The Perils of Transportation

One of the areas offshore fiduciary services providers are commonly involved in is that of the provision of corporate services to structures which are involved in transportation.  The services range from the provision of officers to trust and corporate structures, which they administer, through to supplying registered office facilities.  However, there are three common features in all of these arrangements.  Firstly, the assets are mobile.  Secondly, the fiduciary is rarely in a position to exercise direct and immediate control, in real time, over the use of the assets which then requires the appointment of agents in the form of either managing agents or the principals behind the structure.  Finally, and perhaps most critically, is the fact that unlike say financial assets or property, transportation, by definition, involves transporting cargo – both human and non-human.  It is this last point which is frequently not appreciated by fiduciary service providers in the context of risk management from a money laundering and sanctions perspective.

Why is this a topic of relevance?  In 2008 an official at the US Department of Homeland Security filed a report, obtained by Reuters,  which detailed what he called “the most significant development in the criminal exploitation of aircraft since 9/11”.  In essence, the report identifies the rapid growth of parallel aircraft networks operating across the Atlantic between Africa and South America.  These aircraft are involved in the drugs and weapons transportation trade dealing with criminals and terrorists alike.  Although the routes plied are between Africa and South America, the knock on effects in Europe and North America are easy to understand.  The aircraft vary from twin-engine turboprops, executives jets and retired Boeing 727 – all of which can validly be justified in terms of legitimate use, but are, in these circumstances, put to their ‘dual use’.  In the words of the official who is a counter-narcotics aviation expert “You’ve got an established terrorist connection on this side of the Atlantic.  Now on the Africa side you have the al Qaeda connection and it’s extremely disturbing and a little bit mystifying that it’s not one of the top priorities of government.”

A common reaction of fiduciary services  providers is to note that it would be impossible for them to mitigate the risks posed by the dual use of transportation.  They are therefore content to run the risks of being concerned in such arrangements without adding sufficient controls in order to mitigate them.  Those providers who are more risk averse by nature decline to become involved in transportation.  This brings us to three core questions behind risk management.

• What is your risk appetite?
•  For your given level of risk appetite do you have a sufficiently robust control structure?
• Are all your decisions fully informed?

A full copy of the article by Reuters can be found below.

http://www.reuters.com/article/idUSTRE60C3E820100113

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