING AND BETTING IN SPORTS TO CURB FRAUD

Live Mint on 6th July reported that the Law Commission of India has recommended regulated gambling and betting in sports to check fraud and money laundering.  Regulation would not only empower the government to identify and prevent instances of gambling by minors and “problem-gamblers” but also enable it to “effectively curb the menace of black-money generation through illegal gambling,” the commission said in its report.

https://www.livemint.com/Politics/347GdwsMY2a0fScdJpuHPK/Law-Commission-recommends-regulated-gambling-and-betting-in.html?src=ilaw

ESTONIA “DID NOTHING TO INVESTIGATE DANSKE BANK MONEY LAUNDERING ALLEGATIONS”

Postimees in Estonia on 6th July reported that a major money laundering scandal that concerned the Estonian banking sector and especially the Estonian branch of Danske Bank is growing.  Revelations included €1.8 billion from Moldov and over €2.1 million from Azerbaijan. Then the Central Criminal Police’s Money Laundering Data Bureau confirmed in late May that the Estonian financial system had a total of €13 billion in dirty money pass through it.  Suspicions include that Russian president’s nephew Igor Putin and Russia’s special services were involved, and that others included several eastern weapons manufacturers, including Rosoboronexport that is responsible for Russia’s arm exports.  Inquiries have collected piles of information and investigations have been launched but with no results.

https://news.postimees.ee/4567739/estonia-did-nothing-to-investigate-the-matter?src=ilaw

LIVERPOOL PROPERTY DEVELOPER NIGEL RUSSELL CLEARED OF ALLEGED INVESTMENT FRAUD

The Liverpool Echo on 6th July reported that property developer Nigel Russell, 56, was cleared of an alleged £3.6 million investment fraud after prosecutors offered no evidence.  The alleged frauds related to city centre developments including student accommodation.

https://www.liverpoolecho.co.uk/news/liverpool-news/property-developer-nigel-russell-cleared-14877407

JCPOA JOINT COMMISSION ON CONTINUATION OF AGREEMENT AFTER US ANNOUNCEMENT

The European Sanctions Blog on 6th July reported on the meeting of the commission responsible for overseeing the implementation of the JCPOA agreement with Iran.   Representatives from China, France, Germany, Russia, UK and Iran all reconfirmed their commitment to the full and effective implementation of the nuclear deal (and despite President Trump’s announcement).  Amongst other things, the participants agreed to continue Iran’s export of oil and gas condensate, petroleum products and petrochemicals; preserve and maintain financial channels with Iran; promote export credit cover; practical support for trade with and investment in Iran; and protect companies from the extraterritorial effects of US sanctions.

https://europeansanctions.com/

SAUDI-BACKED YEMENI FORCES RECEIVED NEWLY-PURCHASED SERBIAN ASSAULT RIFLES

Defence Blog on 5th July reported that Saudi-backed Yemeni government forces had received the batch of new 7.62mm Serbian assault rifles M05 as military aid by Saudi Arabia.  The M05 E1 is a new modular automatic assault rifle developed by Serbian Company, Zastava.  The modular platform, based on Kalashnikov system, ensures perfect function in all climate and terrains conditions.

https://defence-blog.com/army/saudi-backed-yemeni-forces-received-newly-purchased-serbian-assault-rifles.html

Meanwhile on 6th July, Balkan Insight reports that –

SAUDI ARABIA REMAINS KEY BUYER OF BALKAN ARMS

Afghanistan, Iraq and Algeria are emerging as new key destinations.  A recently-released report on yearly arms exports in 2016 for Serbia, Montenegro, Bosnia, Albania and Macedonia says those countries sold Saudi Arabia more than €118 million worth of weapons and ammunition that year.

http://www.balkaninsight.com/en/article/balkan-countries-continue-selling-arms-to-saudi-arabia-07-05-2018

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SHIFTING TRAFFICKING ROUTES FOR ILLICIT NARCOTICS AND THE IMPORTANCE OF SPAIN-US COUNTER-NARCOTICS CO-OPERATION

The Real Instituto Elcano in Spain on 25th June produced a report looking at drug trafficking routes from South America.  It looks at the mechanisms used to combat such trafficking, law enforcement successes and challenges.  It says that Spain’s geographically strategic location and its large consumer market make it one of the principal gateways for illicit drugs entering Europe and originating in South America, transiting via the Caribbean and West Africa.  This puts Spain in a unique position of having to confront the transatlantic drug trade coming from multiple directions and using a variety of trafficking techniques.

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ARI79-2018-fig-2

http://www.realinstitutoelcano.org/wps/portal/rielcano_en/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/ari79-2018-olson-gordon-shifting-trafficking-illicit-narcotics-spain-us-cooperation

FATF: PUBLIC CONSULTATION ON THE DRAFT RISK-BASED APPROACH GUIDANCE FOR THE SECURITIES SECTOR

On 6th July, FATF also released draft guidance for public consultation which contains a section on specific guidance for securities providers and intermediaries.  Specific comments on whether this section provides sufficient clarity for the design and implementation of risk-based AML/CFT measures by the securities sector, and any additional suggestions, are welcomed.  The draft guidance also includes an Annex, setting out suspicious activity indicators in relation to the securities sector and comments on this would also be welcomed.  Responses are required by 17th August, and FATF intends to adopt the final Guidance at its October 2018 Plenary meeting.

http://www.fatf-gafi.org/publications/fatfgeneral/documents/public-consultation-guidance-securities.html

FATF: PUBLIC CONSULTATION ON THE DRAFT RISK-BASED APPROACH GUIDANCE FOR THE LIFE INSURANCE SECTOR

On 6th July, FATF released draft guidance and asked for responses from private sector stakeholders by 17th August.  The draft guidance contains a section on Guidance for the private sector.  Specific comments is asked for on whether this section provides sufficient clarity for the design and implementation of risk-based AML/CFT measures by life insurers and life intermediaries, and any additional suggestions, are welcomed.  The draft guidance also includes examples of risk factors relevant for the ML/TF risk assessments of insurance entities and comments and additions to this would also be welcomed.  FATF intends to adopt the final Guidance at its October 2018 Plenary meeting.

http://www.fatf-gafi.org/publications/fatfgeneral/documents/public-consultation-guidance-life-insurance.html

SHIPPING REGISTERS AND DUE DILIGENCE – WHAT ROLE DO (OR SHOULD) SHIPPING REGISTERS PLAY IN PREVENTING OR DETECTING USE OF SHIPPING TO EVADE CONTROLS?

This is a revised version of an article originally posted earlier this year.

SHIPPING REGISTERS AND DUE DILIGENCE

WHAT ROLE DO (OR SHOULD) SHIPPING REGISTERS PLAY IN PREVENTING OR DETECTING USE OF SHIPPING TO EVADE CONTROLS?

The UN Panel of Experts report of March 2018 on findings and recommendations in respect of UN sanctions imposed on the Democratic People’s Republic of Korea (DPRK)[1] highlighted several means by which ships and shipping were used to evade the prohibitions and restrictions imposed by UN Security Council Resolutions.

Whilst law enforcement and regulators have a role in ensuring shipping is not used to circumvent not only UN (and other) sanctions, but also other export and trade controls, smuggling, human trafficking and other illicit activities, and (at least in some jurisdictions) trust and corporate service providers, banks and insurers have some responsibilities as “gatekeepers” – if only to avoid themselves becoming liable – what about the role of the shipping registers?

Recent years have provided extensive evidence of the role of shipping in illicit activities, not just “traditional” smuggling and migrant trafficking, but anything from the role playing in evading UN sanctions on the DPRK and restrictions formerly placed upon Iranian shipping to the involvement of vessels in illegal, unreported and unregulated (IUU) fishing[2].

In the past, the role of shipping registers[3] has been to confine themselves to ensuring that the vessels on their registers comply with the relevant statutory requirements – typically so that the legal ownership of the vessel can be established (especially where a mortgage or other financing arrangement on the vessel was involved), and that certain safety requirements (for the vessel, its crew and in respect of the threat of pollution) are met[4].  They have not normally been required to undertake any form of “know your customer” (KYC) or customer due diligence (CDD) checks that other bodies might be required to undertake for the purposes of anti-money laundering and countering terrorist financing (AML/CFT)[5].  Some of the checks they might have taken to verify the information provided in an application may have been similar in some aspects to those required for AML/CFT purposes, but not being undertaken for those purposes may not have triggered any suspicion or concern – and the registry would likely have little or no knowledge in, or awareness of,  AML/CFT compliance, nor perhaps any interest or desire to look for any potential complications that were not its specific concern.  In at least some jurisdictions, the registry might be required to report any suspicions relating to money laundering or terrorist financing[6] to the relevant local authorities.  In general, however, neither the local authorities (financial intelligence unit, customs, police) nor international or supranational bodies (such as the UN and EU) have appeared to have focussed attention on registries.

Another factor can be said to be the increasing importance in many countries of anti-bribery and corruption laws with extra-territorial effect.  Ships and shipping can become involved in a variety of ways – including bribes to accept or clear cargo, movement of stolen or misappropriated cargo, payments to facilitate access or passage.  This could or should lead to a greater attention being paid to shipping, and hence to the registration, ownership, chartering and general use of shipping and ships.

However, the increasingly holistic approach now being taken by the Financial Action Task Force (FATF), and regional bodies carrying out similar work using FATF standards and recommendations[7], and the stress on not only technical compliance with requirements but even more on proving the effectiveness of compliance, is likely to see increasing attention paid to areas such as shipping and aircraft registries that, in the past, were seen as outside the scope of compliance control, or at least somewhat peripheral.

Increased attention is also being paid to the involvement of shipping and the shipping sector in evasion of sanctions by the UN, EU and US authorities.  In March 2017, VERTIC[8] announced that it was implementing a project on ‘Improving Global Implementation of Maritime Sanctions on North Korea’, in a consortium with the James Martin Center for Nonproliferation Studies (CNS) and King’s College London (KCL).  The project, funded by the US State Department, aims to counter North Korea’s nuclear and missile programmes by preventing North Korea from obtaining revenue via prohibited maritime trade that directly funds North Korea’s nuclear and missile efforts.  One of the ways this is to be done is by providing guidance and assistance to registries on how to carry out the sort of KYC and CDD controls required.

THE UN PANEL OF EXPERTS REPORT ON NORTH KOREA

In addition to the obvious question of how the DPRK continued to export goods in defiance of the sanctions[9], some of which at least must involve maritime transportation, the UN Panel of Experts identified several specific ways in which shipping was implicated –

  • The Panel investigated illicit ship-to-ship transfers of petroleum comprising a multi-million-dollar business that is driving an international network of brokers and ship charterers as well as unwitting global commodity trading companies and oil suppliers. It found that the network behind the vessels was primarily based in Taiwan, while there were affiliated companies were registered in the Marshall Islands and the British Virgin Islands (BVI), with ships flagged in Dominica, Hong Kong, China, Panama and Sierra Leone.  The Panel also said it was investigating several multinational oil companies for their roles in the supply chain of petroleum products transferred to the DPRK.
  • DPRK was said to be continuing its illicit coal exports, with the country combining deceptive navigation patterns, signals manipulation, trans-shipment and fraudulent documentation to obscure the origin of the coal.  The Panel investigated more than 30 cases of exports of coal from the DPRK to at least 4 States in South-East Asia, including several cases that involved the trans-shipment of coal via Russian Far Eastern ports.

A sizeable number of vessels, as well as companies and individuals have been designated as being subject to sanctions measures, by the UN, the US authorities and the EU, for involvement in breaches or evasion of sanctions measures.

Methods employed by the DPRK and those assisting it included a combination of multiple evasion techniques, deceptive routes and deceptive shipping tactics.  Techniques identified included manipulation of the Automatic Identification System (AIS)[10], loitering, voyage deviations and fraudulent documentation.  In respect of the movements of coal, the report said that the Panel found extensive use of a combination of multiple evasion tactics, including indirect routes, detours, loitering, false documentation, trans-shipment through third countries and manipulation of AIS signals and destinations/estimated times of arrival, as well as changes to the class, length and draft of the vessels.  These are used to obfuscate actual routes, conceal port calls and give the impression that the coal was loaded in ports other than in the DPRK.  The consistency and similarity of the tactics suggest that they are part of a centralized strategy on the part of the DPRK to evade the commodities ban.

There was also said to be extensive evidence of false cargo documentation.  Although authentic verification documents and stamps accompanied numerous contracts, bills of lading, certificates and warranties of origin, many vessels never visited the ports in mentioned in the documentation[11].

The UN Panel noted problems in enforcement caused by the offshore nature of much of the affected oil, maritime and finance sectors involved, or potentially involved.

OTHER FACTORS THAT REGISTRIES MIGHT CONSIDER

In addition to falling foul of sanctions legislation, shipping registries might want to take account of other reasons for introducing some adequate form of KYC/CDD.  These are more intangible, but could have equally severe effects, and might include the following.

The attitude and use of a country’s shipping registry, and the degree of oversight and control involved can be a factor during reviews by FATF and FSRB.  Even if the registries themselves are not seen as falling within the scope of the AML/CFT, sanctions and proliferation review process, what they do, and any evidence of past adverse publicity and/or inadequate regard to AML/CFT etc in their practices can and will be something taken into account by the reviewing team in its overall risk assessment (particularly in the pre-visit preparation).

Increasingly, major organisations, including banks, are becoming more risk averse and (as illustrated in the case of IRISL and the Isle of Man below) can threaten or take preventive action to minimise risks to them.  If a registry or the arrangements it oversees are seen as not doing enough to prevent abuses by a reviewing body, or is criticised for such by another government (such as in the International Narcotics Control Strategy Report published annually by the US State Department) or a non-governmental organisation, or is the subject of an exposé such as Panama Papers or the Paradise Papers, it might find itself not considered as suitable for use by reputable businesses – if only because of the additional administrative costs of enhanced compliance measures required.

The fallout from any scandal or exposé also risks reputational risk, sometimes considerable, and not only to the registry and any vessels and companies involved, but to the jurisdiction as a whole.  This can lead to an accumulation of perception that the registry, and the jurisdiction and its shipping sector, are poorly managed and that registry, sector and the jurisdiction itself similarly suffer from poor governance.  This then may lead to it and they being regarded as higher risk, and a less suitable partner or place to undertake business.

Inevitably perhaps, any pressure to introduce KYC/CDD controls is more likely to be felt in the smaller and offshore jurisdictions.  These are most open to persuasion or pressure from larger countries, and more susceptible to the effects that scandals, exposés and bad reports can have on their reputation and business.  Some jurisdictions already have a poor reputation, but there are others that have a good reputation for management of ships on their register and which they would want to protect.

WHAT ILLICIT ACTIVITIES DO OR CAN INVOLVE SHIPPING?

These can be many and various, and include –

  • Violating UN or EU (or US or regional bodies’) sanctions that can impose such things as arms embargoes or more general trade embargoes. They can also restrict or prohibit the use of a country’s vessels in trade with a country or entity – the obvious current example involves the DPRK.
  • Smuggling of goods into or out of a territory – smuggling has a long history and can include the illicit removal of goods as well as the illicit supply; such as the removal of oil from territory controlled by ISIS in Iraq during the conflict there. Almost anything may be smuggled, from the traditional alcohol and tobacco to arms and military equipment, endangered species, timber, currency, gold, oil, coal etc.
  • Drugs trafficking – perhaps the most high-profile of smuggling activities. Sometimes the entire vessel may be used, particularly smaller pleasure craft or fishing vessels.  (or even, in the case of drugs smuggled from Colombia, purpose-built “narcosubs”[12])
  • Human trafficking – of higher profile in recent years due to the migrants attempting to reach Europe from Syria and North Africa. It may be people smuggling of those who want, and pay, to make the journey, or the trafficking of those effectively enslaved to be used in providing sexual services or enforced labour.
  • Illegal Unreported and Unregulated (IUU) fishing and illegal fishing – the UN Food and Agriculture Organisation (FAO) estimates that perhaps 30% of all catches are composed of IUU fishing. It is neither a new phenomenon, nor confined only to the high seas[13].  The FAO also says that those involved need not be using flags of convenience but says that the root cause of IUU fishing is a lack of effective flag State control.  Since 2010, EU operators who fish illegally anywhere in the world, under any flag, risk substantial penalties proportionate to the economic value of their catch, which deprive them of any profit[14].  IIU fishing may also the use of enforced labour (see below).  Illegal fishing is defined by the UN Office for Drugs and Crime as encompassing all fishing activities conducted in contravention of national and international laws, as well as agreed regional fisheries management and conservation measures[15], such as fishing beyond allowable catch limits, taking of juvenile fish and prohibited fish species, and fishing during closed seasons or in closed areas.
  • Modern slavery in the use of enforced labour – The exploitation of seafarers has a long and depressing history. The UN International Labour Organisation (ILO) defines enforced or forced labour as meaning where persons are coerced to work through the use of violence or intimidation, or by more subtle means such as manipulated debt, retention of identity papers or threats of denunciation to immigration authorities[16]. In the present day, the most oft cited example is connected to IUU fishing (see above)[17].  Under US law, the importation of anything produced using forced or indentured labour is prohibited and other countries will have similar laws.[18]  The UN and individual countries, notably Canada, are promoting “social responsibility” laws that impose on businesses in one country responsibility for human rights and other abuses carried out by them, or on their behalf, in other countries.  The so-called “Ruggie Principles” comprise the responsibility of the state and the company to ensure human rights are protected[19].
  • Environmental crime – this could involve the unauthorised disposal of oil[20], waste or other unwanted materials by a ship. It could overlap with smuggling (as well as bribery and corruption), where the unauthorised disposal involves dumping the material in a place where this was not allowed (such as in the infamous Ivory Coast incident in 2006)[21].  IUU fishing above could also be considered an environmental crime.
  • Bribery and corruption – may be connected to any of the above, and in the US, UK and increasingly elsewhere, involvement in bribery or corruption anywhere in the world can be an offence under your own domestic law. Not only that, as in the UK, failure to have adequate processes in place to prevent and detect bribery and corruption within your organisation can constitute an offence.  Very recently the first conviction in the UK for such an offence[22] has been recorded.
  • Money laundering – this too may be connected to any of the above – the vessel may be bought with, or otherwise financed by, the proceeds of the illegal activities. The classic example may be the pleasure craft bought with the ill-gotten gains of its owner.  However, one should bear in mind that trade-based money laundering, and other trade-based financial crime, is thought to far exceed “normal” money laundering, and that the ship, its operations and cargo may be an intrinsic part of the crime itself[23].
  • Tax evasion (or avoidance), which may then be linked to money laundering, is also a factor to be considered. Even where the registry involved has done nothing wrong under maritime law, it can be tainted if it is then revealed that there was something amiss in the purchase, ownership, management or operation of the vessel.  A good example occurred in late 2017, then the Paradise Papers alleged that certain wealthy individuals had benefitted from an advantageous VAT arrangement on the acquisition of business jets in the Isle of Man[24].  Doubts were also expressed about arrangements involving yachts.  Though the ones mentioned in the report did not fly the flag of the Isle of Man, the Island nevertheless has a sizeable number of expensive pleasure craft on its register and doubts and suspicions do not always need evidence.
  • Terrorist financing – as with money laundering, this may be connected to any of the above, in that they were a means of raising funds for the terrorist body or were (as was the case with the shipment of oil from Iraq by ISIS) an essential element of the body’s activities.
  • Proliferation of weapons of mass destruction (WMD) and delivery systems – it would be a mistake to think that this label only applied where country-specific UN sanctions were involved, such as in respect of DPRK. In fact, prevention of proliferation of WMD and their delivery systems (such as missile systems), can not only fall under the heading of sanctions, but also that of smuggling in general, or be linked to potential use by terrorists[25].  It also links with export and trade controls below and involve dual-use items and technology as well as actual components or the finished objects themselves.
  • Export and trade controls – as with several other of the headings, this overlaps with several others. Export (and import) controls, including licensing requirements and outright prohibitions, with the avoidance, evasion or ignoring of them are obviously closely linked to what might be considered to be smuggling.  Trade controls exists in several countries, including the UK, and extra-territorial effect, requiring a licence from the home state of the owner and/or shipper for movements (trafficking) between two other countries[26].  An example of the effect of this requirement is the need for those providing armed anti-piracy security on British ships to obtain a licence from UK authorities (which covers the movement of the weapons and related equipment required)[27].
  • Piracy and armed robbery at sea – this seems self-explanatory and is more generally seen as a risk of being a victim of the sort of maritime piracy such as that seen off Somalia or in the Gulf of Guinea. On the other hand, the pirates must get their vessels from somewhere.

Any or all of the above could or would involve organised crime or terrorist organisations, and some may also involve state actors in the form of unscrupulous states, officials or official bodies.

THE ISLAMIC REPUBLIC OF IRAN SHIPPING LINE, US SANCTIONS AND THE ISLE OF MAN

A good indication of the risks that a registry (and any agents and others involved) can face is illustrated by the experience of the Isle of Man, its registry and companies and individuals in the Island, following the imposition of first US sanctions on the Islamic Republic of Iran Shipping Line (IRISL) and associated ship-owning companies and vessels.  A number of vessels operated by IRISL had been registered in the Isle of Man (many years prior to the US sanctions being imposed), but then flagged out to Iran via the Island’s Demise Register.  They were owned by individual companies set up to acquire and own them[28].  At the time it was seen as good business and supported by the government.  The arrangement was put in place, it was said, at the request of the German banks funding the construction and supply of the ships.  It was argued that this enabled the banks to be satisfied that they had sufficient ability to be able to take remedial action in the case of any default, on the strength of their registration on the Isle of Man register.  Matters in the Island were handled by a specialist firm, and a local flag state representative with long experience in shipping and maritime affairs, and using companies incorporated in the Island.  The firm involved would have undertaken all necessary AML/CFT due diligence on the transactions, being regulated by then Financial Supervision Commission (now the Financial Services Authority).

Problems arose several years later, from 2008, when initially the US Treasury Office of Foreign Asset Control (OFAC) listed the ship-owning companies because of the alleged involvement of IRISL in the movement and supply of materials in support of Iran’s nuclear and WMD programmes.  It is important to note that OFAC sanctions do not, legally and technically, have any effect in the Isle of Man or other non-US territories.  UN and EU sanctions targeting IRISL were to follow in 2010 (these being implemented in the Isle of Man.  However, no major bank or financial institution would want to do business with any person or entity designated by OFAC, nor indeed anyone associated with them, for fear of themselves falling foul of the US authorities.  In addition, any listing by OFAC, the US Department of Commerce or other reputable body would (or should) obviously be taken into account in assessing or reassessing risk, regardless of whether there is the danger of any direct effect on the business concerned.  In this case, this meant that not only the companies owning the ships faced difficulties, but the Island firm, its officials and the local flag state representative all faced having their business and even personal accounts closed – despite their having done nothing wrong in the eyes of the law, or the authorities, where they were located.

Despite there being no legal obligation on them to do so[29], and at the cost of losing valuable business and the undermining of a longstanding good relationship with the IRISL organisation and its officers, the firm responsible for the vessels in the Isle of Man moved to sever links with IRISL and its affiliates, and with the vessels concerned.  They co-operated fully with the local authorities.  The authorities in the Island liaised closely with the US Treasury[30], and invited OFAC officials to the Island, where they met all the various bodies involved – including the Ship Registry and the local business, as well as with the local Customs and Excise[31], FIU and regulators.  With the greater understanding of the background and context, and following the co-operation of all involved, further action by OFAC against those in the Island was averted.  Nevertheless, it might easily have turned out otherwise, and there remained some degree of damage to the reputation of the Island, its business community and institutions[32], and several months of worry and uncertainty for those involved.

Would a KYC/CDD process having been in place at the Ship Registry have averted the situation that arose?  Perhaps not.  However, it might have provided earlier warning, allowing it and those others involved to have acted sooner.  With the emphasis now on risk assessment, and ongoing risk assessment, for KYC/CDD the threat may have been flagged up and steps taken before the US took action[33].

One interesting point to note was that the OFAC officials said that a suspicious factor was the renaming of the ships involved.  Whilst in this specific case this may have been true, renaming of vessels is a common practice in the shipping industry – and may be triggered by such events as a change of owner, refit, change of charter, change of use etc.  This may be seen to indicate a perhaps understandable lack of understanding by those involved in the AML/CFT field of how the shipping sector can work, and may be another reason for registries to forearm themselves so they can counter any unwarranted suspicion of their activities and motives, or those of the owners they deal with.

SHIPPING REGISTERS – TYPES AND LEADING JURISDICTIONS

As already mentioned, the UN Panel of Experts report on the DPRK in 2017 highlighted concerns caused by the offshore nature of the oil, maritime and finance sectors involved.  This need not be because of particular concerns about the integrity of a particular register, but may be about the way in which offshore companies and special purpose vehicles (typically individual companies formed for the acquisition, ownership, management or operation of one or more individual vessels) are routinely used, and the fact that, of necessity, much or all of the business conducted in carried out in a non-face to face manner and/or through local agents or representatives.

An open registry is one which does not have a nationality or residency requirement attached to the ship or its owners.  Panama[34], for example, offers the advantages of easier registration (which can be undertaken online) and the ability to employ cheaper foreign labour than might be required under other registries.  It also has the bonus that the foreign owners pay no income taxes[35].

On the other hand, national or closed registries typically require that a ship be owned and constructed by national interests, and at least partially crewed by its citizens.

Some registries are not themselves operated by the host country’s government, but rather the services have been outsourced or sold off to be performed by private sector businesses.  For example, the Marshall Islands register is administered by International Registries Inc and is actually a US concern based in Virginia[36].  As a US company, one would expect it to be cognisant of the effects of the often wide-ranging US sanctions regimes, and to protect itself in this regard by undertaking adequate precautions.

Panama is a register that offers “dual registry”, which it introduced in 1973, and which allows a foreign vessel bare boat chartered for a period of 2 years can be registered in Panama for the same period without losing its previous registration (and vice versa).  It may be termed “bareboat charter”, which temporarily permits a vessel to fly the flag of another country while ownership continues to be registered in the owner’s State.  The Demise Register operated by the Isle of Man offers a similar way to divide responsibility for a vessel.  For example, the Registry website says, mortgaging facilities might be more attractive in one jurisdiction because of its laws relating to recovery of liens, whereas the manning requirements might be attractive in another state.  However, the use of any of these methods can further reduce oversight and control that the original registry can have (and, as the process works in both directions, registries can take on ships originally registered elsewhere), and there can always be the risk that one or both registries involved assume that the other is exercising more or appropriate control.  It was the use of the Demise Register that lay at the heart of the difficulties experienced by the Isle of Man over Iranian vessels[37] (see above).

In modern terms, a “flag of convenience” is one less willing (or unwilling) to enforce international minimum social safety and environmental standards on its vessels.  Shipowners can avoid or evade some or all of such standards, and mask or hide true ownership and liabilities, by use of such flags.  The International Transport Workers Federation (ITF) maintains a list of flag states that it considers to have flags of convenience, a list that includes Panama, Malta, Gibraltar, the Bahamas, Barbados, Bermuda, Jamaica, Liberia, the Cayman Islands and Cyprus[38].  The ITF says that cheap registration fees, low or no taxes and freedom to employ cheap labour are the motivating factors behind a shipowner’s decision to use such flags.  Its primary concern, naturally, is for the seafarers employed on vessels using such flags.

WHAT CHECKS DO REGISTRIES UNDERTAKE?

Taking the Isle of Man Shipping Registry as an example, it offers registration for ships, including on its Demise Register, and for commercial and pleasure yachts (which would include so-called “superyachts”), “small ships” (locally-owned vessels of less than 24 metres in length, such as small yachts), and fishing vessels (only available to locally-owned and -operated fishing vessels).   The documents that may be required include such things as a bill of sale, builder’s certificate (if new-build), certificate of incorporation (of the company owning the vessel), certificate of survey, tonnage certificate, deletion certification (if previously registered), a CLC Blue Card (if an oil tanker)[39], a bunker oil Blue Card (if over 1,000 gross tonnage)[40] and a Nairobi Wreck Removal Certificate (if over 300 gross tonnage)[41].  Any documents must be notarised if executed outside the UK, Channel Islands, Isle of Man or British Dependencies, and vessels over 24 metres in length if owned by a non-Isle of Man entity require the appointment of a local representative person[42].  None of these checks or documents required would necessarily alert the Registry to any AML/CFT risk.

The Isle of Man Registry is not, strictly speaking, an “open registry” in the sense that term is now used[43].  Whilst allowing foreign-owned vessels[44], each must have a local representative that acts for it and/or the company involved (this is by means of a corporate service provider or CSP, which are themselves licensed by the Financial Supervision Authority or FSA – therefore these can, or should, be seen as a “gatekeeper” who should undertake KYC and CDD on the underlying ownership), and the Registry is run by the Isle of Man Government, and is not outsourced to business to run as a straightforward commercial operation[45].

One of the largest registries, with over 3,000 vessels, is that of Liberia[46].  On its website it provides a flowchart showing how the registration process works.  It is noticeable that nowhere on the flowchart is there any mention of the registry (or others) carrying out any due diligence checks for AML/CFT, sanctions, proliferation or other potential criminal use.  This is quite normal, and you would find a similar situation in the application processes in the UK and elsewhere.

When criminal activity is mentioned on a registry’s website, this is usually in the context of countering maritime piracy and providing armed security aboard vessels[47].

WHAT MIGHT REGISTRIES DO?

Registries may already carry out some checks that would or could form part of any KYC/CDD controls.  They would or could be checking sanctions lists and using tools such as World-Check.  In some jurisdictions, such as the Isle of Man, there would be some implicit reliance on the “gatekeepers” in local, regulated businesses with which much or all of the work of registry is routed[48].

One thing that has become apparent from the current round of evaluations carried out by FATF and FRSB is the need to evidence the controls (if any) that an organisation undertakes and the results of those controls.  Therefore, the registry should have a protocol or code detailing how it undertook any necessary checks, as well as a record of results and any action taken (including referrals to law enforcement, regulators or in the form of suspicious activity reports to the local FIU).

The FATF guidance also makes clear that AML/CFT and related controls should be risk-based, and therefore the registry’s protocol or code would have to set out the structure and criteria used.

As a depositary and a register in a competitive environment, there will always be potential constraints on what it can do, and there will inevitably always be a reliance on others – the trust and corporate service providers and other regulated businesses as gatekeepers, other parts of government, the FIU etc for help and for checks on people and businesses.  There is likely also to be a need to be able to reach out to contacts within the shipping industry and, ultimately, engaging outside resources if or when “enhanced due diligence” is considered necessary.

Perhaps, in its simplest form, a three-level grading of applications (not forgetting that existing registrations would also have to be checked retrospectively, for completeness as well as providing some further reassurance) might be considered –

  • “routine” applications – being those adjudged to be of the lowest risk. This might involve vessels wholly owned and managed within the jurisdiction, for “local” trade and with known, reputable persons and businesses involved;
  • “standard” applications – where normal CDD would be applied; and
  • applications requiring enhanced due diligence – where something about the type of vessel, its intended use (including any reflagging out), or where it is intended to operate means that a higher level of diligence is required.

The grading would depend on an assessment of several factors – what is known or can be established about those involved, the vessel type, background of the company and persons involved, intended uses, previous history of the vessel or company involved (with the registry or elsewhere), whether intending to be reflagged in or out.  The current typologies and “red flags” from the like of FATF and local authorities would be taken into account.  In addition, verification of information provided (i.e. “trust but verify”) would be necessary – as registries should already be doing for mandatory requirements such as ship safety.  As with AML/CFT controls in financial institutions, the checks and controls should be ongoing, regularly reviewed and adapted as necessary, and there should be arrangement to revisit and review registrations from time to time – the KYC process not being a one-time check at the initial application stage.

It may be that it is felt that amendments to the existing legislation would be necessary to ensure that the registry has the power to require any necessary information to carry out its risk assessment.  However, it is most likely that most of the information required would be available through normal channels available to the registry.  The checks proposed are akin to those undertaken by banks and financial institutions, with the ability for the registry to simply refuse any business with which it is not satisfied.

Two other factors that would have to be considered are the additional resources and effort required within the registry to undertake the risk assessment, and the effect on its competitive edge that any added costs that might be involved or any delay that undertaking additional checks might produce.  Many registries are seen as revenue-generators in their own right.  However, this need not be a reason for not introducing the risk assessment process – and not only because they are not good reasons for potentially letting potential criminals and others make use of the register – as having such a process in place can only enhance the reputation of the registry and help protect it and the jurisdiction from risk.

 

Ray Todd

21st June 2018

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[1]  http://www.un.org/ga/search/view_doc.asp?symbol=S/2018/171

[2]  The EU Regulation to prevent, deter and eliminate IUU fishing entered into force on 1st January 2010. The European Commission reports that it is working actively with all stakeholders to ensure coherent application of the IUU Regulation.  Greenpeace has issued lists said to contain the names of irresponsible fishing operators and the companies behind them – http://blacklist.greenpeace.org/home

[3]  In addition to their role in generating revenue for the jurisdiction involved – an important factor in many, especially offshore centres.

[4]  In this way they may be likened in some ways to company registries, which also were generally regarded as repositories and did not normally undertake detailed KYC/CDD checks for AML/CFT or similar purposes.  In 2008, it was reported that a detailed examination of the records at UK Companies House undertaken by World-Check had revealed that the names of almost 4,000 directors of British companies appeared on international watchlists of alleged fraudsters, money launderers, terror financiers and corrupt officials.  It is interesting to speculate what a similar exercise on some shipping registries might reveal.

[5]  However, in March 2018 Panama issued its “Restricted Vessels” list which included vessels that have been deleted from the Panama Ship Registry, as a result of investigations that have shown links to the DPRK, or vessels that have been reported as vessels having link to DPKR https://www.segumar.com/wp-content/uploads/2018/03/PANAMA-Nave-Canceladas-Corea-del-Norte-MAR-06VER01-SE-ELIMINAN-NAVE-DE-COREA-AUN-EN-PROCESO-DE-CANCELACION.pdf

[6]  For example, that the vessels might have been purchased with the proceeds of crime (perhaps the best example would be in those jurisdictions whose registries host “superyachts”).

[7]  The 9 so-called FATF-Style Regional Bodies (FSRB), such as the Council of Europe’s MONEYVAL, the Asia/Pacific Group on Money Laundering (APG) and the Latin America Anti-Money Laundering Group (GAFILAT).

[8] Based in London in 1986, VERTIC (the Verification Research, Training and Information Centre) is an independent, non-profit making charitable organization. VERTIC supports the development, implementation and verification of international agreements as well as initiatives in related areas. http://www.vertic.org/

[9]  For example, the report said that the DPRK exported a total of $62,184,815 in iron and steel between January and September 2017 to Barbados, Bolivia, Chile, China, Costa Rica, El Salvador, India, Ireland, Mexico, Pakistan, the Philippines and the Russian Federation.  All of these exports were, or could be, in violation of existing sanctions.

[10]  Used to track a vessel’s progress using Internet websites: http://www.shipais.com/  It was actually developed as a collision avoidance system that gives information all the ships in your area, their speed and courses and how to contact them (name, callsign, MMSI). This information is publicly broadcast on VHF radio which can be picked up either by other ships or by shore-based receivers.  It may be, see http://www.shipais.com/doc/about.php

[11]  Given the stated involvement of offshore companies and jurisdictions, where even a reputable business (or law enforcement or a regulator) were involved, there would be an obvious reliance on such apparently bona fide documentation.

[12]  See this article from August 2017 for an interesting perspective on these submarines: http://cimsec.org/narco-submarines-problem-will-not-sink/33819

[13]  http://www.fao.org/fishery/iuu-fishing/en

[14]  https://ec.europa.eu/fisheries/cfp/illegal_fishing_en

[15]  https://www.unodc.org/documents/organized-crime/GPTOC/Issue_Paper_-_TOC_at_Sea.pdf

[16]  http://www.ilo.org/global/topics/forced-labour/definition/lang–en/index.htm

[17]  In May 2018, the Indonesian authorities detained a Tog-flagged vessel described as a “slave ship” http://www.straitstimes.com/asia/se-asia/indonesia-seizes-alleged-slave-ship-wanted-by-interpol

[18]  It prohibits the importation of merchandise mined, produced or manufactured, wholly or in part, in any foreign country by forced or indentured child labour – including forced child labour. Such merchandise is subject to exclusion and/or seizure, and may lead to criminal investigation of the importer(s).

[19]  http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf

[20]  In 2011 it was claimed that up to 810,000 tons of oily waste is intentionally and illegally dumped into the world’s oceans by commercial vessels.

[21]  In 2006, a ship registered in Panama, chartered by the Singaporean-based oil and commodity shipping company, offloaded toxic waste to an Ivory Coast waste handling company which disposed of it at the port of Abidjan, giving rise to a health crisis in the country.

[22]  On 21st February 2018, Skansen Interior Limited was found guilty of failing to prevent bribery under section 7 of the Bribery Act after the jury were unconvinced that the company had adequate procedures in place to prevent bribery.

[23]  For more information on trade-based money laundering see https://www.gov.im/media/1348726/notice-1000-man-trade-based-money-laundering-29-sep-17.pdf

[24]  https://www.icij.org/investigations/paradise-papers/offshore-gurus-help-rich-avoid-taxes-jets-yachts/

[25]  UN SCR 1540 (2004) requires that all States shall refrain from providing any form of support to non-State actors that attempt to develop, acquire, manufacture, possess, transport, transfer or use nuclear, chemical or biological weapons and their means of delivery, in particular for terrorist purposes.  The Resolution requires all States to adopt and enforce appropriate laws to this effect as well as other effective measures to prevent the proliferation of these weapons and their means of delivery to non-State actors, in particular for terrorist purposes.

[26]  The classic example, would be a licence required from the UK for a UK company to ship arms from South Africa to India.

[27]  For more information see https://www.gov.im/media/814275/notice-279t-man-trade-control-licensing-27-10-16.pdf and https://www.gov.uk/government/publications/open-general-trade-control-licence-maritime-anti-piracy

[28]  For example, Cobham Limited, incorporated in 2003 to own the Sewak (aka the Iran Fars).  The New York Times published a list of 66 companies owning vessels and linked to IRISL, including those in the Isle of Man http://archive.nytimes.com/www.nytimes.com/interactive/2010/06/08/world/middleeast/sanctions-companies-table.html

[29]  UN and EU sanctions, which would apply in the Isle of Man, did not follow until 2010, although from 2008 a UN Security Council resolution provided for states to be able to inspect vessels it owns or operates should be inspected, provided there are reasonable grounds to believe that such vessels are transporting prohibited goods.

[30]  Perhaps fortunately, having excellent working relations with the US due to previous joint operations and continuing co-operation.

[31]  Responsible for sanctions matters.

[32]  For example, see the BBC report of July 2010 http://www.bbc.co.uk/news/10604897

[33]  Bearing in mind that the US authorities provided no direct forewarning of its intentions in respect of the Isle of Man-registered vessels.

[34]  For a review of the Panama Ship Registry 1917-2017, see

[35]  As a result, the Panama Registry claims to be in charge of managing the world´s largest ship registry, with over 8,000 registered vessels which accounts 18% of the world fleet.

[36]  http://www.register-iri.com/index.cfm?action=about

[37]  http://www.bbc.co.uk/news/10604897

[38]  http://www.itfseafarers.org/foc-registries.cfm

[39]  Certificates issued by flag state authorities based on written confirmation from the insurer that the necessary cover is in force.

[40]  A certificate, issued by the applicable Flag State, certifying that the ship has evidenced proper insurance or other financial security to cover the liability of the registered owner for pollution damage in an amount equal to the limits of liability under the applicable national or international regime.

[41]  A certificate from a party to the Nairobi Convention attesting that insurance or other financial security is in force in accordance with the Convention.  The registered owner of a vessel must maintain insurance or other financial security to cover the location, marking and removal of a wreck, deemed to be a hazard in the convention area of states that are party to the Convention.

[42]  For a merchant ship, , the representative person must be a body corporate incorporated in and having its principal place of business in the Isle of Man.  For a pleasure craft, the representative person can either be an individual or a body corporate resident in the Isle of Man.

[43]  It describes itself as being “semi-open”.

[44]  From certain countries other than the UK, Isle of Man and Channel Islands.  See –  https://www.iomshipregistry.com/registration/more/how-to/check-ownership-eligibility/qualifying-owners-schedule-1/

[45]  Such as is the case with the Marshall Islands (see above).

[46]  http://www.liscr.com/

[47]  For example, see on the Marshall Islands registry website http://www.register-iri.com/index.cfm?action=page&page=247&fromPage=5

[48]  In the Isle of Man, for example, such gatekeepers are the CSP, which are themselves regulated for AML/CFT purposes etc by the Island’s Financial Services Authority.

UN REMOVES 1 NAME FROM IRAQ SANCTIONS LIST

On 5th July, the UN announced that the relevant sanctions Committee approved the removal of 1 entity from its List of Individuals and Entities subject to the assets freeze set out by paragraphs 19 and 23 of UN SCR 1483 (2003) – The GENERAL ESTABLISHMENT FOR GRAIN TRADING (aka the GRAIN BOARD OF IRAQ or the STATE ORGANIZATION OF GRAIN).

https://www.un.org/press/en/2018/sc13409.doc.htm

SANCTIONS IN THE UK AFTER BREXIT

3 videos on You Tube show the panel discussions hosted at Brick Court Chambers in London on 4th July, when various experts discussed the new UK Bill and likely developments affecting sanctions after Brexit.  Part 1 covers the law, Part 2 policy and Part 3 industry perspectives.

https://www.youtube.com/watch?v=E6EcFVNMj8k

https://www.youtube.com/watch?v=Cspsrk2SZ4I

https://www.youtube.com/watch?v=vgqok8ofP38

NEW BRIEFING PAPER ON ARMED GROUPS IN LIBYA AND THEIR CONTROL OF FINANCE AND FRAUD IN THE COUNTRY

The Small Arms Survey has published a briefing paper about the militias controlling Libya’s capital in the aftermath of the fall of Gadaffi.  In the past 2 years, control has consolidated into the hands of a cartel: 4 militias whose military dominance, influence in government, and power over the resources of the state is unprecedented.  This briefing paper from the Security Assessment in North Africa project traces the genesis of these militias and explores how they exercise their power now, and what dangers the Libyan capital — and the country — face in the future.  In particular, the paper notes that protection rackets and large-scale fraud, are both contributing to a deepening economic crisis, and have replaced state salaries as their principal source of income.  Over the past 2 years, the large militia have transformed into criminal networks straddling politics, big business, and the administration.  They have infiltrated the bureaucracy and are increasingly able to coordinate their actions across different state institutions.  The government is powerless in the face of militia influence.  The paper emphasises the control over the banking and cash sectors in Libya, as well as criminal activities generating income for the militia, including “massive fraud” involving letters of credit.

http://www.smallarmssurvey.org/about-us/highlights/2018/highlight-sana-bp-tripoli.html