aWith US international sanctions at the forefront of global trade, research in the UK and Switzerland shows how technology gaps can hurt compliance.
The survey of more than 500 decision makers found that on the trade finance side, Swiss and UK banks were significantly lacking in compliance screening and oversight capacity, and on the shipping side, the It became clear that too few companies had the technology. The result is increased risk and lost business for both parties.
This is disappointing to say the least. Sanctions violations are considered strict liability violations by the U.S. Department of the Treasury’s Office of Foreign Assets Control, so inadvertent violations lead to penalties and negative headlines. Lack of awareness is no defense. Such breaches and the resulting damage are inevitable unless organizations adopt more effective screening and monitoring technologies to provide an end-to-end view of their transactions. This is necessary to conduct due diligence on the nature of the transaction and all parties involved.
More Complex Compliance Due to Ukraine War
Compliance challenges have increased since the invasion of Ukraine, with Russia being the most sanctioned country in the world – 5,581. A number of organizations or individuals have been named by OFAC for violating sanctions against Russia. This situation will continue even after the conflict ends. Meanwhile, North Korea, Syria and Iran are all under blanket sanctions. Venezuela and Cuba are also subject to strict US regulations. It’s worth remembering that these sanctions have an effect. In March of this year, the United States imposed sanctions on five entities for their proliferation activities under Iran’s, North Korea’s and Syria’s non-proliferation laws, reiterating the need for continued vigilance.
OFAC’s stance, and that of other regulators aligned, has greatly increased the importance of end-to-end due diligence and oversight across the financial and institutional ecosystems supporting each transaction and shipment. Although non-binding, OFAC’s 2020 Shipping Industry Recommendations require financial institutions and insurers to ensure that shipowners, operators, managers, charterers, brokers, flags, ports, shippers, carriers and commodities Placed under the same requirements as traders. In fact, most people involved in trade transactions. All were told to improve their compliance programs to avoid violating US sanctions. This means that any organization is now at risk of being investigated or penalized.
Weak compliance technology undermines business and increases risk
Nevertheless, the survey found that nearly two-thirds (65%) of UK shipping organizations and four-tenths (39%) of Swiss shipping organizations could demonstrate sanctions compliance when requested by banks. I could not do it. As a result, just half of Swiss shipping organizations and 38% in the UK admit to losing business because they failed to demonstrate compliance.
Much of this is due to the persistence of manual processes that waste time, undermine efficiency and endanger the organization through lack of transparency. Nearly half (48%) of Swiss shipping companies and 39% in the UK said removing manual processes from their compliance procedures would be the biggest improvement in their ability to comply with sanctions and regulatory requirements.
Only 16% of UK shipping companies and 22% of their Swiss peers have sanctions compliance and surveillance technology ready to be described as ‘good and fit for purpose’.
Compliance technology in trade finance
In the trade finance sector, a survey found that 87% of organizations in both countries are conducting screening, but many lack critical capabilities. A third of UK banks and a quarter of Swiss banks do not know the risk profile of carriers and vessels. Over a third of all admit their technology is simply inadequate. They face challenges in using multi-point solutions, understanding and keeping pace with regulations, and admit to not knowing what constitutes due diligence under current regulations.
However, I do have some understanding of the functionality required. Banks want to integrate enhanced vessel tracking into their compliance software to detect illegal activities, and want to increase the accuracy of vessel tracking technology and reduce false positives. Nearly half want compliance software that can detect fraudulent shipping documents. Other capabilities required by financial institutions in both countries include predictive analysis of non-reporting vessels, satellite imagery, and analysis of historical AIS gaps.
These are exactly the features financial institutions need to avoid costly and embarrassing sanctions violations. The problem with many of the findings is that traders who fully understand the urgency or need for technology to automate time-consuming processes so that they can be completed quickly at scale and with a high level of accuracy. Not enough finance companies or shippers.
Push the button to upgrade your sanctions compliance solution
It is true that the survey found that sanctions are taken very seriously. All Swiss and nearly all British shipping companies surveyed consider the OFAC 2020 maritime industry to have a high or moderate level of impact on their organizations. But just recognizing the severity of the sanctions is not enough.
Banks, financial platforms, carriers, owners, shippers, forwarders, importers and exporters all need far greater insight into who and what they are dealing with along each transaction. You need to move away from using paper-based methods and integrate a much wider range of capabilities into your compliance solution. For organizations with thousands of transactions, technology is the only surefire way to conduct due diligence in compliance with the standards required by regulators, and just as importantly, all due processes must be meticulous. You can also prove that you are paid and protected.
Source: Pole Star, Marine Trade Officer, Charles Ike