This month’s (September’s) joint statement by the G7 finance ministers confirmed as much when they said: “We underscore our shared commitment to our determined and coordinated sanctions imposed in response to Russia’s war of aggression.”
Russia now faces the highest number of sanctions in the world. According to Statista the figure stood at 5,581 in March, some way ahead of Iran and Syria. By August 7,750 individuals faced sanctions along with 1,452 entities, 91 vessels and six aircraft.
Even if a ceasefire in the current Ukraine war were agreed tomorrow, the sanctions would continue since it would take so long for Russia to be accepted as a normal trading partner by the G7 countries and their allies.
The important point here is that everyone engaged in international trade must accept the semi-permanence of anti-Russian sanctions and ensure they take every step possible to adhere to them. Carriers, forwarders, charterers, insurers, importers and exporters – and port authorities – all need to know who they are dealing with more than ever and be fully alert to the possibility of Russian proxies masquerading as legitimate entities.
From now on, due diligence means screening all vessels and trade transactions to pick up suspicious activity by shell companies or front organisations that link back to Russia, which is capable of highly sophisticated workarounds when it comes to sanctions. While Iran has been increasingly cunning in side-stepping sanctions, Russia is a larger economy with many more established contacts beyond its vast borders. For all organisations engaging in trade, monitoring for sanctions or trade-based money laundering is more of a necessity than ever.
In the UK, the urgency for organisations to screen and monitor for illegal Russian trading activity has increased with the introduction by OFSI (The Office of Financial Sanctions Management) of a strict liability test for sanctions breach investigations. But around the world, more countries are taking different aspects of sanctions seriously, especially in relation to cargo-carrying vessels. In Asia it was the Monetary Authority of Singapore that took the strongest line on such matters. In April, however, in a sign that times are changing, the Central Bank of Bangladesh mandated the country’s banks to implement vessel-tracking to cut down on money laundering.
All legitimate organisations involved in trade need to increase the scope of routine and ongoing activity such as KYC and TBML monitoring and screening. They must have the ability to spot the indicators of illicit Russian activity or illegal trade with “Russian owned or affiliated” entities.
There are several areas that need close attention, which include:
- Complex or changed ownership structures in companies supplying vessels for transactions. While there are often valid reasons for complex ownership, organisations need to watch out for shell companies, and questions of registration, domicile and control. This is more than simply looking at public details. Technology drawing on many sources can now see more deeply into ownership structures, which is an important first step.
- Histories. Organisations need to avoid use of vessels or carriers with records of infringement or “going dark” by switching off AIS beacons, or which have a history of visits to areas or ports known for sanctions-flouting. Switches to flags of convenience or sudden changes of ownership should be warning lights in the current climate.
- Obscure supply chains. It is important to know which banks are financing transactions and who the parties and beneficiaries are. In the physical supply chain, anyone financing or participating in a transaction needs to know where the goods or commodities are coming from and where they are going. Just looking at vessels listed is not enough.
- Vessel monitoring. Organisations need the end-to-end visibility to see ports of origin and ports of loading in any transaction. But they also must track vessels carrying the cargo across the oceans and be aware when they linger in areas known for illegal ship-to-ship transfers, or visit ports recognised as high-risk for sanctions flouting. Having the technology to check certificates of origin, bills of lading, consignees and so forth is vital, especially for banks financing or facilitating thousands of trade deals and shipments every day.
- Vague drafting of sanctions. Knowing who or what is “Russian-owned and affiliated” can be difficult to nail down. It is understandable that port authorities, for example, do not want to make wrong moves that prove to be costly, such as impounding vessels where lawyers can make a strong case for legitimacy, or where ownership and responsibility are difficult to establish. Many ports lack sufficient screening technology, which is a deficit they need to address.
With thousands of transactions underway at any moment, the burden of ensuring continuing compliance with a mounting body of sanctions is immense. Success will only be achievable through technology that can pull in all the relevant data at scale and analyse it in near-real time as part of an integrated monitoring and compliance solution. Many financial organisations, for example, already have compliance technology into which they could integrate advanced sanctions-screening solutions.
Sanctions are unlikely to become any less complex and we know those against Russia are here to stay for years. For any organisation participating in cross-border trade, it is surely worth avoiding any failure in screening or monitoring that could result in hefty fines and significant long-term reputational damage.
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