Banks are being urged to assess the compliance risks associated with maritime trade, as fresh research finds criminal groups are using increasingly sophisticated methods of evading detection.
The Bankers Association for Finance and Trade (Baft), an influential industry association whose members include the world’s largest trade finance lenders, says in a paper published this month that bank staff may not be familiar with the intricacies of the movement of goods by sea.
Baft says the paper should help deepen banks’ knowledge of maritime trade risks, warning that a lack of understanding “can pose challenges” if shipments or transactions are flagged as unusual or if compliance issues arise.
“Our goal is to increase awareness of the risks associated with ocean-going vessels and their potential nexus to financial crimes,” said Scott Stevenson, the association’s senior vice president of trade.
“We hope financial institutions will use the guidance to examine the inherent risk in their trade portfolios, evaluate the need for control adjustments and even innovate new risk mitigation techniques.”
The paper outlines several areas of potential concern. Banks should be wary of “phantom shipping”, where a shipment referred to in documentation has not actually taken place in reality, as a potential fraud or money laundering red flag.
They should also assess whether a vessel’s location data is missing or does not make sense, based on manipulation of information provided by automatic identification systems (AIS).
Other red flags include the use of a vessel that is not appropriate for the cargo being shipped, that has frequently changed ownership, flag or management, or whose status is reported as “unknown” or “not live”.
The paper comes as maritime intelligence companies reveal details of changing criminal techniques, largely to smuggle oil from sanctioned jurisdictions.
Tel Aviv-headquartered Windward says it is seeing more frequent use of “identity games”, where vessels are using far more sophisticated techniques than switching off AIS signals – historically a commonly used method of avoiding detection.
These techniques include dual transmission, where a ship obtains more than one AIS transmitter and uses separate International Maritime Organization (IMO) numbers when reporting its location.
Vessels are also more frequently assuming false identities, in some cases “laundering” their identity by obtaining an IMO number fraudulently.
More “cutting-edge” techniques include using a decoy vessel, Windward says. This technique involves a “dirty” vessel assuming the identity of a “clean” vessel while sailing nearby, with the “clean” vessel then switching off AIS signals and sailing to its destination.
Criminals are also using location tampering, where the AIS signals transmitted by a vessel are machine-generated, disguising its true location.
Another concern, cited by both Windward and Baft, is the use of “zombie” or “ghost” vessels.
This technique involves a vessel adopting the identity of a ship that has been scrapped, in some cases years later. Windward says in a September paper this trend “is growing at an alarming pace”.
It cites a case from June this year, where it identified data showing a vessel meeting a tanker “known for conducting illicit operations and evading sanctions” – yet that vessel had been taken to a scrapyard in India nearly two months earlier.
Suspicions can often be confirmed by use of satellite imagery, which can confirm the true location of a vessel or whether its location signal matches its expected physical appearance. In the case of the scrapped vessel, imagery confirmed that only one tanker was present at the location of the “meeting”.
According to Windward, the majority of location tampering cases occur close to Iran, and overwhelmingly involve oil tankers rather than other cargo vessels.
“It becomes clear that this type of illicit behaviour is being used for one main purpose – oil smuggling,” it says.
However, since the imposition of sanctions on Russian exports since its February invasion of Ukraine, concerns have grown that similar techniques are being used to continue shipping oil and other restricted goods from the country.
Maritime intelligence provider Pole Star tells GTR its research – conducted in partnership with Blackstone Compliance – has identified over 400 vessels that were previously owned or operated by Russian companies but have recently been changed to entities in other jurisdictions.
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