When Sun Tzu said “If you know both yourself and your enemy, you can win a hundred battles without a single loss”, he most likely did not have drug traffickers in mind but this advice, given a few millennia ago, is surprisingly now one of the most pertinent recommendations shipping companies can follow when face with the scrouge of the illicit drug trade.
Under the existing international maritime regulation, as ocean carriers are not required to check the contents of all the cargoes they transport as this will lead to long delays across supply chains, it is not uncommon for illegal drugs to infiltrate maritime trade. When drug smuggling is discovered by the authorities, the vessel and its crew may be detained for a long time, prosecuted and fined heavily. KYC can preempt and minimize the risk of prosecution, reputational and financial damage by filtering out suspicious customers in the first place.
Therefore, implementing robust KYC measures is a fundamental step to detect drug trafficking and other associated crimes like money laundering, terrorist financing and corruption, and to prevent the maritime ecosystem from being abused by transnational drug cartels.
Everybody has a part to play
These cross-border crimes are universally affecting all of society and stopping them is not something one shipping company can do alone. It is a challenge for the entire shipping industry and effectiveness is improved by shared intelligence, collaboration and third-party partnership, but more importantly, everybody has to play their parts. It is a fallacy to think that only big players with vast resources can afford to embark on a KYC program.
Understandably, the KYC requirement can be daunting and overwhelming and often smaller companies feel they do not have sufficient resources to meet them. However, having ethics and compliance do not necessarily need to be on a big scale as every bit of effort counts.
In fact, for the smaller companies, having a KYC program can be turned into a competitive advantage as it can help them to develop an ethical brand, provide assurance to business partners and prospective customers, especially larger organizations and government agencies, that they are an ethical company, and to provide as evidence of an overall compliance commitment. The commercial benefits of having a KYC program should not be underestimated.
Know your customer as you know yourself
KYC is the due diligence undertaken at the start of a new business relationship and the ongoing monitoring of the relationship to ensure companies only do business with customers they have verified as being trustworthy. In other words, companies must make sure that their customers are genuinely who they claim to be. The process includes carrying out customer background checks, updating customer files, screening customers and transactions, monitoring transactions and reporting suspicious activities. KYC checks need to be done regularly as company and transaction details change over time.
The shipping industry is made up of supply chains involving multiple trading partners, and with that in mind, it is also prudent for shipping firms to practice know your customer’s customer (KYCC), which extends information gathering and due diligence to the connections that their customers have with third parties. The scope of KYCC in the shipping industry may of course be limited for logistical reasons or by domestic privacy law. Nevertheless, companies should still work to establish the extent of the KYCC needed, taking into account the risk profile of their customers.
Potential customers that warrant a higher risk profile and enhanced due diligence may include
- Companies that have business dealings in a sanctioned territory or country
- Companies based in a sanctioned territory or a country that has been identified as having high levels of corruption, money laundering or terrorism financing
- Companies based in a country identified as not having adequate anti-money laundering or counter-terrorism systems
- Companies, directors and executives that have prior criminal conviction and civil judgement
- Directors or executives of the company that are politically exposed persons
- Legal persons named in company documents that are also the main ultimate beneficiary owners of the company
- Many clients of the company being non-residents to the country where the company operates
- The company’s business being mainly cash-based
- The company is shipping cargoes to a certain destination for the first time and the cargoes’ nature is not in line with the company’s stated business
Drug trafficking by sea involves big money
Transnational drug cartels, upended by COVID-19 restrictions on air cargo and passenger planes, are making a quick transition to maritime routes. The illicit drugs may be concealed in some parts of the ship, secured under the hull in waterproof boxes and stored within legitimate bulk and container cargoes. The large volumes of maritime trade couple with the relative ease of hiding illegal drugs on ships and inside containers make enforcement difficult. Nonetheless, there are notable recent arrests and seizures.
On April 27, Greek Coast Guard divers seized 46 kilograms of cocaine found hidden behind a water intake grate in the hull of a cargo ship that arrived in Greece from Brazil. On March 21, the French Navy seized a record of six tons of cocaine from a cargo ship, the 4,400 dwt Najlan, sailing in the Gulf of Guinea. This bust is believed to be one of the largest individual seizures in the region.
In the month of February alone, there are quite a number of arrests. Authorities in Germany and Belgium seized a record 23 tons of cocaine with a street value of US$730 million, found in shipping containers destined for the Netherlands. In Hamburg Port, Germany, 16.17 tons of cocaine were found in 1,700 tins of wall filler which had arrived on a container ship from Paraguay. In the Belgian port of Antwerp, around 7.2 tons of the drugs was found hidden in a container filled with wood blocks which had been shipped from Panama.
Spanish authorities intercepted Nehir, a merchant tanker carrying three tons of cocaine worth $180 million, in the Bay of Biscay, and arrested nine crew members. British police, in one of the country’s largest drug busts, seized 2.3 tons of cocaine worth $258 million at the Portsmouth International Port and arrested 10 men. The illegal drugs were packed into pallets among a legitimate consignment of bananas on a cargo ship arriving from Colombia.
Eradicating drug trafficking one ship at a time
Of course, even during pre-COVID-19 times, using cargo ships to move illegal drug are already one of the more popular and profitable modes of transport and this trend is only going to go up during and even after the pandemic as drug cartels become more entrenched within the legitimate maritime trade.
There are numerous examples of drug smuggling cases by sea pre-pandemic and the most infamous ones involved MSC, one of the biggest global container shipping lines. The US authority seized 20 tons of cocaine with a street value of $1.3 billion stashed in several containers on the MSC Gayane on June 17 2019 at the Port of Philadelphia. The Gayane was the second MSC ship raided in Philadelphia for drug trafficking. In March, federal agents discovered 544 kilograms of cocaine onboard the MSC Desiree. They also seized 1.6 tons of cocaine on another MSC vessel, the MSC Carlotta, at the Port of Newark in February.
In Japan, during April 2020 at the Port of Yokohama, 700 kilograms of cocaine with a street value of $128 million was seized in a reefer container onboard a container ship that arrived from Ecuador via Colombia. This is believed to be the largest amount ever confiscated in a single shipment. At the Port of Osaka in February, a container ship that arrived from South America via Europe and the Middle East, was found to have 14 kilograms of cocaine worth $2.5 million hidden in a reefer container. In October 2019 at the Port of Kobe, the authority seized 400 kilograms of bagged cocaine worth $73 million mixed in with the iron ore cargo.
In August 2019 at the Port of Mikawa/Toyohashi, 177 kilograms of cocaine worth $32 million was found near the outside of the bottom hull, near an outlet for intake of seawater for engine cooling, of a car carrier from South America. In the next case, in July 2018, for a change, a shipping company reported to authority the discovery of 115 kilograms of cocaine worth $21 million on their container ship that arrived at the Port of Yokohama from Colombia via Panama and Mexico. The cocaine was stuffed into 14 backpacks hidden in the cargo space.
Time to defuse a ticking timebomb
Disturbingly, although there are many cases of successful interception by law enforcement authorities, because of the shadowy nature of this criminal world, it can be extrapolated that there are also many more drug trafficking cases that go undetected. The implication of this assumption is that there are numerous different actors involved in the maritime supply chain, including forwarders, logistics operators, port personnel, port security and government enforcement officers, whether willingly or not, are being compromised.
To protect their massive profits, drug cartels will ruthlessly and continuously infiltrate the legitimate supply chain using bribery and violent coercion while being impervious to the catastrophic damages they are inflicting in their wake. The business and societal costs of the illicit drug trade is high and as the maritime ecosystem is intricately linked, it is really not an option for any shipping company not to have a robust compliance system in place. And KYC is today a significant weapon shipping companies can deploy in their fight against drug trafficking.