Those charged with obtaining equipment and materials for illicit nuclear, biological and chemical weapons programmes have been known to make use of black market procurement and smuggling techniques on occasion. However much of the illicit procurement of ‘dual use’ equipment and materials seen in recent years involves purchasing through conventional commercial transactions, albeit with the buyer or the ultimate customer providing misinformation regarding the true destination or end use.
Once a purchase has been agreed, the items are then usually transported internationally through conventional commercial logistics arrangements. The international shipping/logisitcs industry comprises a diverse range of commercial entities of different types, with various (sometimes overlapping) functions. Any of these commercial entities, whether forwarder, haulier, cargo handler, carrier, broker or other, can potentially be involved (unwittingly or not) in facilitating the delivery of required goods to an illicit chemical, biological, nuclear or radiological weapons programme.
There are various legal, regulatory and reputational liabilities faced by companies involved in shipping that relate to both national and international non-proliferation efforts (and to efforts aimed against terrorism, human rights abuse and so on). Although the commercial entity generally deemed to have primary responsibility for ensuring that an export is legitimate is the seller, those others involved in the various stages of the shipping chain also have legal obligations. Companies need to be alert to the possibilities that their services may be exploited by those engaged in procurement for illicit ends, in order to comply with both the letter and spirit of the law. However, companies may be presented with opportunities to contribute materially to non-proliferation efforts above and beyond practicing compliance to avoid legal and regulatory penalties and reputational risk.
Guidance from national and international authorities on compliance and contribution to non proliferation is available and is broadly applicable to all involved, but appears to be generally aimed at consignors and freight forwarders (or those performing similar functions). Measures involve staying abreast of sanctions and embargoes in place, and of relevant designated entities lists produced by authorities whose jurisdiction is relevant (and notably many companies will wish to keep abreast of entities lists produced by the US government, even where they and those they do business with are outside of the US).
The requirement for entity screening and due diligence activities is clear, however the extent to which it is reasonable to pursue these, in the absence of a clear match to an entity or destination of concern, may call for difficult judgments at times. The response from national authorities to reported possible matches appears to be variable.
Both the positive effects for non proliferation purposes of compliance activities by companies in the shipping industry, and of the financial and commercial burden on those companies of undertaking compliance activities, are difficult to determine at this time.
Moves to develop integrated seamless data pipelines for international commercial logistics, involving information technology and partnerships between commercial entities and national authorities, may present opportunities to make compliance activities by the shipping industry easier and more effective for non proliferation purpose.
Information Available to Commercial Actors and Guidance from Authorities
Movement of a consignment is often a complex process involving multiple actors with varying functional, contractual and legal relationships with each other. These may include truckers, cargo handlers, trusted agents for security screening, customs clearance agents, international carriers (maritime, air, road and rail), and ship and aircraft brokers. Individual companies may perform multiple functions. Financiers and insurers will also be involved and are discussed elsewhere on the Alpha website. This complexity usually leads to hiring a freight forwarder to arrange and coordinate the actions of the different companies. Alternatively a large “integrator” may be employed for a complete door-to-door service.
All entities involved in the web of arrangements around a consignment may have information that could indicate that goods may be heading for an illicit end use.
However information held may not give rise to suspicion until combined with that held by authorities. Identity and/or contact details of the consignee or its agents may flag a risk if they are associated with illicit activity. Names of some of the individuals and organisations of interest are given in ‘designated entities lists’ that are openly published by certain national authorities, notably the US., and which often include entities connected with either terrorism, human rights abuses or proliferation. Equivalent classified lists are sometimes held by various national authorities but not made openly available.
In some cases sanctions may be in place preventing the export of any goods, or goods of a particular type, to any consignee or location in certain countries.
Guidance from national authorities is often that every entity involved in the shipping of a consignment is responsible for adhering to relevant laws and regulations. Companies are usually required to report whenever they know, or have reasonable suspicions, that goods are going to an illicit programme, a designated entity or to a sanctioned/embargoed destination, or that rules and regulations are otherwise not being adhered to.
Advice is generally provided in some amount of detail to exporters/consignors on steps they should take to be compliant with laws and regulations. This will usually involve checking the type of goods against control lists to see whether an export license may be required, screening the details of the procurer and their agents against entities lists (where applicable), and checking for any sanctions and embargoes that may apply.
Guidance is often provided on know-your-customer best practice. This includes factors that may give rise to suspicion (sometimes termed ‘red flags’) which should prompt exporters to seek further information and, if this does not resolve the issue, to discuss the deal with national authorities. [Red Flags are discussed in more detail elsewhere in the Alpha website, at link]. In some countries with ‘end use’ clauses in export controls, having grounds for suspicion means that a company should not proceed even when the goods are not on control lists, unless they have consulted national authorities.
The need for companies to exercise ‘due diligence’ is often discussed in official guidance. Examples of due diligence activity that should be considered (such as measures to check customers bona fides) can be found on various websites and publications.
The extent to which enquiries should be taken by exporters is usually not specified in fine detail – it would obviously be problematic to formulate detailed guidance for all situations. Published guidance from some national authorities acknowledges that due diligence efforts should be ‘proportionate’. However often much will be left to the company to make a judgment on what is reasonable and proportionate, both with regard to the exact nature of enquiries and the lengths that they should go to. The subject of exporters and anti-proliferation measures is covered in more depth elsewhere on the Alpha website.
WIth regard to entities within the shipping industry, specific guidance for companies fulfilling a particular function (haulier, carrier, broker etc) is generally not as prominent as it is for exporters/consignors. Advice given to exporters will obviously be relevant if a company has been employed to carry out functions that the consignor is usually responsible for (eg export license arrangements).
Some national authorities also give guidance directed specifically at freight forwarders (or similar), which typically focuses on checking whether any sanctions or embargoes apply, and screening entities involved against any entities lists that may be applicable. Forwarders are generally encouraged to be familiar with the guidance given to exporters on factors which might reasonably give rise to suspicion, and to consider what due diligence may be merited. In common with written guidance to exporters, forwarders will often have to judge for themselves the nature and extent of activity that is reasonable.
Appropriate levels of effort may be difficult to determine in the initial screening of the consignee and others acting for/with them. The extent to which forwarders should take further enquiries when a possible match to a listed entity occurs (eg a name is similar not identical to one on an entities list) can be difficult to determine with confidence.
Detailed screening may take into account things such as phonetic matching of a name or possible transliteration errors between languages, or may simply flag entities with names similar but not identical to those listed. This will tend to generate a significant number of possible matches that may call for further investigation. Subsequent enquiries may identify many ‘false positives’, but may also identify indeterminate cases.
Companies that report possible matches to national authorities may find that the relevant authorities have insufficient resources to respond in a timely fashion. In such cases there may be tensions between the commercial imperative not to refuse business without due cause, and the desire to ensure that the company has done everything reasonably possible to remain in compliance with laws and regulations.
Large companies such as the international logistics integrators and major freight forwarders may devote considerable manpower with specialist education and training to dealing with compliance issues and performing additional due diligence where this seems advisable. However the extent to which much smaller companies are able to shoulder the compliance burden and make similar efforts to their larger brethren is unclear.
One possibility is to outsource some of the work – at least one commercial company has been set up to keep track of changes to all published sanctions, embargoes and designated entities lists, both from international and national authorities, worldwide, and to provide an entity screening service against this body of information. However, usage of such a service obviously entails additional financial cost, and potentially other impacts if possible matches are identified, even if subsequent investigation reveals these to have been false matches.
Within the world of commercial shipping and international logisitics, forwarders and integrators are prominent at the forefront of export control compliance and wider antiproliferation activity. However, all types of commercial actors throughout the wider shipping industry have obligations in this sphere and the potential ability to contribute to the international community’s non-proliferation objectives. It is difficult to generalise about the exact shape of best practice for the large diversity of entities throughout the industry given multiplicity of arrangements involved, the variety of regulations and guidelines in different jurisdictions, and the varying capacities of different companies to perform antiproliferation activities. The key challenge is for companies to determine what are reasonable and proportionate ‘due diligence’ efforts in the particular situations they find themselves in.
Regulations and guidelines from national authorities can be somewhat vague in practice. While it is unlikely to be feasible to produce definitive, tightly written guidance that will cover all situations, current guidance is often difficult for industry to interpret in terms of practical, concrete procedures and actions required. Some commercial entities, especially very large companies, may be able to practice what can be thought of as ‘overcompliance’, devoting quite large resources to compliance activity and erring on the side of caution, but the burden to smaller operators may be more difficult to bear.
The ability of national authorities to respond in a timely and agile fashion when possible instances of illicit procurement are reported by commercial entities appears to be less than ideal. In some instances it may be that a greater emphasis from national authorities on having clearly identified, adequately resourced first points-of-contact, with clearly laid-out missions and performance standards, may be a useful step.