16 Jul 2020
A long-awaited advisory from the US’ Office of Foreign Assets Control (OFAC) has changed the rules of the game for maritime trade. The sanctions regulator – which sits within the Department of the Treasury and has the power to hand out multi-billion dollar fines to entities anywhere in the world – published the new guidance in late May 2020.
Its content was not a surprise, having been trialled by officials and previewed by GTR in early March. With around 90% of global trade believed to involve seaborne transportation, OFAC says it is “critical” firms increase the level of due diligence carried out across their entire maritime supply chains to minimise the risk of exposure to illicit activity.
The advisory singles out the energy and metals sectors as particularly high risk, giving the examples of petroleum from Iran or coal from North Korea as commodities that could trigger sanctions. OFAC also issues sector-specific guidance to financial institutions, insurers, shipping companies, port authorities and even vessel captains.
Its impact is expected to be significant. OFAC identifies several activities that could be indicative of illicit activity, such as ship-to-ship transfers – where cargo is moved from one vessel to another at sea, a technique it says is “frequently used to evade sanctions” – as well as voyage irregularities, tampering with vessel identification measures, and manipulating location transmissions.
Those demands suggest firms are expected to go beyond simply checking that vessels or their owners are not on sanctions registers. They will now have to monitor and scrutinise the behaviour of individual ships themselves.
“The message is loud and clear,” says Simon Ring, global head of financial markets compliance at Pole Star. “The bar has been raised. You’re now looking at a far more comprehensive range of screening and analytics tools before you engage with a vessel.”
Pole Star, a London-based technology firm that tracks and analyses data associated with a ship’s behaviour, was among the firms consulted by OFAC in the two years leading up to the publication of its advisory in May.
“Basic screening provides nowhere near the level of detail you need now. It’s about all of the parts around that, such as the ship’s movements, its history, its trading patterns and its reporting,” Ring tells GTR. “That’s where the US government has now had two years of education: when ships can be seen to ‘go dark’.”
Going beyond AIS
Monitoring a ship’s movements remains an important part of behavioural analysis, which is essential for marine security and safety. Much of that relies on the automatic identification systems (AIS) that cargo ships and tankers are required to have on board.
Originally developed as a tool to avoid collisions, AIS signals are transmitted via satellite to show the location of the ship. Sometimes ships will go dark, meaning those signals are no longer being broadcast or detected. That usually happens inadvertently, for instance in congested waters, but can also be an indicator that the vessel is carrying out some kind of illicit activity.
“The ratio between innocent or lost and deliberate turning off transmissions is probably between 1:10 and 1:20, depending on the area and type of ship,” says Ron Crean, vice-president for commercial at Windward Maritime Analytics, a Tel Aviv-based firm that provides behavioural analysis on ships.
“That means for every 10 or 20 times we see a vessel that isn’t transmitting for a number of hours, one of those would be a ship deliberately turning off transmissions.”
For a bank or oil company attempting to monitor that data, Crean tells GTR that creates a large number of false positives, where compliance staff may need to carry out a manual check of the potential risk involved. It’s a situation that can get “messy”, he says.
Guy Sear, executive director for product management at IHS Markit, agrees banks can struggle to process the large amount of data they collect when managing vessel tracking themselves.
“The volume of data we work with is astronomical,” he tells GTR. “Standardising that into a format to get the intelligence out of it that the regulators are asking for is a major challenge for the banks, and that’s where we see them calling out for help.”
Sear says IHS Markit – which offers commercial analytics services but is also designated by the UN as a source of vessel information – combines basic factual data about a ship with contextual data, such as open source information about ports around the world.
Combining that with tracking AIS signals, the company can see where a ship has been and whether it has encountered other vessels, giving the opportunity to spot suspicious port calls or ship-to-ship transfers. Also crucial is data on a vessel’s ultimate owner.
On top of that comes machine learning. Sear says “algorithmic technology can derive behavioural patterns from that data, taking the information all the way up to form an actionable piece of intelligence”.
In Pole Star’s case, Ring says technology “is really good at finding the needles in a haystack”. Single fields of data covering various aspects of a ship’s characteristics – such as its trading patterns, ownership, movements and flag registration – are combined to generate an audit trail.
“It doesn’t displace a compliance team or programme, but points them in the direction of where they need to be focusing their time and energy, rather than looking across swathes of transactions and flows,” he tells GTR. In the case of large banks and trading companies, the sheer volumes of transactions handled means that “can be impossible”.
If a vessel has gone dark, combining location data from different sources – known as hybrid tracking – is important, Ring says. If it is no longer transmitting AIS signals of any kind, that could suggest transponders have been switched off deliberately.
At that point, firms can examine the last known location of the ship, then its location once AIS reporting resumes.
If it was close to a high-risk area, that could be a red flag for illicit activity.
By John Basquill, Global Trade Review, 14 July 2020
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