Global Financial Integrity

 
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Vessel Ownership, Trade Finance and Regulatory Compliance

Financial institutions are increasingly expected to combat sanctions and financial crime compliance evasion by monitoring suspicious vessel behavior. These expectations are largely in response to the U.S. Department of the Treasury’s Office of Foreign Assets Control (U.S. OFAC) and the United Kingdom’s Office of Financial Sanctions Implementation (UK OFSI) advisories on shipping published in May and December 2020, respectively. These documents contained a number of recommendations for financial institutions to recognize and implement. While not previously expected of trade finance operations, a nuanced understanding of the maritime shipping industry has become a critical aspect of regulatory compliance, such as identifying commodities and trade corridors where transshipment and ship-¬≠to-ship (STS) transfers may occur.

The complexity of the shipping industry, however, has caused some anxiety amongst financial institutions as it requires a level of expertise that may not be reasonable for, or even available to, small or medium sized banks, whether seeking to bring such expertise in-house, or rely on sophisticated service providers.

Helpfully, recent guidance papers have been published to better assist the industry, but the authors considered that a global statistical review of vessel data could further benefit the community. This statistical review is intended to complement those guidance papers and further crystallize the compliance concerns arising from the shipping industry.

Overview of Results

Of the 68,218 total vessels reviewed, 59,881 or 8738% of the vessel had Known Owner information. Conversely, 8,337 or 12.2% of reviewed vessels had Unknown Owner information.

Recommendations

Recommendations for financial institutions and insurance companies include adding at least one additional check during their risk-based approach. That check could be review of the ownership information of a particular vessel in light of its known compliance status, flag of country and ownership domicile. Put differently, banks should be able to, as a general matter, have a baseline calculation of risk for a given vessel so reasonable decisions may be made in light of the increased regulatory pressure regarding the maritime industry. Additionally, government regulators and port security officials should consider requiring Group Ownership information prior to port calls, and further down the line, establish a beneficial ownership registry to ensure additional transparency.

Methodology

Data reviewed was provided by S&P Global Market Intelligence and is current as of March 2023. Authenticated data for 68,218 vessels were identified and sorted into various categories for analysis. The major delineation was whether Group Owner information was Known or Unknown regarding a particular vessel. The next distinguishing factor was a regulatory compliance assessment for each vessel of either (1) Compliant; (2) Warning; or (3) Severe.

Event Recording