Acting as the backbone of international trade, container shipping plays a pivotal role in global commerce. As the sector undergoes its digital transition, ensuring compliance practices are up to scratch is central to maintaining the integrity of transactions.In our first post on the topic, “Navigating digital identity risks in container shipping”, we discussed the importance of having a solid, verifiable identity when conducting trade in the digital realm. In our second post, we build on this, exploring the various actions that businesses within the sector should take in order to uphold the scrutiny of their own operations and the wider global trade network.
Know who you’re dealing with
Every actor within the shipping process has a role to play in safeguarding economic transactions on the world stage. In order to support these efforts, there is a complex, layered framework of regulatory compliance aimed at deterring and detecting unlawful activities.Yet navigating these measures is becoming increasingly complex. As new regulations are introduced and the compliance burden continues to grow, companies operating within the trade space must consider the global footprint of their operations. This means employing comprehensive measures to ensure each link in their global supply chain is transparent and accountable.Know Your Customer (KYC) and Know Your Business (KYB) checks, which involve verifying the identity, legitimacy, and financial background of customers and business partners, are key to navigating this complex landscape. Ensuring these checks are carried out both regularly and thoroughly can help to prevent fraud, enhance security and ensure regulatory compliance.
Ensuring robust compliance
Compliance with industry and jurisdictional standards and regulations is critical when it comes to KYC and KYB. While, on an operational level, failure to carry out the relevant checks can create delays across the supply chain, the implications of non-compliance can be much more serious – resulting in hefty fines or even lawsuits. We outline some of the key regulations below:
AML and CFT
Anti-money laundering (AML) and combatting the financing of terrorism (CFT) regulations are essential to ensuring that funds are not being used to inadvertently fund illegal activity within the supply chain. Compliance with international standards, such as those set by the Financial Action Task Force (FATF) is crucial. Meanwhile, organisations should also ensure they adhere to country-specific regulation – such as the USA PATRIOT Act or the EU’s AML Directive.
Sanctions lists
Shipping companies must ensure that they do not inadvertently facilitate prohibited activities by screening against sanctions lists from relevant bodies. This is a critical step in maintaining legal and ethical operations. Key lists include the US Treasury's Specially Designated Nationals (SDN), the Office of Foreign Asset Control (OFAC) Sanctions List and the United Nations Security Council Sanctions List. These are typically combined with other national sanction lists.
Identity verification standards
To ensure the security of the supply chain, container shipping companies should implement robust identity proofing and verification standards for individuals, following guidelines from ISO/IEC 27001 for information security, and standards including NIST SP 800-63 (US), eIDAS 2.0 (EU) or DIATF (UK) for digital identity verification.
Data protection laws
Organisations must comply with data privacy laws specific to their region. Examples include General Data Protection Regulation (GDPR) in the EU, the California Consumer Privacy Act (CCPA) in the US and thePersonal Data Protection Act (PDPA) in Singapore. These regulations share common themes such as the protection of personal data, the individual’s right to control personal information and the imposition of obligations on organisations that process personal data. Each, however, has unique aspects and legal requirements, tailored to fit the context and legal environment of their respective jurisdictions. It is important to note that compliance requirements can vary by both country and region and can also change over time. Organisations should therefore ensure they stay informed about updates to relevant standards and regulations and adapt their compliance practices accordingly to ensure the highest level of security and legal adherence in their operations.
Global frameworks and guidance
In order to guide and facilitate the implementation of KYC, KYB and compliance checks across the industry, there are a number of initiatives being developed by organisations and bodies that can be leveraged. These initiatives provide frameworks for both regulatory compliance and security. Some of the most important are summarised below:
Financial Action Task Force
The Financial Action Task Force (FATF) is an intergovernmental organisation that sets global standards for combating money laundering and terrorist financing. Its recommendations and guidance are widely followed for AML and CTF compliance.
United Nations
The United Nations (UN) has various initiatives and guidelines related to transportation and compliance, including sanctions lists and resolutions related to international security. UN initiatives can impact KYC and KYB practices in the context of international trade and transportation.
European Union
The EUhas stringent regulations in place to provide guidance on KYC and KYB requirements for businesses operating within the EU. These include Anti-Money Laundering Directives (4AMLD and 5AMLD) and GDPR.
United States
In the US, regulatory bodies such as the Financial Crimes Enforcement Network (FinCEN) enforce AML and CTF regulations, while the USA PATRIOT Act has implications for KYC and KYB in international transactions.
International Maritime Organisation (IMO)
The IMO sets global standards and regulations for safety, security, and environmental performance in the maritime industry. Its guidelines can influence KYC and KYB practices for businesses involved in shipping and maritime transport.Leveraging these global initiatives can help organisations in the industry develop robust frameworks and implement processes that align with international best practices and legal requirements.
Taking compliance forward
Alongside the complexity of international regulations and the need for stringent verification processes, the ongoing journey towards a fully digital trade ecosystem introduces further challenges.While the introduction of electronic documentation such as the electronic Bill of Lading (eBL) is helping to streamline operations, the transfer of documentation must still be done manually and is therefore susceptible to human error. Should the wrong details be entered onto the system, goods could end up in the wrong place. While, from an operational perspective, this can result in huge delays across the supply chain, it can have far more serious consequences if a shipment lands in a sanctioned jurisdiction.Employing advanced tools such as digital identity verification, and smart services for due diligence can enable shipping entities to safeguard their operations.Meanwhile, the use of automation to implement additional checks can help to overcome issues related to manual handling.Staying informed and responsive to regulatory changes is essential in this dynamic landscape, ensuring that container shipping not only meets but exceeds the global standards of compliance and security.To ensure effective processes, organisations often combine multiple tools and solutions, customising their approach to meet regulatory requirements and mitigate risks associated with fraud, money laundering, and other illicit activities. In the final post, we’ll dive deeper into the solutions that are already available and how businesses can leverage existing services.
Take part
To take part in DCSA’s industry deep dive into digital identity management in container shipping, contact [email protected]. You can also contact the DCSA team with any other questions and stay up to date with news and the industry’s progress towards digital trade by subscribing to our community.
