August 31, 2023 • 25 mins
Released in June 2023, the EU’s 11th Sanctions Package included a significant focus on trade compliance. In this episode, Aneta Klosek, Director of Market Planning for Trade Compliance, LexisNexis Risk Solutions, discusses the goals of these new measures, and what they mean for the 1,200 ports across the EU.
For more information on trade compliance, visit our website.
DISCLAIMER: The information provided in this podcast is for informational purposes only and is not intended to and shall not be used as legal advice. The views and opinions expressed in this podcast are solely those of the speakers and do not necessarily reflect the views or positions of LexisNexis Risk Solutions. LexisNexis Risk Solutions does not warrant that the information provided in this podcast is accurate or error-free.
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Episode Transcript
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Speaker 1 (00:10):
Hi everyone and welcome back to another episode
of the RIGTEC Pulse.
A few weeks ago on this show,we discussed the Eleventh
Sanctions package, which the EUreleased late in June.
Julia Sochi from Studio LegaliPedavan gave some very
interesting insights and todaywe are joined by our Market
Planning Director for TradeCompliance, ineta Klossick.
(00:31):
We're going to focus thisepisode specifically around
trade compliance, becausethere's a very big trade
compliance element to this piece.
So, ineta, thank you so muchfor joining us.
Ineta, thank you very much forhaving me, julia, so let's just
dive straight in.
So, obviously, as I said, wediscussed this a little bit with
Julia and we talked about thesort of the anti-circumvention
(00:51):
measures which were included inthis latest package, but there
is a really big focus on trade.
So I wondered if you couldstart by giving us an overview
of these new regulationsregarding trade and, ultimately,
what the goal is of those,ineta?
Speaker 2 (01:05):
Yes, absolutely so.
I'm sure they recap what theregulation is about and what it
will cover, and in what scopeand shape or form it will be
enforced.
So the regulation came intoforce on the 24th of July and
the ultimate goal is to createeffective sanction tools that
enable the prevention ofcircumvention of sanctions by
(01:27):
actors in the trade ecosystemthat have bad intentions.
It would give the regulator aneffective tool to enforce very
quickly strict measures such as,for example, bans or like, for
example, prohibitions to selland distribute goods to great
countries or those that havepreviously appeared to be in
(01:51):
lucrative stepping stone forsanction evasions, as in like a
country that would use as atransit country for goods to be
shipped to a sanctioned country.
With the ultimate goal at theend, the regulatory update
created a greater focus on thetrade ecosystem, because they
recognize the risk of ports andthe role they play in the entire
(02:14):
ecosystem, and it pushedfurther emphasis on corporations
and their role in the fightagainst financial crime and the
role of trade and economicsanctions and how closely
everything is tied.
Speaker 1 (02:31):
So, touching on that point about ports, in particular
ports and shippers, what aresome of those practical
implications for shippers, portowners, banks, who are involved
in the international trade?
Speaker 2 (02:45):
So maybe let's just focus on ports for a second,
because it's one of the biggestdevelopments in the regulatory
history in relation to trade,probably, and I'd like to touch
on two points.
The first development I want topoint out is the prevention of
the abuse of transit rules, asin like so-called false transit,
which is one of the most widelyused circumvention schemes used
(03:08):
by bad actors in that field.
So the proposed expansion ofthe Euro transit ban is focusing
on adding certain technologyand tech products and aircraft
parts that would go to thesethird countries via Russia, and
(03:29):
I do think it's the right stepto recognize that this is
actually a crucial developmenthere, because it's recognized as
a risk and then a big red flagfrom previous examples, from
previous breaches, and to avoidsanctioned circumvention, the
(03:49):
ban on transit should include awide range of sanctioned
products, so it wouldn't stophere at aircraft parts and
technology, but it will bewidened out once we have more
clarity what products areaffected, and those products
will be constantly reviewed.
The second recent developmentfrom the EU concerning
international trade would befocusing more precisely on
(04:14):
vessels that engage in illicitshipments of Russian oil.
As part of this 11th package,the EU has introduced a
mechanism that would requireports to block access to ports
that are located in the EU forvessels that are found to engage
in deceptive practices such as,for example, ship to ship
(04:37):
transfer or switching off theirtransponder for purposes that
are not allowed.
There are certain circumstanceswhere ships would be allowed,
for safety reasons, to switchoff their transponder,
especially in waters where thereis a higher risk of piracy, but
if there is no solid reason toengage in such practice, ports
(05:04):
would have the requirement toreject this ship from Anchorage
and would also have to go so faras to report this vessel to the
authorities.
So these new measures areillustrative on an increased
regulatory scrutiny oninternational trade, and a
variety of export controls andtrade sanctions are now in place
(05:29):
against Russia, with a focus onparticularly energy products
and defence capabilities.
So regulators seek to crackdown on malign actors using such
deceptive practices that try tobreach these sanctions.
So what I wanted to point outis that ship-to-ship transfers
(05:52):
and AIS manipulations have longbeen called out as a red flag in
the past and have been adoptedby several regulators around the
world, but no regulator hasactually provided guidance or
implemented in their regulationon who would be responsible to
(06:12):
do what exactly?
And the EU regulator didexactly this.
They called out ports as beingthe gatekeeper of the land and
playing a crucial role in thatsupply chain and in the trade
ecosystem, and that ports wouldhave substantial power to
prohibit the access of vesselsthat play the bad game and would
(06:36):
therefore cut off that accessto the port and cut off that
journey of those goods.
Speaker 1 (06:44):
And we're talking about ports in the EU here.
So how many ports are wetalking about here?
How many ports is this going toimpact?
Speaker 2 (06:51):
That is correct.
Yes, so I mean, because it'sobviously the EU regulation.
It will focus on any port thatis located in the European Union
first, but that's not to saythat other regulators, as it
often happens, will follow suit.
So we're talking here right nowabout the Mediterranean Sea,
(07:12):
for example, marks the southernend, while the Baltic and North
Sea and Norwegian Sea mark thenorth end of the sea.
These water bodies provide a 360degree opportunity for ship
trading, of which Europeconsists of over 1200 major and
minor ports across such adiverse and rich waterways.
(07:36):
Three of these Antwerp,rotterdam and Hamburg
collectively handle the world's12% of cargo goods.
Rotterdam, for example, hasbulk liquid cargo handling of
192 million metric tons.
A total throughput of almost437 million metric tons of cargo
(07:59):
also contains about 192 millionliquid cargo.
But also smaller, less knownports like Bremerhaven, which is
based in Germany, or Algerkirasin Spain and Peres in Greece,
play a significant role in theshipping ecosystem Alone.
In Bremerhaven, for example,out of the 5978 total vessel
(08:25):
calls that have been reported in2020, as much as 60% belong to
a container vessels, and thisputs things into perspective.
You need to know which portshave the highest anchorage of
vessels that ship oil or othercommodities that are subject to
(08:49):
these restrictions and thenlater, once the regulation will
focus more into a wider range ofproducts and goods that will be
banned or prohibited from thisexport and especially transit of
the country, then that mightalso play a huge part in how
(09:12):
ports and corporates designtheir compliance procedures
around that.
Speaker 1 (09:17):
I mean, yeah, some of those numbers are huge.
So this is going to be amassive, massive change for them
.
And I guess, from anoperational perspective, from a
compliance perspective, whataction do these ports or port
owners need to be taking now?
And is it from now, is it today?
Do they have time to preparefor this?
(09:38):
When does this come into force?
Speaker 2 (09:43):
So they do need to get ready to be able to track
vessels that ship oil, first andforemost, because that's the
immediate regulatory implicationthat came into force already on
the 24th of July.
Then there is also an elementto obviously knowing your vessel
as an, identifying the vessel,whether it's a sanctioned vessel
(10:06):
and whether these vessels mayenter the port to begin with,
but then, at the same time, itgoes a step beyond that and to
identify and to practice furtherdue diligence of the operators
of the ship as well as of theowners of the ship, which is the
second step.
Another step which is verycrucial is, even though most of
(10:31):
the ports will engage in GPStracking, simply due to the
reason to be able tooperationally identify vessel
routes and how vessels voyagethrough the sea, and for safety
reasons, obviously they need tohave that additional layer of
sanctioned formation andintelligence to be able to
(10:53):
overlay this data on top of thegeneral operational data that
they are receiving and to beable to draw conclusions at a
holistic level At the same time,when you think about the type
of vessels or the type ofmaritime shippers in the world
(11:17):
and what volumes of cargo orvolumes of liquid they transport
and ship.
We're talking here aboutmassive volumes.
So, while the first step mightbe referring to the vessel,
tracking and suspicious activity, which I personally think is
(11:37):
much easier undertaking becausefor that you need to have the
data of the voyage of the vesseland whether it, historically
and at any point while it'sapproaching your port, may
behave suspiciously I call itthe easier part.
(11:58):
The harder part will become whenports are literally required to
block a vessel because thisship not only engaged in
suspicious activity but also maycarry goods that might pose
even a higher risk fortransiting through certain
countries.
And identifying goods asprobably the biggest headache of
(12:20):
the entire industry, whether itbe banks, whether it be
corporates that need to identify, whether it be transportation
companies and so on whichdoesn't only focus any longer on
controlled goods, but we'retalking here about sanctioned
goods, which goes in so manydifferent directions of
different products and items andcommodities that will cause a
(12:45):
real big headache for companiesoperationally, given on how many
million of tons and how manymillions of transactions they
deal on a daily basis.
The biggest shippers in theworld deal with as much as 50
million transactions per daythat have several data points,
(13:08):
that require several processes,that require several workflows
and several differentdecision-making routes.
So, yes, we're literallylooking here at the tip of the
iceberg.
Speaker 1 (13:22):
And probably a bit of a headache initially getting
people's heads around these newrequirements and I guess the new
measures that we're talkingabout here.
It does seem to reflect this iswhat we've been talking about
for a while.
There is this increasing focuson increasing importance of this
compliance within the shippingand the maritime sector.
We're hearing a lot more aboutnot only about sort of sanctions
(13:45):
, but about things liketrade-based money laundering
right Correct.
Speaker 2 (13:50):
I think this is literally the ripple effect that
trickles down from one sectorto another.
Regulators, as well as theindustry, slowly recognise that
they cannot look at their ownindustry in a silo but then
start looking left, right andcentre on what's happening
(14:12):
around them and then adoptaccordingly.
I think, because of thecomplexity of the trade
ecosystem and the supply chainin general, and because there
are so many actors involved thathave a variety of levels of
impact on each other, I thinkregulators are slowly learning
(14:32):
from previous audits andprevious breaches, previous
enforcements and penalties, andthey tend to identify new risk
flags and recognise thatbreaches are often enabled by a
number of different compliancefailures or lack of measures and
financial crime compliancerequirements.
Realise that classic paymentsare not the source but a symptom
(14:55):
and the actual root cause runsway deeper from the actual
financial instruments and theoperationalisation of such that
thus far they were not aware of.
And then trade-based moneylaundering, for example,
recognises that trade is not apoint in time transaction but
(15:19):
stretches operationally oftenacross many weeks or even months
, meaning they have recognisedand also implemented and do
their requirements that thingslike behavioural monitoring is
required or pattern recognitionto recognise whether certain
transactions even fit thebusiness model of the business
(15:41):
itself and also recognise thatin that time of process and
while the entire tradetransaction is being processed,
which may stretch over severalweeks that new data is being
added or changes are being madeand at the same time, regulatory
(16:05):
requirements may change also.
And how many entities have beenadded recently due to the
political unrest in the EuropeanUnion?
Trade-based money launderingalso recognises that not only
the financial transaction shouldbe in the focus, but also all
mechanisms that try tomanipulate the situation for a
(16:26):
higher gain.
For example, while moneylaundering, as from a compliance
perspective, would look at themovement of cash and the
potential disguise of itssources, whereas trade-based
money laundering includes thefacilitation of these practices
(16:48):
by falsifying information aboutthe underlying goods, meaning
false declaration of thequantity or lying about the
value of the goods, which thenleads to mis-declaration and so
on.
Because the data is soinconsistent in that industry
and there is literally nostandardisation that criminals
(17:11):
or those with illicit intentwill find those loopholes if the
correct procedures or measuresare not implemented by the
companies.
Speaker 1 (17:21):
So, basically, while you've got okay regulators yes,
they're cracking down on oil andgas manufacturers, they're
cracking down on banks, theenergy sector, financial
institutions they're all moreaffected by these strict
regulations.
But then there's suddenly thiswell, not suddenly, but there is
a clear understanding that thebehaviour of actors within the
(17:42):
maritime industry is going toimpact all of those other
sectors, right?
So this is where thisregulation is starting to become
more and more strict.
Speaker 2 (17:51):
Yeah, definitely.
You can see that, even thoughthis regulation doesn't
particularly speak about ordoesn't give the bank the power
to reject the vessel, right asin, it will not require the bank
to reject the vessel from atransaction, because the bank
can reject the transactionitself to their customer, but
(18:11):
they cannot say we reject thevessel and prohibit this vessel
to enter the European Union.
That's not something that theycan do.
But, at the same time, thisprohibition or this rejection by
the port to a vessel will havehuge implications to every
(18:32):
single trade finance transaction, to every single policy maker
as in like insurance policies aswell that may be affected by
this, and also the operationalprocess of every single
corporate that either engages inthe same trade or that is
(18:53):
involved in the same transactionthat involves these goods,
which are being transported onthe rejected vessel.
So, even though what's theregulation doesn't target
corporates and banks for thisdirectly, it may, though, as it
keeps the space in the annex foradditional provisions, and that
is later to be found out theywill be operationally affected,
(19:17):
meaning they may not again, theymay not need to block a vessel,
but they will need to knowwhether they should engage in
that trade finance transaction.
They should know whether theircustomer should be engaging with
a different shipper, or shouldmaybe instruct their customer to
(19:43):
engage a different shippingcompany or a different
transportation company thatfulfills the entire transaction
for them.
So the same goes for corporatesitself.
While they are not obliged totrack vessels for the regulatory
reason, they still may want toknow if a vessel could get
(20:04):
potentially blocked fromentering the port, and then they
may need to take precautionsfor the goods that are being
shipped.
This may impact theirinvestment strategies, this may
impact their cost calculationsand their financials after all,
and they would also need tocheck if insurance policies for
(20:26):
these goods and for the loss ofbusiness would still cover, or
if it would cover delays of thebusiness if the goods appear to
be on a vessel of concern thathappens or appears to transport
goods that are subject to theseprohibitions and these
(20:46):
restrictions.
Speaker 1 (20:48):
And so I guess maybe this might be a wide-ranging
question, I guess is there anyadvice, practical guidance that
you could give, whether that'sto banks, shippers, ports maybe
ports in particular goingforward, having to navigate,
particularly for them that thisis all a very new world, what
(21:09):
kind of advice would you give tothem?
Speaker 2 (21:12):
The advice, first and foremost, is to look at their
procedures and whether they havesufficient considerations for
any new agile regulation thatimpact trade operations, and
this may take any differentshape or form from, obviously do
(21:38):
I have the right people?
Do they know about the redflags?
Do they know about the risksinvolved?
Do I even know where my risk isin my business or what areas of
business are affected byincreased risk?
How do we engage in the trade?
(22:00):
But then, first and foremost,obviously, the more the industry
digitalizes, the more it opensitself up to bad actors that can
hide behind the screen.
The less face-to-facetransactions happen, the more
(22:21):
risk occurs in doing business,especially on the international
scale.
Knowing where your risk is andhaving a holistic view of all
the different elements of tradetransactions and trade
operations is crucial to connectthe dots between all the
(22:45):
different elements of that trade, meaning you not only look at
the entities that you deal withdirectly, but you also look at
entities that might be directlyor indirectly linked to the
entities you're directly dealingwith.
The second discipline is to lookat vessels, and how can I make
(23:06):
sure, as a company, to at leastbe aware if the regulation
doesn't impact me directlybecause I'm not required to
reject.
How can I at least make surethat my operations still run
smoothly and how can I make surethat I can still account for
investments and have myfinancials in order, should
(23:29):
something happen that wouldimpact the transportation of my
goods that I'm trading?
I would ask myself whether I'ma corporate, a bank, or else I
think especially as a port now,because they are obviously
mostly affected.
(23:50):
Am I prepared to address theserequirements that are being
proposed by the regulator and inwhat shape or form, and with
the volumes that I'm processing,as in the volumes of
transactions that I'm processinghere interfere with that
(24:11):
process at all?
Would that impact the speed ofhow I can conduct business?
Would that impact my SLAs as acompany towards my customers,
because I now suddenly have toconduct more compliance checks?
And, mostly important, whichparts of my procedures can I
(24:32):
actually automate in order tomake space for analytical deep
dives that may be required ininvestigative manners?
Speaker 1 (24:44):
That's brilliant.
Thank you so much, Anita.
Anita Classic, Market PlanningDirector for Global Trade
Compliance.
Thank you so much for joiningus on the RIG Tick Pulse today.
Thank you very much.
And we've got plenty ofresources relating to trade
compliance.
We'll make sure we include afew in the show notes.
So that's it for today'sepisode.
We hope you join in again soon.
Hi everyone and welcome back to another episode
of the RIGTEC Pulse.
A few weeks ago on this show,we discussed the Eleventh
Sanctions package, which the EUreleased late in June.
Julia Sochi from Studio LegaliPedavan gave some very
interesting insights and todaywe are joined by our Market
Planning Director for TradeCompliance, ineta Klossick.
(00:31):
We're going to focus thisepisode specifically around
trade compliance, becausethere's a very big trade
compliance element to this piece.
So, ineta, thank you so muchfor joining us.
Ineta, thank you very much forhaving me, julia, so let's just
dive straight in.
So, obviously, as I said, wediscussed this a little bit with
Julia and we talked about thesort of the anti-circumvention
(00:51):
measures which were included inthis latest package, but there
is a really big focus on trade.
So I wondered if you couldstart by giving us an overview
of these new regulationsregarding trade and, ultimately,
what the goal is of those,ineta?
Speaker 2 (01:05):
Yes, absolutely so.
I'm sure they recap what theregulation is about and what it
will cover, and in what scopeand shape or form it will be
enforced.
So the regulation came intoforce on the 24th of July and
the ultimate goal is to createeffective sanction tools that
enable the prevention ofcircumvention of sanctions by
(01:27):
actors in the trade ecosystemthat have bad intentions.
It would give the regulator aneffective tool to enforce very
quickly strict measures such as,for example, bans or like, for
example, prohibitions to selland distribute goods to great
countries or those that havepreviously appeared to be in
(01:51):
lucrative stepping stone forsanction evasions, as in like a
country that would use as atransit country for goods to be
shipped to a sanctioned country.
With the ultimate goal at theend, the regulatory update
created a greater focus on thetrade ecosystem, because they
recognize the risk of ports andthe role they play in the entire
(02:14):
ecosystem, and it pushedfurther emphasis on corporations
and their role in the fightagainst financial crime and the
role of trade and economicsanctions and how closely
everything is tied.
Speaker 1 (02:31):
So, touching on that point about ports, in particular
ports and shippers, what aresome of those practical
implications for shippers, portowners, banks, who are involved
in the international trade?
Speaker 2 (02:45):
So maybe let's just focus on ports for a second,
because it's one of the biggestdevelopments in the regulatory
history in relation to trade,probably, and I'd like to touch
on two points.
The first development I want topoint out is the prevention of
the abuse of transit rules, asin like so-called false transit,
which is one of the most widelyused circumvention schemes used
(03:08):
by bad actors in that field.
So the proposed expansion ofthe Euro transit ban is focusing
on adding certain technologyand tech products and aircraft
parts that would go to thesethird countries via Russia, and
(03:29):
I do think it's the right stepto recognize that this is
actually a crucial developmenthere, because it's recognized as
a risk and then a big red flagfrom previous examples, from
previous breaches, and to avoidsanctioned circumvention, the
(03:49):
ban on transit should include awide range of sanctioned
products, so it wouldn't stophere at aircraft parts and
technology, but it will bewidened out once we have more
clarity what products areaffected, and those products
will be constantly reviewed.
The second recent developmentfrom the EU concerning
international trade would befocusing more precisely on
(04:14):
vessels that engage in illicitshipments of Russian oil.
As part of this 11th package,the EU has introduced a
mechanism that would requireports to block access to ports
that are located in the EU forvessels that are found to engage
in deceptive practices such as,for example, ship to ship
(04:37):
transfer or switching off theirtransponder for purposes that
are not allowed.
There are certain circumstanceswhere ships would be allowed,
for safety reasons, to switchoff their transponder,
especially in waters where thereis a higher risk of piracy, but
if there is no solid reason toengage in such practice, ports
(05:04):
would have the requirement toreject this ship from Anchorage
and would also have to go so faras to report this vessel to the
authorities.
So these new measures areillustrative on an increased
regulatory scrutiny oninternational trade, and a
variety of export controls andtrade sanctions are now in place
(05:29):
against Russia, with a focus onparticularly energy products
and defence capabilities.
So regulators seek to crackdown on malign actors using such
deceptive practices that try tobreach these sanctions.
So what I wanted to point outis that ship-to-ship transfers
(05:52):
and AIS manipulations have longbeen called out as a red flag in
the past and have been adoptedby several regulators around the
world, but no regulator hasactually provided guidance or
implemented in their regulationon who would be responsible to
(06:12):
do what exactly?
And the EU regulator didexactly this.
They called out ports as beingthe gatekeeper of the land and
playing a crucial role in thatsupply chain and in the trade
ecosystem, and that ports wouldhave substantial power to
prohibit the access of vesselsthat play the bad game and would
(06:36):
therefore cut off that accessto the port and cut off that
journey of those goods.
Speaker 1 (06:44):
And we're talking about ports in the EU here.
So how many ports are wetalking about here?
How many ports is this going toimpact?
Speaker 2 (06:51):
That is correct.
Yes, so I mean, because it'sobviously the EU regulation.
It will focus on any port thatis located in the European Union
first, but that's not to saythat other regulators, as it
often happens, will follow suit.
So we're talking here right nowabout the Mediterranean Sea,
(07:12):
for example, marks the southernend, while the Baltic and North
Sea and Norwegian Sea mark thenorth end of the sea.
These water bodies provide a 360degree opportunity for ship
trading, of which Europeconsists of over 1200 major and
minor ports across such adiverse and rich waterways.
(07:36):
Three of these Antwerp,rotterdam and Hamburg
collectively handle the world's12% of cargo goods.
Rotterdam, for example, hasbulk liquid cargo handling of
192 million metric tons.
A total throughput of almost437 million metric tons of cargo
(07:59):
also contains about 192 millionliquid cargo.
But also smaller, less knownports like Bremerhaven, which is
based in Germany, or Algerkirasin Spain and Peres in Greece,
play a significant role in theshipping ecosystem Alone.
In Bremerhaven, for example,out of the 5978 total vessel
(08:25):
calls that have been reported in2020, as much as 60% belong to
a container vessels, and thisputs things into perspective.
You need to know which portshave the highest anchorage of
vessels that ship oil or othercommodities that are subject to
(08:49):
these restrictions and thenlater, once the regulation will
focus more into a wider range ofproducts and goods that will be
banned or prohibited from thisexport and especially transit of
the country, then that mightalso play a huge part in how
(09:12):
ports and corporates designtheir compliance procedures
around that.
Speaker 1 (09:17):
I mean, yeah, some of those numbers are huge.
So this is going to be amassive, massive change for them
.
And I guess, from anoperational perspective, from a
compliance perspective, whataction do these ports or port
owners need to be taking now?
And is it from now, is it today?
Do they have time to preparefor this?
(09:38):
When does this come into force?
Speaker 2 (09:43):
So they do need to get ready to be able to track
vessels that ship oil, first andforemost, because that's the
immediate regulatory implicationthat came into force already on
the 24th of July.
Then there is also an elementto obviously knowing your vessel
as an, identifying the vessel,whether it's a sanctioned vessel
(10:06):
and whether these vessels mayenter the port to begin with,
but then, at the same time, itgoes a step beyond that and to
identify and to practice furtherdue diligence of the operators
of the ship as well as of theowners of the ship, which is the
second step.
Another step which is verycrucial is, even though most of
(10:31):
the ports will engage in GPStracking, simply due to the
reason to be able tooperationally identify vessel
routes and how vessels voyagethrough the sea, and for safety
reasons, obviously they need tohave that additional layer of
sanctioned formation andintelligence to be able to
(10:53):
overlay this data on top of thegeneral operational data that
they are receiving and to beable to draw conclusions at a
holistic level At the same time,when you think about the type
of vessels or the type ofmaritime shippers in the world
(11:17):
and what volumes of cargo orvolumes of liquid they transport
and ship.
We're talking here aboutmassive volumes.
So, while the first step mightbe referring to the vessel,
tracking and suspicious activity, which I personally think is
(11:37):
much easier undertaking becausefor that you need to have the
data of the voyage of the vesseland whether it, historically
and at any point while it'sapproaching your port, may
behave suspiciously I call itthe easier part.
(11:58):
The harder part will become whenports are literally required to
block a vessel because thisship not only engaged in
suspicious activity but also maycarry goods that might pose
even a higher risk fortransiting through certain
countries.
And identifying goods asprobably the biggest headache of
(12:20):
the entire industry, whether itbe banks, whether it be
corporates that need to identify, whether it be transportation
companies and so on whichdoesn't only focus any longer on
controlled goods, but we'retalking here about sanctioned
goods, which goes in so manydifferent directions of
different products and items andcommodities that will cause a
(12:45):
real big headache for companiesoperationally, given on how many
million of tons and how manymillions of transactions they
deal on a daily basis.
The biggest shippers in theworld deal with as much as 50
million transactions per daythat have several data points,
(13:08):
that require several processes,that require several workflows
and several differentdecision-making routes.
So, yes, we're literallylooking here at the tip of the
iceberg.
Speaker 1 (13:22):
And probably a bit of a headache initially getting
people's heads around these newrequirements and I guess the new
measures that we're talkingabout here.
It does seem to reflect this iswhat we've been talking about
for a while.
There is this increasing focuson increasing importance of this
compliance within the shippingand the maritime sector.
We're hearing a lot more aboutnot only about sort of sanctions
(13:45):
, but about things liketrade-based money laundering
right Correct.
Speaker 2 (13:50):
I think this is literally the ripple effect that
trickles down from one sectorto another.
Regulators, as well as theindustry, slowly recognise that
they cannot look at their ownindustry in a silo but then
start looking left, right andcentre on what's happening
(14:12):
around them and then adoptaccordingly.
I think, because of thecomplexity of the trade
ecosystem and the supply chainin general, and because there
are so many actors involved thathave a variety of levels of
impact on each other, I thinkregulators are slowly learning
(14:32):
from previous audits andprevious breaches, previous
enforcements and penalties, andthey tend to identify new risk
flags and recognise thatbreaches are often enabled by a
number of different compliancefailures or lack of measures and
financial crime compliancerequirements.
Realise that classic paymentsare not the source but a symptom
(14:55):
and the actual root cause runsway deeper from the actual
financial instruments and theoperationalisation of such that
thus far they were not aware of.
And then trade-based moneylaundering, for example,
recognises that trade is not apoint in time transaction but
(15:19):
stretches operationally oftenacross many weeks or even months
, meaning they have recognisedand also implemented and do
their requirements that thingslike behavioural monitoring is
required or pattern recognitionto recognise whether certain
transactions even fit thebusiness model of the business
(15:41):
itself and also recognise thatin that time of process and
while the entire tradetransaction is being processed,
which may stretch over severalweeks that new data is being
added or changes are being madeand at the same time, regulatory
(16:05):
requirements may change also.
And how many entities have beenadded recently due to the
political unrest in the EuropeanUnion?
Trade-based money launderingalso recognises that not only
the financial transaction shouldbe in the focus, but also all
mechanisms that try tomanipulate the situation for a
(16:26):
higher gain.
For example, while moneylaundering, as from a compliance
perspective, would look at themovement of cash and the
potential disguise of itssources, whereas trade-based
money laundering includes thefacilitation of these practices
(16:48):
by falsifying information aboutthe underlying goods, meaning
false declaration of thequantity or lying about the
value of the goods, which thenleads to mis-declaration and so
on.
Because the data is soinconsistent in that industry
and there is literally nostandardisation that criminals
(17:11):
or those with illicit intentwill find those loopholes if the
correct procedures or measuresare not implemented by the
companies.
Speaker 1 (17:21):
So, basically, while you've got okay regulators yes,
they're cracking down on oil andgas manufacturers, they're
cracking down on banks, theenergy sector, financial
institutions they're all moreaffected by these strict
regulations.
But then there's suddenly thiswell, not suddenly, but there is
a clear understanding that thebehaviour of actors within the
(17:42):
maritime industry is going toimpact all of those other
sectors, right?
So this is where thisregulation is starting to become
more and more strict.
Speaker 2 (17:51):
Yeah, definitely.
You can see that, even thoughthis regulation doesn't
particularly speak about ordoesn't give the bank the power
to reject the vessel, right asin, it will not require the bank
to reject the vessel from atransaction, because the bank
can reject the transactionitself to their customer, but
(18:11):
they cannot say we reject thevessel and prohibit this vessel
to enter the European Union.
That's not something that theycan do.
But, at the same time, thisprohibition or this rejection by
the port to a vessel will havehuge implications to every
(18:32):
single trade finance transaction, to every single policy maker
as in like insurance policies aswell that may be affected by
this, and also the operationalprocess of every single
corporate that either engages inthe same trade or that is
(18:53):
involved in the same transactionthat involves these goods,
which are being transported onthe rejected vessel.
So, even though what's theregulation doesn't target
corporates and banks for thisdirectly, it may, though, as it
keeps the space in the annex foradditional provisions, and that
is later to be found out theywill be operationally affected,
(19:17):
meaning they may not again, theymay not need to block a vessel,
but they will need to knowwhether they should engage in
that trade finance transaction.
They should know whether theircustomer should be engaging with
a different shipper, or shouldmaybe instruct their customer to
(19:43):
engage a different shippingcompany or a different
transportation company thatfulfills the entire transaction
for them.
So the same goes for corporatesitself.
While they are not obliged totrack vessels for the regulatory
reason, they still may want toknow if a vessel could get
(20:04):
potentially blocked fromentering the port, and then they
may need to take precautionsfor the goods that are being
shipped.
This may impact theirinvestment strategies, this may
impact their cost calculationsand their financials after all,
and they would also need tocheck if insurance policies for
(20:26):
these goods and for the loss ofbusiness would still cover, or
if it would cover delays of thebusiness if the goods appear to
be on a vessel of concern thathappens or appears to transport
goods that are subject to theseprohibitions and these
(20:46):
restrictions.
Speaker 1 (20:48):
And so I guess maybe this might be a wide-ranging
question, I guess is there anyadvice, practical guidance that
you could give, whether that'sto banks, shippers, ports maybe
ports in particular goingforward, having to navigate,
particularly for them that thisis all a very new world, what
(21:09):
kind of advice would you give tothem?
Speaker 2 (21:12):
The advice, first and foremost, is to look at their
procedures and whether they havesufficient considerations for
any new agile regulation thatimpact trade operations, and
this may take any differentshape or form from, obviously do
(21:38):
I have the right people?
Do they know about the redflags?
Do they know about the risksinvolved?
Do I even know where my risk isin my business or what areas of
business are affected byincreased risk?
How do we engage in the trade?
(22:00):
But then, first and foremost,obviously, the more the industry
digitalizes, the more it opensitself up to bad actors that can
hide behind the screen.
The less face-to-facetransactions happen, the more
(22:21):
risk occurs in doing business,especially on the international
scale.
Knowing where your risk is andhaving a holistic view of all
the different elements of tradetransactions and trade
operations is crucial to connectthe dots between all the
(22:45):
different elements of that trade, meaning you not only look at
the entities that you deal withdirectly, but you also look at
entities that might be directlyor indirectly linked to the
entities you're directly dealingwith.
The second discipline is to lookat vessels, and how can I make
(23:06):
sure, as a company, to at leastbe aware if the regulation
doesn't impact me directlybecause I'm not required to
reject.
How can I at least make surethat my operations still run
smoothly and how can I make surethat I can still account for
investments and have myfinancials in order, should
(23:29):
something happen that wouldimpact the transportation of my
goods that I'm trading?
I would ask myself whether I'ma corporate, a bank, or else I
think especially as a port now,because they are obviously
mostly affected.
(23:50):
Am I prepared to address theserequirements that are being
proposed by the regulator and inwhat shape or form, and with
the volumes that I'm processing,as in the volumes of
transactions that I'm processinghere interfere with that
(24:11):
process at all?
Would that impact the speed ofhow I can conduct business?
Would that impact my SLAs as acompany towards my customers,
because I now suddenly have toconduct more compliance checks?
And, mostly important, whichparts of my procedures can I
(24:32):
actually automate in order tomake space for analytical deep
dives that may be required ininvestigative manners?
Speaker 1 (24:44):
That's brilliant.
Thank you so much, Anita.
Anita Classic, Market PlanningDirector for Global Trade
Compliance.
Thank you so much for joiningus on the RIG Tick Pulse today.
Thank you very much.
And we've got plenty ofresources relating to trade
compliance.
We'll make sure we include afew in the show notes.
So that's it for today'sepisode.
We hope you join in again soon.
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