Navigating the Compliance Supercycle
Navigating the Compliance Supercycle
Minding the credibility gap: The importance of human intelligence in UBO, KYC and creditworthiness assessments.
The recent and ongoing efforts by the EU, UK and US governments to tighten their sanctions regimes in relation to global trade and shipping (directly targeting vessels/SPVs, management companies and commodity traders, in addition to secondary sanctions against targets in the banking community) has placed yet more pressure on compliance and credit teams. These teams balance a need to align with every new compliance requirement while enabling their traders to maximise information and pricing advantages. The ability to maintain this careful balance has underpinned the gradual evolution from the blanket self-sanctioning of certain trades following Russia’s invasion of Ukraine to a more nuanced approach based on internal and external compliance systems.
Our industry doesn’t readily support such systems. Often, data that is critical to decision-making is hard to come by, outdated, or sometimes intentionally misleading; rules and regulations can change overnight, with the targets of sanctions being unpredictable and any sanctions imposed resulting in a near-instant termination of banking and insurance arrangements. As we discussed in an earlier blog, KYC/onboarding systems can be gamed to ensure completely clean, non-sanctioned (and therefore “tradable”) opportunities exist where they shouldn’t. Financial accounts can be falsified, rubber-stamped by one-man auditors, or be dated so far behind a fast-moving market as to be irrelevant. Significant growth markets such as those seen in the United Arab Emirates (where Infospectrum was appointed to research one newly-incorporated company every working day between February and December 2022, and remaining one of the most frequently used domiciles in cases we assess) appear to offer equally enormous potential for profit and compliance-related disaster. Underpinning all of this is the weaponisation of the baked-in structural complexity that can see “clean” assets sold with no obvious change in direct ownership (as was the case with one “greyish” fleet member Infospectrum recently reviewed whose Hong Kong-registered SPV had been sold three times in 12 months).
If you are faced with a government or banking partner asking questions about your counterparties, you need to know that the due diligence has been deep, and has not relied on a cursory company/principal name search. This is where human intelligence adds so much value to data gathering, and where compliance and credit managers earn their crust. Both have the skills to “look under the hood” on KYC/UBO matters, piece together the disparate, and often non-public domain information, add in feedback from a wide range of market sources, and assess exposure to a compliance breach, and the impact of a default. Both can also monitor the arms race of sanctions implementation and sanctions evasion. Sometimes it is only this human intelligence that can provide the key missing link to exposing a potentially financially and reputationally dangerous counterparty.
Even with this skillset, compliance and credit teams are having to face this mounting demand while working within the same old tight deadlines demanded by our industry. It is a far from perfect position, but one eased for our clients who lean heavily on Infospectrum’s substantial Databank of 32,000+ reports, established market network and 50-strong global Analyst team to secure a rapid, trusted, well-researched, and most importantly, independent, assessment of a counterparty to add to their defence file. Infospectrum leverages decades of experience in investigating low-disclosure shipping and commodity trading structures, in sanctioned and non-sanctioned markets, and the hard-earned market source networks of our Analysts, to rapidly pierce the documentary veil to assess true risk, both from a compliance and credit perspective.
Infospectrum continues to serve as the industry’s leading hub of compliance and credit intelligence, delivered through a time and cost-effective user friendly platform. If you are considering a transaction, get in touch; we may know your intended counterparty well.
