News / Know your cargo: the vital importance of due diligence

© Andrii Yalanskyi

A thorough understanding of your supply chain, specifically the full nature of any cargo accepted for transport and all relevant counterparties, is central to TT Club’s Cargo Integrity campaign explains TT’s Peregrine Storrs-Fox. He welcomes the recent endorsement of this aim by five US regulatory agencies*.

A joint compliance note, issued on 11 December 2023 by the five US agencies (thus known as the Quint-Seal Compliance Note) encouraged stakeholders to “Know Your Cargo”, reinforcing best practices to ensure the safe and compliant transport of goods in maritime and other forms of transportation.

The Compliance Note recognised the complex nature of the global supply chain across all modes and the opportunities that the globalised nature of the supply chain industry affords those with criminal intent. The compliance note identifies a number of threats, including the avoidance of US sanctions and export control laws. It also outlines a variety of strategies employed by the criminal fraternity to move goods through the supply chain undetected and best practices for the
maritime and other transport actors, in addition to examples of enforcement actions.

In recognising the complexities of modern day supply chains, the Compliance Note identifies relevant parties both directly and indirectly involved in the movement of goods, including charterers, commodities traders and financial institutions, stating that all “must be responsible for assessing their risk profile and implementing rigorous, risk-based internal compliance programs”.

As TT has highlighted, bad actors are constantly seeking ways to exploit the global supply chain, whether that be gaining access to valuable cargo, moving illicit goods or failing to declare goods accurately. The Compliance Note usefully connects all such deficiencies with wider concerns around sanctions and export control evasion strategies.

As frequently repeated from TT, effective due diligence processes are strongly encouraged throughout all activities. A core principle for the transport industry has to be to “know your cargo”.

Such processes and procedures are encouraged in order to identify a variety of outlined strategies, including the manipulation of location or identification data, falsification of cargo and ship documents, voyage irregularities and the use of abnormal transportation routes, frequent registration
changes and complex ownership or management.

The benefits of many of these aspects are duly recognised within existing TT guidance documents related to both security and safety through the supply chain and can serve to mitigate other risks such as abandonment of cargo.

The Compliance Note outlines and encourages the adoption of a number of risk mitigation strategies for individuals and entities who participate in maritime and other supply chain industries. The need is heightened where trade involves geographical countries and regions that are determined to be high risk. Inevitably, there are multiple risk indices addressing crime and corruption that may be chosen, including Transparency International.

The non-exhaustive list in the Compliance Note includes, embedding systematic sanctions and export control compliance checks, the establishment of location monitoring best practices and contractual requirements, know your customer principles, exercising supply chain due diligence and industry information sharing.

If cargo is discovered to have been transported in breach of US sanctions or export controls, the Compliance Note highlights that the enforcement actions, whether criminal or civil, can attract significant cost and reputational damage to parties identified as having connections through the supply chain.

The Compliance Note articulates a number of examples of past enforcement cases brought by each of the five departments expressing the need for compliance.

*The Department of Justice (DOJ), Department of Commerce’s Bureau of Industry and Security (BIS), Department of Homeland Security’s Homeland Security Investigations (HSI), Department of State’s Directorate of Defence Trade Controls (DDTC), and Department of the Treasury’s Office of Foreign Assets Control (OFAC).

This article is sponsored by TT Club.