OTHER THINGS YOU MAY HAVE MISSED – MAY 19

Panama Covid-19 update – “only” 2 more fatalities today, taking us here to 281 today, with 141 new cases reported, edging us closer to the 10,000 mark at 9,867.  70 people are in ICU.

19 May 2020

US CHARGES IRANIAN COMPANY AND EXECUTIVES WITH SANCTIONS VIOLATIONS

On 19 May, the Wall Street Journal reported that Payment24 allegedly helped Iranian citizens circumvent US sanctions to make purchases from US-based companies 2009-2018.  Seyed Sajjad Shahidian, Vahid Vali and the company, Payment24 have been charged with conspiracy to commit offences against the US, money laundering, identity theft and wire fraud.  Mr Shahidian was arrested in and extradited from the UK.  Services said to have been offered included a “package” consisting of a PayPal account, a fraudulent ID card, a remote IP address from the UAE, a Visa gift card, and tailored advice.

https://www.wsj.com/articles/u-s-charges-iranian-company-and-executives-with-sanctions-violations-11589853084

https://www.europeansanctions.com/2020/05/iranian-ceo-extradited-from-uk-and-charged-with-violating-us-sanctions/

LOS ANGELES-AREA REAL ESTATE AGENT PLEADS GUILTY TO COORDINATING MULTI-MILLION-DOLLAR SCHEME THAT FUNDED MARIJUANA GROW HOUSES

A news release from US Immigration and Customs Enforcement on 18 May advised that Lin Li, aka Aaron Li, 38, a real estate agent pleaded guilty to a federal criminal charge for coordinating a scheme that used millions of dollars to purchase nine residential homes in San Bernardino County that were then converted into illegal marijuana grow houses.  Between May 2013 and September 2017, Li facilitated the purchase by Chinese investors of 9 residential homes in Chino, Chino Hills and Ontario. While exercising control over these properties, Li converted or allowed the conversion of the houses to marijuana grow operations.

https://www.ice.gov/news/releases/los-angeles-area-real-estate-agent-pleads-guilty-coordinating-multi-million-dollar

COMMON LAW ON THE HORIZON FOR HUNGARY?

An article from SMARTLEGAL Schmidt & Partners for the International Law Office on 19 May reflects on a new Act, which entered into force on 1 April and fundamentally reforms the role of judge-made law in Hungary.  The article examines why this landmark Bill was passed, the extent to which it means the adoption of common law and what its potential impact will be on litigation in Hungary.  The Act marks a milestone in the development of Hungarian law (which belongs to the Romano-Germanic legal family), since it is a shift from the above principle according to which law is made by the legislature, towards common law, where the existence of judge-made law is widely accepted.

https://www.internationallawoffice.com/Newsletters/Litigation/Hungary/SMARTLEGAL-Schmidt-Partners/Common-law-on-horizon-New-law-reforming-litigation-enters-into-force

UK GOVERNMENT ISSUES GUIDANCE ON SHARING INFORMATION WITHIN CORPORATE GROUPS FOR AML PURPOSES

On 12 May, MacFarlanes published an article saying that the UK had issued a publication that provides guidance to international corporate groups on sharing information across borders to assist in AML/CFT efforts – a reminder from the UK government that it considers information-sharing to be crucial to effectively combatting financial crime and that FATF has previously published guidance on the practice, which it approves.

https://blog.macfarlanes.com/post/102g764/sharing-is-caring-uk-government-issues-guidance-on-sharing-information-within-co

US THREATENS SPANISH OIL COMPANY REPSOL WITH SANCTIONS OVER VENEZUELA

On 19 May, Olive Press reported that Repsol, Eni from Italy and India’s reliance have been told to suspend operations in Venezuela.

https://www.theolivepress.es/spain-news/2020/05/19/white-house-threatens-spanish-oil-giant-repsol-with-devastating-sanctions-if-it-doesnt-stop-drilling-in-venezuela/

TAIWAN TELLS US IT IS COMPLYING WITH NORTH KOREA SANCTIONS

On 19 May, Al Jazeera reported that, despite reports of involvement in ship-to-ship transfers, a senior Taiwanese security official told the US deputy representative for North Korea that the country was complying with sanctions, despite not being a member state of the UN.

https://www.aljazeera.com/news/2020/05/taiwan-tells-complying-north-korea-sanctions-200519044938360.html

SUCCESSFUL FUEL MARKING PROGRAMME AN ECONOMIC LIFELINE FOR MOZAMBIQUE

On 19 May, the African Exponent reported that the current contract for the fuel marking scheme expires in a few months, but it seems highly likely that it will choose to continue the programme.  It says that fuel smuggling and adulteration, however, have long been major issues draining Mozambique’s revenues and enriching criminal gangs.  It says that the illicit oil trade is a problem across Africa, costing the continent nearly $100 billion a year — but the so-called Maputo Corridor, comprising South Africa, Swaziland, and Mozambique, had emerged as a regional hotspot for and a pilot study in 2013-14 suggested that Mozambique was losing as much as $60 million a year.  However, fuel marking has resulted in an impressive uptick in tax revenues from fuel sales.  The article also says that the fuel marking programme has also provided Mozambican authorities with valuable insights into how organised crimes groups carry out fuel fraud.

https://www.africanexponent.com/post/7522-successful-fuel-marking-programme-an-economic-lifeline-for-mozambique

IRAN: IRANIAN COUPLE HAS BEEN SENTENCED TO DEATH FOR HAVING SMUGGLED HARD CURRENCY AND LAUNDERING $200 MILLION OF MONEY,

Daily Sabah on 19 May reported that Vahid Behzadi and his wife Najva Lasheidai, both in their early 40s and whose case had not previously been given a high profile, have reportedly been sentenced to death for having smuggled hard currency and laundering $200 million of money, as well as having been found with a stash of gold at their home.

https://www.dailysabah.com/world/mid-east/couple-in-iran-sentenced-to-death-over-laundering-200-million-hiding-stash-of-gold

MOROCCAN SMUGGLERS EMBARK ON LONG NEW ROUTE TO SHIP DRUGS TO EUROPE

Defence Web on 19 May reported that, with usual routes closed off due to the covid-19 crisis, Moroccan drug traffickers are making a circuitous journey involving food trucks and fishing boats to smuggle locally grown cannabis to market – with food trucks across Morocco and then fishing vessels sailing from Atlantic ports.

https://www.defenceweb.co.za/security/border-security/moroccan-smugglers-embark-on-long-new-route-to-ship-drugs-to-europe/

LATVIA: 8 MILLION ILLEGAL CIGARETTES SEIZED AT RIGA FREEPORT

On 19 May, Xinhua reported that Latvian customs officers have seized a haul of around 8 million illegal cigarettes while checking a container cargo at the Freeport of Riga.

http://www.xinhuanet.com/english/2020-05/18/c_139067003.htm

AUTHORITIES SEIZE 850,000 POOR QUALITY MASKS AT ATHENS AIRPORT

On 19 May, Ekathimerini reported that Greece’s Financial Crimes Squad (SDOE) has confiscated 850,000 poor quality face masks did not meet the necessary specifications and lacked international markings at Athens’ International Airport.  The seized shipment had been ordered by Greek import companies and were destined for the domestic market.

https://www.ekathimerini.com/252775/article/ekathimerini/news/authorities-seize-850000-poor-quality-masks-at-athens-airport

NEURAL NETWORK MODEL TO ASSIST CUSTOMS TO DETECT POTENTIAL FRAUDULENT TRANSACTIONS

A news release from WCO on 19 May announced that, as part of the WCO BACUDA (Band of Customs Data Analysts) project with the Institute of Basic Science (IBS) and the National Cheng Kung University (NCKU), WCO has developed a Dual-Attentive-Tree-aware-Embedded (DATE) neural network model to assist Customs administration to better detect transactions presenting risks of fraud.  The WCO BACUDA project was launched in September 2019 as a collaborative research platform focused on data analytics.

http://www.wcoomd.org/en/media/newsroom/2020/may/wco-bacuda-experts-develop-and-share-a-neural-network-model.aspx

IS NIGERIA TURNING AROUND ITS ANTI-CORRUPTION ENFORCEMENT?

On 19 May, a post in the FCPA Blog posed this question, saying that Nigeria’s anti-corruption law enforcement efforts are gradually growing more effective as practitioners adapt and innovate in response to many persistent challenges.  It reflects on research conducted by a University of Edinburgh-led team and some of its preliminary findings.

https://fcpablog.com/2020/05/19/is-nigeria-turning-around-its-anti-corruption-enforcement/

UKRAINIAN OLIGARCH IS BEING INVESTIGATED BY A US GRAND JURY

On 19 May, Buzz Feed reported that Igor Kolomoisky is accused of funnelling money from a Ukrainian bank into properties across the US.  The co-founder of PrivatBank is accused by Ukraine regulators of orchestrating a scheme to siphon money from the country’s largest bank and funnel it into prime properties, including landmark office towers and steel facilities across the US.

https://www.buzzfeednews.com/article/mikesallah/ukraine-billionaire-oligarch-money-laundering-investigation

SHIPPING GROUP PROMOTES STANDARDISED E-BILL OF LADING

On 19 May, American Shipper reported that 9 carriers in the Digital Container Shipping Association say eliminating paper from transactions will improve all aspects of the process, and that the COVID-19 pandemic has made the need for a standardized industry e-bill of lading (eBL) greater than ever.

https://www.freightwaves.com/news/shipping-group-promotes-standardized-e-bill-of-lading

ONLY SMALL AMOUNTS CONTINUE TO BE FROZEN UNDER UK TERRORISM SANCTIONS

On 19 May, HM Treasury released the latest set of quarterly statistics on the operation of counter-terrorism sanctions to 31 December.  These show that only £9,000 was frozen under Terrorist Asset-Freezing Etc Act 2010 powers, £18,000 under EU counter-terrorism sanctions and £31,000 under UN ISIL/Al-Qaida sanctions.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/886143/Quarterly_Report_to_Parliament_1_October_2019_to_31_December_2019.pdf

US COMMERCE DEPARTMENT EXPORT CONTROLS TARGETING HUAWEI AGAIN

On 19 May, Wilmer Hale provided details of the effects of further changes to export controls affecting Huawei which came into operation on 15 May.  It explains changes to the Direct Product Rule, a Rule which restricts exports and reexports of some foreign-produced items that are the direct products of certain controlled US-origin technology, software, a complete plant or any major component of a plant.  The amendment applied the Rule to a broader class of foreign-produced items when there is knowledge that the foreign-produced item will be exported, reexported or transferred (in-country) to an entity on the Department’s Entity List – which includes Huawei and affiliates.

https://www.wilmerhale.com/en/insights/client-alerts/20200519-commerce-department-escalates-us-china-technology-competition-targeting-huawei-again

CAN DHS SURVIVE TRUMP ERA?

On 18 May, The Crime Report carried an article saying that a bipartisan thinktank in the US has claimed that the Department of Homeland Security needs to free itself from political meddling and radically overhaul its infrastructure, or it will succumb to growing calls for its abolition.

https://thecrimereport.org/2020/05/18/dhs-needs-overhaul-to-end-abuses-under-trump-report/

UK SANCTIONS: KEY LESSONS LEARNED AS OFSI BEGINS TO FLEX ITS MUSCLES

On 19 May, Crowell Moring published an article reflecting on the role of the UK Office of Financial Sanctions Implementation in the light of recent actions, including the record £20 million fine for Standard Chartered.  The article says that there are a number of key takeaways from the case of relevance to companies seeking to understand how OFSI will implement its relatively new power to impose civil penalties.  It comments on these, and draws comparisons between the OFSI approach and the approach taken by the US and OFAC, including the fact that the penalty reduction for a voluntary disclosure could have been higher in the US, but the total penalty could have been higher.

https://www.crowell.com/NewsEvents/AlertsNewsletters/all/Key-Lessons-Learned-as-OFSI-Begins-to-Flex-its-Muscles

IRAN, NORTH KOREA, SYRIA, VENEZUELA AND CUBA CERTIFIED UNDER US ARMS EXPORT CONTROL ACT AS NOT COOPERATING ON COUNTER-TERRORISM EFFORTS

On 13 May, Homeland Security Today reported that this was the first year that Cuba has been certified by the US State Department as not fully cooperating since 2015.  The consequence of the move is that it prohibits the sale or licensing for export of defence articles and services and notifies the US public and international community that these countries are not fully cooperating with US counter-terrorism efforts.  Re Cuba it is noted that members of the ELN, who travelled to Havana to conduct peace talks with the Colombian government in 2017, remained in Cuba in 2019 and Cuba refused Colombia’s request to extradite 10 ELN leaders living in Havana after the group claimed responsibility for  bombing in January 2019.

https://www.hstoday.us/subject-matter-areas/counterterrorism/countries-certified-as-not-cooperating-fully-with-u-s-counterterrorism-efforts/

NATIONAL DIGITAL CURRENCIES: THE FUTURE OF MONEY?

On 19 May, the Belfer Center in the US said that its Economic Diplomacy Initiative, in collaboration with the Atlantic Council’s Global Business and Economics Program, is tracking the latest developments in central bank issued digital currencies.  It says that while many are in the early stages of research, central banks representing one-fifth of the world’s population say they are likely to issue a digital currency very soon.

https://www.belfercenter.org/publication/national-digital-currencies-future-money

US CHARGES TEXAS MAN WITH $5 MILLION-PLUS CORONAVIRUS LOAN FRAUD

On 19 May, Reuters reported that US federal prosecutors have charged Samuel Yates, 32, from Texas, with fraudulently seeking $5 million in loans from an emergency program established to ease the economic strain caused by the coronavirus pandemic.  Yates claimed to employ over 400 people, although in reality “no employees worked for his purported business,” prosecutors said in a statement.

https://www.reuters.com/article/us-health-coronavirus-usa-fraud/u-s-charges-texas-man-with-5-million-plus-coronavirus-loan-fraud-idUSKBN22V2PZ

US: JOINT PROBE LED TO THE SEIZURE OF $22 MILLION WORTH OF CRYPTOCURRENCY FROM DARKNET OPERATORS

On 19 May, Coin Telegraph reported that FinCEN has made its annual award whereby it recognizes law enforcement agencies for using Bank Secrecy Act reporting to successfully pursue and prosecute criminal investigations to a joint operation involving US Immigration and Customs Enforcement-Homeland Security Investigations, the US Postal Inspection Service, and US Secret Service.  This was in relation to a case where the agencies made 42 arrests, with the seizure of $22 million in various digital currencies, $3.5 million in cash, 120 firearms, 15 pill press machines, and a wide range of controlled substances.

https://cointelegraph.com/news/us-fincen-awards-secret-service-for-seizing-22-m-in-crypto

https://www.fincen.gov/news/news-releases/fincen-recognizes-law-enforcement-cases-significantly-impacted-bank-secrecy-act

UK: MAN ARRESTED IN BELFAST OVER ALLEGED COVID-19 LOAN FRAUD

On 19 May, the Belfast telegraph reported that a 38-year-old man has been arrested after allegedly attempting to fraudulently apply for a government Covid-19 support loan.

https://www.belfasttelegraph.co.uk/news/northern-ireland/man-arrested-in-belfast-over-alleged-covid-19-loan-fraud-39218076.html

PAYMENT PROCESSING COMPANY AND ITS FORMER EXECUTIVE $40.2 MILLION SETTLEMENT RE CHARGES THEY KNOWINGLY PROCESSED PAYMENTS AND LAUNDERED, OR ASSISTED LAUNDERING OF, CREDIT CARD TRANSACTIONS FOR SCAMS THAT TARGETED HUNDREDS OF THOUSANDS OF CONSUMERS

A release on Mondo Visione on 19 May advised that Atlanta-based First Data Merchant Services LLC, one of the leading payment processing companies, and its former executive Chi “Vincent” Ko will pay more than $40.2 million to settle Federal Trade Commission charges they knowingly processed payments and laundered, or assisted laundering of, credit card transactions for scams that targeted hundreds of thousands of consumers.  It is said that the company repeatedly looked the other way while its payment processing services were being used to commit fraud.  According to the FTC complaint, Ko, through his prior company, First Pay Solutions LLC, opened hundreds of merchant accounts for at least 4 scams.

https://mondovisione.com/media-and-resources/news/worldwide-payment-processor-and-payments-industry-executive-to-pay-402-million/

 

 

 

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THE WORLD’S DIRTY MONEY BY THE NUMBERS

On 19 May, Politico published an article, part of a series on “Europe’s dirty money secret”, that provides some statistics and data to illustrate the money laundering problem. It points out that two-thirds of all SAR came from just 2 EU countries (UK and Netherlands).  It examines which states perform best according to FATF marking, what are the top predicate crimes and which sectors are the best and worst in submitting SAR.

https://www.politico.eu/article/the-world-dirty-money-by-the-numbers

 

 

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FINCEN ADVISORY ON MEDICAL SCAMS RELATED TO COVID-19 WITH FILING INSTRUCTIONS FOR FINANCIAL INSTITUTIONS

On 19 May, FinCEN issued an advisory to alert financial institutions to rising medical scams related to the COVID-19 pandemic. It contains red flags, descriptions of COVID-19 related medical scams, and information on reporting suspicious activity. This is the first of several advisories FinCEN intends to issue concerning financial crimes related to the COVID-19 pandemic.

https://www.fincen.gov/resources/advisories/fincen-advisory-fin-2020-a002

https://www.fincen.gov/sites/default/files/shared/May_18_Notice_Related_to_COVID-19.pdf

 

 

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SHIPPING, INSURANCE AND AML/CFT/CFP (updated)

SHIPPING, INSURANCE AND AML/CFT/CFP

INDEX

(updated to 19 May 2020)

 

  1. INTRODUCTION
  2. THE SHIPPING INSURANCE SECTOR
  3. THE THREATS FACED BY SHIPPING
  4. HOW CAN THE SHIPPING INSURANCE SECTOR PLAY ITS PART?
  5. MARITIME ANTI-CORRUPTION AGENDA ANNOUNCED
  6. CONCLUSION
  7. ANNEX: WHAT ILLICIT ACTIVITIES DO OR CAN INVOLVE SHIPPING?

 

INTRODUCTION

In a previous post I considered if shipping registries could have a role to play in ensuring that 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[1].  Since that post was first published there been some encouraging developments, for example the Registry Information Sharing Compact (RISC) involving three leading open registries[2].  Announced in February 2020, this involved an agreement for the registries to inform one another if they de-register or deny registration to a merchant ship on suspicion that it has breached sanctions, and to pass on information if due diligence checks suggest that a violation of UN sanctions may be involved.

My point had been that, in addition to law enforcement and regulators, if other parts of what may be described as the industry’s supporting structure – including corporate service providers, lawyers and banks – have some role as “gatekeepers”, if only to prevent themselves becoming liable, then perhaps the registries also had a part to play.  After all, it is in everyone’s interest (except, of course, for the criminals, sanctions-busters and terrorist involved) to try to prevent of detect such illicit activities.

There are others involved in the shipping industry that might play a part.  In addition to the other obvious players – the owners and operators of the vessels and those supplying cargoes, passengers and crew – there are those that insure the vessels and their cargo, and the classification societies that provide guarantees as to technical and safety standards for the construction and operation of ships and offshore structures[3].

There have recently been some interesting initiatives and developments that indicate that some progress is being, or may be, made towards improving the performance of the shipping industry in the fight against criminal activity in general, and sanctions violation in particular.

 

THE SHIPPING INSURANCE SECTOR

Considering the insurance element, marine insurance covers the loss of ships, cargo, terminals and any transport of cargo by which the property is transferred, acquired or held between points of origin and final destination[4].

However, a marine policy typically covers only around three-quarters of the liabilities towards third parties that could arise, such as through collision, going aground or wreck removal.  To cover the remaining liabilities, in the 19th Century shipowners banded together to form what are termed Protection and Indemnity Clubs (or “P+I Clubs”)[5].

These P+I Clubs are a form of mutual insurance society where members pay a premium, which is then used to purchase reinsurance, with further calls made on members for payments should the club suffer excessive losses, though the club would seek to establish a reserve to cover such eventualities.  The club would not have a standard underwriting form, underwriters will tailor bespoke coverage for each insured, based on the nature and character of the risk, and the amount of insurance desired.  Traditionally, the clubs covered ship owners, ship operators and charterers – but membership was latterly opened to freight forwarders and warehouse operators.  The concept of P+I Clubs originated in London, but the soon spread to other major shipping jurisdictions around the world.

There is an International Group of P+I Clubs, linking 13 major P+I clubs and accounting for around 90% of ocean-going tonnage.  This international grouping operates by means of a pooling arrangement, so as to provide affordable but high-value insurance and reinsurance cover.  It also provides a forum for the sharing of news and views within the sector, and as a spokesperson for the industry.  Claims up to a set level[6] are dealt with by national clubs, with claims over that level shared between the member clubs.

To take one example, the American P+I Club[7] lists the main risks for which P+I insurance would provide cover for shipowners, operators and charterers for third party liabilities encountered in the commercial operation of their vessels[8].  These include –

  • loss of life, injury and illness of crew (including repatriation costs), or of passengers and other persons;
  • cargo loss, shortages or damage;
  • fines and penalties;
  • mutiny and misconduct by the crew; and
  • vessel diversion expenses.

Coverage can include loss due to collision (other than the standard collision clause found in a traditional hull policy), removal of a wreck, stowaways and repatriation costs, damage caused to fixed or floating objects, pollution and oil spill costs and liability under towage contracts.  The P+I coverage would not extend to risks that would fall under a workers’ compensation policy.

There are other, more specialised forms of insurance relevant to the shipping industry, such as that which may be made available for yachts and other pleasure craft and fishing vessels.  Then there is “war risk” insurance for specific regions of particularly high risk, and cargo insurance, where the premium and risk depends on the type of cargo involved.  A particular type of insurance that has developed over recent years is that for kidnap and ransom, which exists to pay for the release of a ship (and/or cargo and crew) held by pirates, and which has priority over claims made under any other policy[9].

 

THE THREATS FACED BY SHIPPING

In the previous post concerning registries, I briefly mentioned the various threats that could be faced by ships and shipping, and saying that in recent years extensive evidence of the role of shipping in a wide range of illegal activities, and not just in “traditional” smuggling and perhaps obvious crimes like human trafficking, but anything from the role played in the evasion of UN sanctions on North Korea to the involvement of vessels in illegal, unreported and unregulated (IUU) fishing[10].  That list is annexed below.

In another post, I compiled a list[11] (almost certainly incomplete and with only brief outlines of the topics included) of the various crimes, regimes and requirements that the average compliance officer in a regulated business might want to bear in mind.  Whilst not all of these would be relevant to the shipping industry (online gambling, for example), many were – in addition to those mentioned above, there were the quite obvious ones of trade-based money laundering and other trade-based financial crime[12]; import, export, transit and transhipment licensing violations; exchange control violations and bulk cash smuggling; modern slavery and other human rights abuses (including of the crews themselves[13]; bribery and corruption[14]; proliferation activities linked to WMD and their means of delivery[15] and related financing[16]; terrorism-related movements of people, goods and finances; breaches of UN, EU or other sanctions controls[17]; the shipment of counterfeit goods or blood or conflict diamonds[18]; and unreported and unregulated (i.e. illegal) fishing[19].

All of the above are in addition to the more obvious risks to shipping, through piracy, theft of vessels or cargo and threats to officers, passengers and crew.

There are huge amounts of money involved in trade-based financial crime[20], huge potential risks from terrorism and proliferation, and terrible suffering and hardship present in such things as human trafficking and slavery at sea.

In May 2020, the UK National Crime Agency announced the seizure of £8 million that was said to be part of a fund operated for the purpose of tax evasion, money laundering, bribery and corruption.  It involved a company incorporated in Liberia in the 1970s and purportedly set up to operate large container ships for an international shipping company.  However, the shipping company involved had no knowledge of the company and were able to show that it had never appeared on any of their balance sheets[21].

The again, the ships themselves, or their cargo, may be the “tool”, benefit or value being moved in a money laundering, terrorist financing or proliferation financing arrangement.  This is obviously the case for trade-based money laundering and other trade-based financial crime, where the cargo (real, non-existent, misdescribed or misrepresented) may be the main element.

 In 2018, the case of Engelhart CTP (US) LLC v Lloyd’s Syndicate 1221[22] provided an example of a fraud involving a ship’s cargo, and which in that case resulted in an insurance claim.  The cargo, said to be 7,000 tonnes of copper ingots carried in containers, turned out to be, in fact, only slag of no commercial value when the containers had to be opened to inspect a leak.  It transpired that the bill of lading, packing lists and quality certificates were all fraudulent.  The assured claimants were not party to the fraud.  They made a claim on the open policy held for a range of commodities – but as the “copper” involved had never existed there had been no cargo to be physically damaged or lost, and so the claim failed.  The claimant also failed in seeking to take advantage of a “shortage of contents” clause, given that the goods supposedly covered were, in fact, fictitious.  The insurers rightly argued that none of the clauses of the contract provided cover for the acceptance of fraudulent documents for a non-existent cargo.  Amongst other things, this case illustrates that shipowners and others cannot rely on the mere fact of not having been party to a fraud or other illicit activity when seeking recompense.

Another 2018 case[23] further underlined the above point.  In that case divers discovered drugs attached to the exterior of the ship’s hull (the Master and one of the officers were subsequently convicted of involvement in drug smuggling) and the ship remained detained by the authorities for 3 years, having been abandoned by its owners after 2 years.  The owners then made a claim against their insurers which ended up being rejected by the Court of Appeal and Supreme Court in the UK.  The owners had made their claim under “war risks” insurance and the courts held that the smuggling of drugs was not a “war risk”, and the “customs regulation exclusion” did apply[24].

The UK P+I Club, for one, has a formal AML policy[25] as part of its governance code.  It says that it seeks to ensure compliance with internationally recognised practices, standards and regulation for the prevention of money laundering.  This is good.  However, I would question to what extent that or any other P+I Club is integrated into any information-sharing and consultation arrangement that might exist, for example, were it a bank or other financial institution.  My own view is that they should be included, and have an important role to play, particularly in respect of sanctions and trade-based money laundering and trade-based financial crime.

In sanctions cases, the acquisition, chartering or use of the ship might be to evade prohibitions and restrictions in place.  Currently, the most high-profile situation involving the control of shipping in respect of sanctions measures probably involves North Korea (though the US sanctions involving Iran and continuing sanctions on Syria might vie for this title) – where ships, shipowners and even a (Russian) port service company[26] have been listed in sanctions lists.

In February 2018, the US Treasury published an Advisory detailing deceptive practices employed by and for North Korea and involving shipping, and risk mitigation measures that could be adopted[27]; in November 2018 it issued a further Advisory in similar vein, but this time addressing sanctions risks related to the shipping of petroleum products to Syria[28].  In August 2018, it had once more issued a warning in respect of North Korean sanctions, reminding the shipping industry, including flag states, ship owners and operators, crew members and captains, insurance companies, brokers, oil companies, ports, classification service providers, and others of the significant risks posed by North Korea’s shipping practices.

In May 2020, the International Group of P+I Clubs issued a Circular[29] reminding members of continuing evidence of sanctions violations by and for North Korea.  It called for P+I Clubs to exercise caution when fixing insurance contracts, reminding them of the need to adopt measures to mitigate the risk of sanctions violations, and employ the highest level of due diligence.  It specifically warns that any activity assessed to be in breach of sanctions would result in the withdrawal of insurance cover.

However, the threats arising from sanctions are not new, and at least one P+I Club has suffered as a consequence in the recent past.  In May 2013, the American P+I Club reached an agreement to pay the US authorities around $350,000 in settlement for the potential liability involved in 55 violations of US sanctions on Cuba, Sudan and Iran.  These related to the settling of P+I claims and providing security by way of letters of undertaking and letters of indemnity.  This may be one reason why this P+I Club at least now has fairly comprehensive guidance for its members on how to comply with US, EU and other sanctions prohibitions and restrictions[30].

The specialist UN agency, the International Maritime Organisation (IMO), does have a focus on what is describes as maritime security.  However, its concentration is on the safety and security of ships, and the people and cargo on those ships.  It touches upon, for example, human trafficking and terrorism, but in a rather, to my mind, narrow sense.  On terrorism, it says that it aims to provide an international legal framework to deal with those committing unlawful acts against ships (and fixed platforms on the continental shelf), including the seizure of ships by force; acts of violence against persons on board ships; and the placing of devices on board a ship which are likely to destroy or damage it. Notably, it does not mention financing and laundering activities that might be linked to those activities it does mention, or which may be entirely unrelated.

In November 2018, Project Alpha at King’s College London published a paper[31] which set out to examine the interplay between UN sanctions and the rules governing the maritime sector.  The paper demonstrated that IMO rules as constituted were poorly designed to facilitate the effective implementation of sanctions. As such, the paper argued that the maritime governance arrangements run counter to international peace and security requirements.  A number of issues and opportunities were identified, with vessel tracking, the question of registration and flags, and audits highlighted.  It concluded that sanctions implementation did not appear to have been taken into account by the IMO for the purposes of the international maritime administrative structures it had established, though, in many cases, these could be adapted to make them directly supportive of UN sanctions.  Likewise, the paper concluded, it seems likely that the UN Security Council has passed Resolutions on maritime issues concerning North Korea without fully considering the mechanisms for implementing them and, as the setter of standards for the industry, the IMO is perhaps uniquely placed to include in those standards the compliance with the Resolutions.

Finally, the risk might involve frauds directed against the insurers by means of the actual or purported total loss or vessel and/or cargo – a crime as old as the marine insurance industry, or even of shipping itself – and one to which the insurance industry might be expected to be most acutely attuned[32].

Currently, when a country is evaluated by FATF or one of its regional affiliates, the evaluation does not directly touch upon that country’s shipping registry (it would probably not be on the evaluation team’s visit schedule), and would likely only touch upon any shipping insurance element in the context of the overall insurance sector.  However, any scandal affecting shipping linked to the country can colour the evaluation and the outside perception of the integrity of the jurisdictions.  Furthermore, any such scandal would be likely to spill over, if not directly implicate, other business sectors (lawyers, corporate service providers etc).

In April 2019, it was announced that the IMO was to begin work on official guidance to combat maritime corruption.  An article at the time said that more than 28,000 individual incidents of corruption (predominantly bribery and so-called facilitation payments) had been reported since 2011[33].  The IMO also announced the setting up of a maritime anti-corruption agenda by its Facilitation Committee, and would draw upon the principles of the UN Convention Against Corruption – then the only legally binding international instrument combatting corruption.

A vessel involved in illegal activity, be it smuggling, sanctions violation or some other crime, also face the risk of being detained and seized by national authorities.  2019, for example, saw the seizure by US authorities of a North Korean ship detained in Indonesia for violation of US/UN sanctions and a large containership operated by the MSC shipping line found to be carrying a huge quantity of cocaine[34].

 

HOW CAN THE SHIPPING INSURANCE SECTOR PLAY ITS PART?

It appears to me that there three ways in which the shipping sector as a whole, including the P+I Clubs and their agents could help to improve the prevention and detection of crimes –

  • increase awareness of the risks, and possible indicators – there are bodies already in existence that track threats from piracy, and the International Maritime Bureau of the International Chamber of Commerce is an important one[35];
  • improve the availability, exchange and dissemination of information between all parties involved – between insurers, between agents, amongst shipowners, and establish channels of (two-way) communication between these and law enforcement and financial intelligence units;
  • enable or require other parties to also be aware of the risks, carry out checks and generally exercise appropriate due diligence – this could apply to all the agents, charterers and representatives used[36]

The third of these bullet points is that which I suggest would be the one that the shipping sector could most usefully take on board and implement.  Taken together with the other two, there should also be –

  • an improvement in (or even just implementing) “know your customer” and due diligence checks – on an ongoing basis and not only when taking on a new customer, client, supplier etc; and
  • each business or organisation needs also to undertake meaningful risk assessments of areas of business.

If these measures were put in place, they could not only help to prevent or detect illicit activity, but may well benefit the business or organisation directly by providing some degree of protection against allegations of not doing enough to prevent bribery, corruption or involvement.

What might be a significant assistance for insurers, in February 2020 details were released[37] about a information-sharing agreement between the 3 largest open registries (which together account for 41% of the world’s merchant shipping tonnage), then joined by 4 smaller registries[38] in March, to inform one another if they de-register or deny registration to a merchant ship on suspicion that it has breached sanctions, and to pass on information if due diligence checks suggest that a violation of UN sanctions may be involved.

The Registry Information Sharing Compact (RISC) is said to address the requirement set out in UN SCR 2321 (2016)[39] that “all Member States shall de-register any vessel that is owned, controlled, or operated by the DPRK, and further decides that Member States shall not register any such vessel that has been de-registered by another Member State”.

It has been suggested that RISC would provide more benefit, and hence reassurance, to smaller registries which may be more vulnerable to exploitation by the like of North Korea.  Indeed, it may be that the existence of RISC would drive use of those registries not party to the agreement, or will stimulate greater, or more complex, evasion techniques.

It would obviously be useful if the information that might be shared between registries could inform the risk assessment and intelligence activities of the insurers.  However, the initial agreement only catered for cooperation between registries, and not other third parties.

In May 2020, the International Group of P+I Clubs released a circular[40] on a common standard for vessel tracking by clubs, saying that the ability to track using AIS had become an important part of clubs’ sanctions compliance programmes, and that all of the clubs in the International Group had agreed a common standard of tracking.  Among other things, the Circular warned that there would be grounds to deny P&I cover on the basis of imprudent or unlawful trading where an owner trades his vessel in breach of sanctions, disguising its location by manipulating or withholding the transmission of AIS data.

 

MARITIME ANTI-CORRUPTION AGENDA ANNOUNCED

In April 2019, it was reported[41] that the International Maritime Organization (IMO) has announced it will begin work on official guidance to combat maritime corruption.  The article says that more than 28,000 individual incidents of corruption – predominantly bribery and “facilitation payments”, where shipping operators pay onshore officials to accelerate or circumvent administrative processes – have been reported since 2011.  The IMO has agreed to include the formation of a maritime anti-corruption agenda in the work programme for its Facilitation Committee in response to requests from several states, with support from the International Chamber of Shipping (ICS).  The proposed maritime anti-corruption agenda is expected to draw on the UN Convention Against Corruption (UNCAC), which came into force in 2005 and has been adopted by 186 countries.  The UNCAC is currently the world’s only legally binding instrument combating corruption.

 

CONCLUSION

As with the shipping registries, it appears to me that the role or roles that the P+I Clubs in particular could play in combating serious trade-based crime, and especially sanctions violations and proliferation activities has been under-appreciated in the past.  They need to be included in any discussion, and any information-sharing arrangements.  The May 2020 initiative of the International Group of P+I Clubs is a welcome start and, hopefully, an indication of proactive movement and not just a knee jerk reaction to increasing US pressure.

The increasing spread of anti-bribery and anti-corruption legislation, and of legislation seeking to penalise human rights abuses – with the EU (pre-Covid-19) having made noises about extending environmental, social and governance requirements, all of which can have extra-territorial effect (or might apply anyway because it is the law of the flag state of the vessel concerned) presents a threat to insurers and their clients and members of P+I Clubs.

Whether or not FATF and similar bodies directly addresses the activities and shortcomings of shipping registries and the marine insurance sector, there remains the real risk of problems in those areas, or spilling over from those areas into others which are evaluated by FATF and others, affecting evaluations, ratings and perceptions of a jurisdiction.

The detailed Advisory from OFAC in May 2020 may be seen as a step forward in pressure on the maritime insurance sector, and there have already signs of increased compliance (which may also indicate behind the scene pressure on the sector).  The Covid-19 pandemic that came as a bolt out of the blue in 2020 has heavily impacted the shipping industry, and it is too early to say what longer term effects this might have on the maritime insurance sector.  In the short term, however, it has already (though the lockdowns and other mitigation efforts, as much as any infections) severely limited how, and to what extent, normal compliance activity is carried out.  It is possible that while this might provide a short-term advantage to those seeking to avoid controls, a longer term consequence could be greater adoption of more advanced, automated or AI-based systems, resulting in more (and hopefully better) compliance activity than previously.

Therefore, if only from the purpose of self-protection it appears to make sense for businesses and organisations involved to examine, revise and upgrade (or implement) controls and procedures.

It also appears important, from a jurisdiction’s point of view, to ensure that the shipping sector as a whole is included in any national risk assessment, and in any consultative and information-sharing arrangements.

 

Ray Todd

18th August 2018

Updated 19 May 2020

 

ANNEX

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[42]. 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[43], though in July 2019, King’s College London published a report and case study showing that despite US and EU sanctions, Iran and Russia have been transferring oil and refined petroleum products to Syria, with some western companies and western-flagged vessels were wittingly or unwittingly involved in oil and jet fuel transfer to Syria[44].  In November 2019, it was announced that the US would target shipping companies that are in breach of sanctions and aggressively enforce measures across the globe to clamp down on such practices[45].  P+I Clubs have warned that any activity assessed to be a breach of sanctions would result in the withdrawal of insurance cover[46];
  • Smuggling of goods into or out of a territory – smuggling has a long history and still goes on 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.  The Italian authorities used to regularly detain small coaster-type vessels involved in the contraband cigarette and tobacco trade around the Mediterranean.
  • Drugs trafficking – perhaps the most high-profile of smuggling activities. Sometimes the entire vessel may be used, particularly smaller pleasure craft or fishing vessels.
  • Human trafficking – of higher profile in recent years due to the migrants attempting to reach Europe from 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[47].  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[48].  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[49], such as fishing beyond allowable catch limits, taking of juvenile fish and prohibited fish species, and fishing during closed seasons or in closed areas[50].
  • 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[51]. In the present day, the most oft cited example is connected to IUU fishing (see above)[52].  Under US law, the importation of anything produced using forced or indentured labour is prohibited and other countries will have similar laws.[53]  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[54].
  • Environmental crime – this could involve the unauthorised disposal of oil[55], 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)[56].  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, with very recently the first conviction in the UK for such an offence[57].
  • 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[58].
  • 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[59].  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 heading only applied where UN sanctions applied, 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.  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 – like with several other of these headings, this overlaps with several of the foregoing. 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 between two other countries[60].  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)[61].
  • Piracy and armed robbery at sea[62] – this seems self-explanatory[63] and is more generally seen as a risk of being a victim of the sort of maritime piracy such as that seen off Somalia, the Gulf of Guinea and South-East Asia[64]. On the other hand, the pirates must get their vessels from somewhere.  It is notable that there exists specific guidance[65] for kidnap and ransom insurance and the payment of ransom[66].

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.

—————————————————————————————————————————————-

[1]  https://wordpress.com/post/raytodd.blog/3168

[2]  Panama, Liberia, and the Marshall Islands.

[3]  Classification societies set technical rules based on experience and research, confirm that designs and calculations meet those rules, survey ships and structures – both during construction and commissioning and periodically thereafter – to ensure that they continue to are in accordance with the rules.

[4]  For a fuller description of marine insurance and its scope see https://thelawreviews.co.uk/edition/the-shipping-law-review-edition-5/1170842/marine-insurance

[5]  2019 saw the 150th anniversary of the UK P+I Club being celebrated: https://www.ukpandi.com/uk-pi-150th-anniversary/message-from-the-chairman/ For a brief history of P+I Clubs, see: https://www.hellenicshippingnews.com/what-is-protection-and-indemnity-insurance/

[6]  Currently $10 million.

[7]  https://www.american-club.com/

[8]  It is worth noting that the American P+I Club paid a (reduced) $350,000 penalty to US authorities in 2013 to settle 55 apparent violations of US sanctions against Cuba, Sudan and Iran, having settled claims and provided letters of undertaking and letters of indemnity.  While this seems to have alerted that particular club (see below), one would have thought that it would also have highlighted sanctions violations as another pertinent risk for other clubs too.

[9] Under English law at least, the payment of ransom to pirates is not, in itself, illegal, and there is anyway a strong moral argument to do to secure the release of any individuals held.  However, it should be noted that care has to be taken not to breach any relevant sanctions measures involving terrorist groups as, in essence, pay outs may be made to criminals, but not to or for terrorists.  For example, see https://www.gov.im/news/2015/aug/07/united-nations-and-european-union-sanctions-ransom-payments/

Modern piracy is by no means as rare as one might think; see https://www.icc-ccs.org/piracy-reporting-centre/live-piracy-map for a map detailing attacks made in 2018.  See also guidance on www.maritimeglobalsecurity.org, a stakeholder in which is the International Group of P+I Clubs.

[10]  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.  Meanwhile, Greenpeace has issued lists said to contain the names of irresponsible fishing operators and the companies behind them – http://blacklist.greenpeace.org/home

[11]  https://wordpress.com/post/raytodd.blog/3429

[12]  See https://www.gov.im/media/1348726/notice-1000-man-trade-based-money-laundering-july-18.pdf

[13]  Seen as a particular risk in IUU fishing; see http://www.ilo.org/global/topics/forced-labour/policy-areas/fisheries/lang–en/index.htm

[14]  Even more of a risk given the extra-territorial reach of such legislation as the Bribery Act 2010 in the UK and the Foreign and Corrupt Practices Act in the US.  The UK P+I Club has an anti-bribery policy, for example, to meet the requirements of the Bribery Act: https://www.ukpandi.com/about-us/corporate-governance/compliance-regulatory/anti-bribery-policy/

[15] Including procurement and transport of materials, components, fuel etc and delivery systems, such as rockets and missiles, and their components, guidance systems etc.

[16]  See https://www.gov.im/media/1352777/notice-1008-man-proliferation-and-proliferation-financing-risks-2-jul-18.pdf

[17]  In May 2020, OFAC issued a detailed Advisory to the maritime industry, specifically referring it to insurance companies and P+I Clubs, warning of the risks of sanctions evasion and what could and should be done to prevent and detect evasion attempts – ss page 9 of the Advisory: https://www.treasury.gov/resource-center/sanctions/Programs/Documents/05142020_global_advisory_v1.pdf

[18]  See https://www.gov.im/media/80563/sanctions-notice-27-kimberley-process-certification-scheme-imports-and-exports-of-rough-diamonds-27-10-16.pdf

[19]  Aka IUU fishing.  In May 2019, the captain and 2 crew from a “notorious” IUU fishing vessel were fined and sentenced to prison in Sao Tome et Principe in a case that shed light on the little publicised scourge, and which was said to illustrate how difficult it was to bring maritime criminals to justice – the ship flew a Nigerian flag but was owned by a Spanish investor and operated through a shell company in Panama. It had changed hands many times over the years: http://adf-magazine.com/maritime-trials-and-tribulations/

[20] $950 billion in 2014, according to the Global Finance Initiative.

[21]  https://www.nationalcrimeagency.gov.uk/news/nca-recovers-8-million-linked-to-international-organised-crime

[22]  https://www.shlegal.com/insights/shippingbulletin—november-2018#fraudulentdocuments

[23]  Navigators Insurance Company Ltd and others v Atlasnavios – Navegacao Lda, The “B ATLANTIC”

[24]  Interestingly, in its report of the case, Stephenson Hardwood made the point that: “Although the smuggling was a wrongful act done intentionally without just cause or excuse, it was not ‘malicious’ within the meaning of insuring clause 1.5. In the context of war risks insurance policies, ‘malice’ has to involve spite, ill-will or the like which is directed towards property or persons. Drug smugglers do not intend for a vessel to be detained or for any other property or persons to be lost or damaged. To the contrary, they intend that the drugs avoid detection, that the vessel, property and persons remain unharmed and therefore that the intended recipients get what they have paid for.”: https://www.shlegal.com/insights/shippingbulletin—november-2018#fraudulentdocuments

[25]  https://www.ukpandi.com/about-us/corporate-governance/compliance-regulatory/anti-money-laundering-policy/

[26]  Sanctions imposed in August 2018 by the US Treasury on Profinet Pte, which provides services at Nakhodka, Vostochny, Vladivostok, and Slavyanka, were thought to be the first time such sanctions had been imposed on a port services operator (its director was also designated by the US Treasury).  This perhaps indicates that the reach of such measures continues to expand into new and hitherto largely unaffected areas.

[27]  https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Documents/dprk_vessel_advisory_02232018.pdf

[28]  https://www.treasury.gov/resource-center/sanctions/Programs/Documents/syria_shipping_advisory_11202018.pdf

[29]  https://www.igpandi.org/article/democratic-peoples-republic-of-korea-dprk-sanctions-enforcement-update

[30]   https://www.american-club.com/

[31]  https://projectalpha.eu/discussion-paper-un-maritime-sanctions-and-the-international-organisation/

[32]  A classic case was that of the scuttling of the supertanker Salem in 1980, a case that also involved sanctions-busting with oil being delivered to apartheid South Africa.  The story is an amazing one, and well worth reading.  The architect of the scam, jailed for 35 years in the US in 1985, but then escaped from prison 3 years later.  See http://archives.datapages.com/data/phi/2004/85.htm

[33]  https://www.governmenteuropa.eu/maritime-anti-corruption-agenda/92958

[34]  For a summary of US laws on the seizure of vessels, see: https://www.americanshipper.com/magazine/daily/?year=2019&month=7&day=12&page_number=4&via=asdaily

[35]  Established in 1981 (in the wake of the Salem scandal), it is a non-profit making organisation that acts as a focal point in the fight against all types of maritime crime and malpractice.  It has MoU with both the World Customs Organisation and Interpol, and the International Maritime Organisation has urged governments, all interests and organisations to co-operate and exchange information with each other and with the IMB with a view to maintaining and developing a co-ordinated action in combating maritime fraud.  The IMB provides an authentication service for trade finance documentation. It also investigates and reports on a number of other topics, notably documentary credit fraud, charter party fraud, cargo theft, ship deviation and ship finance fraud.

[36]  With the increase in such systems as the EU’s Authorised Economic Operator (AEO) scheme and security requirements for the pre-clearance of cargo entering the US, such requirements could be built into agreements with third parties – which would no doubt be useful when applying for AEO status or the equivalent.  It would also be of use to defend one’s position if implicated by another’s nefarious activities – the UK Bribery Act, for example, provides for a defence if a business has adequate arrangements in place to prevent bribery taking place.

[37]  https://www.hellenicshippingnews.com/the-registry-information-sharing-compact-is-a-major-step-forward-in-sanctions-enforcement/

[38]  St Kitts and Nevis, Comoros, Honduras and Palau.

[39] https://documents-dds-ny.un.org/doc/UNDOC/GEN/N16/407/50/PDF/N1640750.pdf?OpenElement

[40]  http://www.gard.no/Content/29697320/MemberCircular_5_2020.pdf

[41]  https://www.governmenteuropa.eu/maritime-anti-corruption-agenda/92958

[42]  In November 2018, Project Alpha at King’s College London published a paper examining the interplay between UN sanctions and the rules governing the maritime sector, showing how the sanctions impose requirements on shipowners, shipping companies that go beyond the rules of the International Maritime Organisation (IMO).  The paper also argues that the IMO rules do not permit the effective implementation of sanctions, and it identifies a number of issues and opportunities for changes to be made to the rules. See https://projectalpha.eu/discussion-paper-un-maritime-sanctions-and-the-international-organisation/

[43]  In April 2019, Lloyds of London issued Market Bulletin Y5246 to advise that existing due diligence and monitoring procedures should be reviewed and validated in relation to marine cargo and hull exposures in the light of North Korean, Syrian and Iran sanctions risks, including proliferation risk.

[44]  The case study involved the supply of oil and jet fuel to Syria and involved Russia as well:  https://www.kcl.ac.uk/news/sovfracht-indictment-and-oiljet-fuel-transfer-to-syria

[45]  https://www.hellenicshippingnews.com/u-s-sets-sights-on-shipping-companies-for-sanctions-evasions/

[46]  https://www.igpandi.org/article/democratic-peoples-republic-of-korea-dprk-sanctions-enforcement-update

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

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

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

[50]  In May 2019, there occurred a rare victory against IUU fishing when the captain and 2 crewmen from a “notorious” vessel were fined and imprisoned in Sao Tome et Principe, a small state that relies on fishing.  An article on the case illustrates the current difficulties in bringing such maritime criminals to book: http://adf-magazine.com/maritime-trials-and-tribulations/

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

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

[53]  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).

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

[55]  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.

[56]  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.

[57]  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.

[58]  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

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

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

[61]  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

[62]  See The Shipping Law Review: https://thelawreviews.co.uk/edition/the-shipping-law-review-edition-6/1195084/piracy

[63]  Piracy is defined in Article 101 of the UNCLOS as ‘any illegal act of violence or detention … committed for private ends by the crew … of a private ship … directed … against another ship … or against persons or property on board such ship’ on the high seas or in a place outside the jurisdiction of any state.

[64]  Although an attack on an Italian vessel in the Gulf of Mexico was reported in late 2019.

[65]  I am aware of such in the UK, and was personally responsible for drawing up such guidance in the Isle of Man, see: https://www.gov.im/media/1362739/terrorism-and-the-financing-of-terrorism-final-sept-2018-v2.pdf

[66]  The rule of thumb is that one can pay “ordinary” criminals, but not terrorists.

OFAC ADDS SHANGHAI SAINT LOGISTICS LIMITED TO IRAN SANCTIONS LISTS

On 19 May, OFAC advised that SHANGHAI SAINT LOGISTICS LIMITED, with addresses in Beijing and Shanghai, had been added to its SDN List.  It is said to be a general sales agent (GSA) for or on behalf of Iranian airline Mahan Air, and this is the seventh designation of a GSA to Mahan Air since 2018.

https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20200519.aspx

https://home.treasury.gov/news/press-releases/sm1014

 

 

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£8 MILLION LAUNDERED CRIMINAL MONEY RECOVERED BY NCA AFTER AN INVESTIGATION INTO A CORRUPT LIBERIAN SHIPPING BUSINESS ACCOUNT

A news release from the NCA on 19 May said that the money was part of a fund operated for the purpose of tax evasion, money laundering, bribery and corruption.  The NCA investigation began when Commerzbank AG London approached the National Economic Crime Centre after noticing unusual activity on an account held by a Liberian company called ‘The Albatross Limited’.  The company behind the account was incorporated in Liberia, West Africa, in the 1970s and was purportedly set up to operate large container ships for an international shipping company.

https://www.nationalcrimeagency.gov.uk/news/nca-recovers-8-million-linked-to-international-organised-crime

 

 

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UK COURT OF APPEAL: SUSPECT UNDER INVESTIGATION HAS REASONABLE EXPECTATION OF PRIVACY

On 19 May, the Law Society Gazette reported that the Court had dismissed an appeal by a news agency barred from revealing the identity of a US businessman identified in documents concerning a bribery probe.  It said that those under investigation by law enforcement bodies have a reasonable expectation of privacy up to the point they are charged.  The case involved a leaked mutual legal assistance sent from the UK to a foreign government.

https://www.lawgazette.co.uk/law/suspect-under-investigation-has-reasonable-expectation-of-privacy-coa-rules/5104320.article

 

 

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