Vessel Due Diligence: The Need to Treat Vessel Screening as a Key Internal Control

Intro:  This is the second part of a two-part series in DCW about maritime sanctions risks. In the first part, “Vessel Due Diligence: The Major Sanctions Risks FIs Face”, we discussed how the Dark Fleet, a group of tankers dealing in Russian, Iranian, and Venezuelan crude, is circumventing sanctions. In this article, we discuss how to get the most out of vessel due diligence tools to detect suspicious activity, and why compliance departments cannot afford to treat these tools as a black box.

Whether we like it or not, the goal posts and expectations for vessel due diligence have moved. The U.S. Office of Foreign Assets Control (“OFAC”) and its Coalition counterparts expect that financial institutions be able to detect the presence of the Dark Fleet, spoofing and high-risk STS transfers, and any red flags outlined in its five maritime advisories. This is in addition to OFAC’s previous expectations that financial institutions screen vessels (and their IMO-listed related parties) against sanctions lists and review their routes for dark activity.[[1]]

Surprisingly, vessel due diligence may be one of the most effective controls to detect a sanctions nexus. Sanctions targets can easily circumvent screening controls by using shell, proxies, or front companies to keep their names off the documents,[[2]] but vessels cannot change their IMO number[[3]] and good vessel due diligence can often confirm the origin and destination of the cargo, or at least whether the vessel behaved suspiciously.

So if OFAC is increasingly focused on vessel due diligence, and vessel due diligence is typically a productive and cost-efficient tool, why is it not considered a key internal control like sanctions screening or transaction monitoring?

a. Vessel due diligence tools should not be a black box

Historically, vessel due diligence tools have been considered a supporting tool to double-check a vessel’s activity. But as the maritime environment becomes increasingly important, and OFAC and regulators expect more out of financial crime compliance (FCC) programs, financial institutions need to stop treating these tools as a black box. After all, an improperly configured vessel due diligence tool can result in too many false positives or, even worse, miss suspicious behavior.