New “game-changing” US guidance on sanctions that increases the pressure on shipping insurers and other service providers to share client data could lead to some players falling foul of competition and privacy laws, experts warn.
Washington advised insurers, financiers, classification societies and others last month to keep and share detailed information on beneficial owners, as well as a record of their historic ship movements.
The US urged insurers to closely monitor past and current AIS data and to share suspicious incidents, such as vessel movements, with other stakeholders.
The idea is that suspected owners and operators will be marginalised and unable to secure the critical “ticket to trade” of insurance cover and safety certification.
Phone numbers
“Insurers should conduct risk-based due diligence as appropriate. This due diligence might include maintaining the names, passport ID numbers, addresses, phone numbers, email addresses, and copies of photo identification of each customer’s beneficial owner,” the US Treasury Office of Foreign Assets Control (Ofac) guidance stated.
Former Lloyd’s of London underwriter Jonathan Jones, now managing director of Hong Kong’s JLJ Maritime, said the advice required the work of a compliance officer to become a “fundamental part of analysing risk”.
Instead of insurers focusing on a ship and its claims history, as they do today, he said the recommendations would place shipowners and managers high on the list of insurers’ risk-assessment priorities.
“This is the biggest potential game changer the marine insurance world has ever seen,” Jones added.
But the question is whether the shipping services industry will be forced to comply with what, after all, is an advisory rather than a legal requirement. The advisory itself makes it clear that the guidelines are not legally binding for non-US citizens.
Barred from trading with US entities
Sanctions expert Mike Salthouse, global director of claims at North P&I Club, worries that failure to follow the due diligence advice could be taken as a breach of sanctions.
“The concern in the industry is that any failure to apply measures in accordance with the published guidance will result in sanctions,” he said.
Those that fail to comply with the measures could find themselves barred from trading with US entities or in US dollars, in effect barring them from the shipping business.
As a result, Salthouse is concerned that service providers could even overreact to the directive, which would have negative commercial consequences for the shipping industry and even cast suspicion on innocent parties
Risk of over-compliance
“Over-compliance is a likely consequence of the advisory, particularly within the heavily regulated financial services sector,” he said.
“That would be unfortunate, because at best the disruption to legitimate trade can be disproportionate to the targeted sanctions-breaking activity. At its worst, it can stigmatise the shipowner or charterer that is simply trying to do its best.”
Salthouse said the advisory could put insurers and other service providers in breach of competition and data privacy laws.
This applies chiefly to members of the International Group of P&I Clubs and the International Association of Classification Societies.
Ofac is encouraging members of both organisations to share data on suspicious sanctions-busting activities by their members’ clients.
The membership of both associations account for more than 90% of business in their respective markets, and collusion on data could be viewed as restraint of trade.
Suspicion
“Competition law is absolutely clear on this point — namely that to share information based on a suspicion that the operator has engaged in sanctions-breaking, as opposed to a fact, would be an abuse of a dominant market position and expose the club or classification society to very significant fines,” Salthouse said.
Then there is an issue of whether holding and sharing personal information would breach data protection laws such as the European Union’s General Data Protection Regulation.
“As the financial crime legislation UK and EU businesses are subject to does not mandate the routine collection of personal data about beneficial owners, it is not clear how the requirements of data protection law would be satisfied were insurers and classification societies to hold and share this level of personal details to the extent suggested by the advisory,” Salthouse said.
