KYC more important than ever in shipping
LONDON : The recent political shift in the US has brought renewed focus on the evolving sanctions landscape, particularly for the maritime industry. The increasing complexity of compliance requirements, the challenges faced by industry players – especially smaller companies, and the importance of Know Your Customer (KYC) all increasingly come to bear when doing business in shipping today.
Speaking at a Baltic Exchange-hosted seminar, Alexander Brandt, a partner at Reed Smith, emphasised the heightened enforcement activity expected under the new US administration, particularly targeting Iran and Russia. He said: “The Trump administration last time around was the architect of modern sanctions against the maritime industry.” This sentiment was echoed by Fulvio Carlini FICS, President of FONASBA’s Shipbrokers Committee, who said: “With the big change we are going to have in the Administration, I believe that sanctions against Iran are going to be the same or probably enforced.
Both experts stressed the importance of a robust compliance culture. This includes securing senior management buy-in, conducting thorough risk assessments, establishing clear policies and procedures, implementing regular testing and auditing, and providing comprehensive employee training. Carlini highlighted the practical challenges faced by smaller companies, particularly in the fast-paced shipping industry:
“The problem is that in shipping things are done quickly…and we all know that when you are following a compliance process, the times are never so quick.” added Carlini.
Steep learning curve
The evolving regulatory landscape, especially concerning sanctions related to the Russia-Ukraine conflict, adds further complexity. Brandt acknowledged the learning curve for both regulators and industry players: “There was a huge learning curve there. That learning curve, I think fairly, is still going on.” This necessitates ongoing adaptation and vigilance from industry participants.
Industry associations like BIMCO are actively addressing these challenges by providing guidance and developing standardised clauses. Additionally, technological solutions can streamline compliance processes and improve data management. However, smaller companies may face limitations in implementing sophisticated compliance programs due to resource constraints.
The increased regulatory scrutiny has led to a heightened focus on KYC procedures. KYC involves verifying the identity of customers and understanding their business activities. This is crucial for mitigating risks associated with financial crime, such as money laundering and terrorist financing. While KYC is a well-established practice in the financial industry, it has become increasingly important for the maritime sector as well.
“KYC and compliance have two aspects,” Carlini said. “One aspect is to comply with law. The other aspect is to help you to manage the customer, to know the customer, to know who you are dealing with.”
One of the primary challenges in implementing effective KYC procedures is the complexity of corporate structures in the maritime industry.
Often, there are multiple layers of ownership, with beneficial owners hidden behind complex corporate entities. This makes it difficult to identify the ultimate beneficiaries of transactions and assess associated risks. “Even with an appropriate procedure in the KYC, it’s very, very difficult from time to time to have the real and ultimate beneficiary of a company,” Carlini said. To address this challenge, maritime companies must conduct thorough due diligence, including background checks, verification of documents, and ongoing monitoring of customer activities.
Immediacy of shipping
Another challenge is the time-consuming nature of KYC processes. In the fast-paced shipping industry, where transactions often need to be executed quickly, detailed KYC checks can be burdensome. To streamline the process, companies can leverage technology solutions, such as automated identity verification tools and digital document verification platforms. These tools can significantly reduce the time and effort required to complete KYC checks.
Furthermore, the evolving regulatory landscape necessitates ongoing training and education for employees. Compliance officers and front-line staff must be equipped with the knowledge and skills to identify suspicious activities and report them to the appropriate authorities. Regular training sessions can help ensure that employees are aware of the latest regulations and can apply them effectively in their daily work.
However, while the maritime industry faces significant challenges in complying with the evolving sanctions landscape and implementing effective KYC procedures, by embracing a robust compliance culture, leveraging technology solutions, and staying informed about regulatory developments, industry players can mitigate risks, protect their reputation, and ensure long-term sustainability.
“For my part, I think we’ve come a long way in a very short period of time,” Brandt said. “The regulators asked a lot of the industry, and I think by and large, whether it be the evolution of the technology or just the general awareness that’s promulgated in the market, we have come a long way.
“You will still get parties who are cagey about their ultimate beneficial ownership and corporate structure documents, but the punch-ups that we were having in early 2022 about trying to get our paws on documentation and corporate structure charts, it’s very rare that that happens now.”
He added that the industry’s understanding of corporate structures has improved a great deal.
“There is a lot of good news in there. I think the focus on industry now is to work with the regulators to continue that conversation about weeding out ambiguous regulation and making sure that laws that are passed are ones that are properly thought through, and then we’re able to properly operationalise and implement that,” Brandt said.
Source : Baltic Exchange