Navigating turbulent waters: The Red Sea crisis and its impact on the fight against financial crime

Introduction

The Red Sea constitutes one of the most significant maritime routes in the world but on 19 October 2023, an air attack with missiles and drones conducted by the “Houthis” sought to make it impassable for Israeli linked vessels. This marked the start of a conflict known as the Red Sea Crisis.  

Over the last few months, the situation has continued to escalate, with various vessels, predominantly linked to the US, Europe, and Israel, now diverting around the Cape of Africa to avoid the conflict. Whilst the impact of the crisis is far reaching, this article will focus on the impact of this crisis on financial crime. 

Background

According to the World Economic Forum, some trade experts said that approximately 12 to 15 percent of world trade and 30 percent of global container traffic passes through the Suez Canal[[1]], transporting more than one trillion US Dollars’ worth of goods yearly. Created in 1869, the Suez Canal connects the Mediterranean Sea to the Red Sea through the Isthmus of Suez, serving as the fastest maritime shipping route between Europe and Asia. 

The Red Sea route can be accessed via two ‘choke points’, the Suez Canal from the North and Bab-el-Mandeb (Gate of Tears) Strait in the South. Bordering the Gate of Tears Strait is Yemen, a country with a population of 34.5 million, where a civil war that began in 2014 led to the rise of the Houthis. 

Who are the Houthis

The Houthis are a political and military group which controls a third of Yemen[[2]], though they are not internationally recognised as the country’s government. They portray themselves as a group advocating for economic development and the end of perceived political marginalisation of Zaidi Shias. The Houthis also declare themselves to be part of the Iranian-led resistance against Israel, the US and the West, aligning with groups like Hamas and Hezbollah.

The recent Houthi attacks initially targeted Israeli-bound vessels but soon expanded to all international shipping companies, with an aim to put pressure on Israel into allowing humanitarian aid into Gaza. Their actions escalated the conflict from a regional war into a global crisis.

Impact of the attacks on Financial Crime

Instability in the region has fuelled a rise in terrorism, smuggling, and human rights violations, as well as food shortages, leading to an increase in sanctions. Historically, we have seen that conflict zones become a haven for criminal activity, and this crisis appears no different. Groups such as the Somali pirates have been raiding diverted ships and there are indications that sanctioned ships have been exploiting the chaos to smuggle goods. We consider some of these elements in more detail below:

see also: Preventing the Trade of Weapons to Myanmar

Smuggling

The Cape of Good Hope has emerged as a smuggling route for Russian oil as it lacks the checkpoints present in the Suez Canal. This makes it easier for diverted ships to use this route to undertake illicit activities, such as unregulated fishing and commodities smuggling.

Since the onset of attacks in the Red Sea area, Windward[[3]] has reported several trends that indicate shifts in illicit behaviour by vessels, making it increasingly difficult to rely on established practices to track such activities. 

The recent events in the Red Sea have resulted in law abiding vessels turning off their Automatic Identification System (AIS) transponders to avoid the Houthi threat (“dark activity”). The AIS is a tracking system used for marine navigation that allows vessels to communicate their location. Although the International Maritime Organisation (IMO) legally mandates its use, there are exceptions for ships when they are under fire.[[4]]