Andrew Arlotto
Special Edition with Guest Student Authors from the Schar School of Policy and Government at George Mason University (https://traccc.gmu.edu/)
I have been honored to be an Adjunct Professor at GMU’s TraCCC ( The Terrorism, Transnational Crime and Corruption Center)for several years. Many AML/Sanctions experts have joined me as guest lecturers as we work with graduate students either in or contemplating a career in our community. This past summer, in my International Money Laundering, Corruption and Terrorism class the challenge was to educate and stay current with the plethora of changes occurring in the US and internationally.
The students were required to submit a final paper on a topic related to the vast areas covered in class and I have selected three papers that I know will be of interest to many.
John Byrne
Chair, AML RightSource Advisory Board
Introduction
According to the United Nations’ Food and Agriculture Organization (UNFAO) International Plan of Action to Prevent, Deter, and Eliminate Illegal, Unreported, and Unregulated (IUU) Fishing[1], IUU fishing refers to any fishing activity that is carried out in contravention of national, regional, and international fisheries regulations. IUU fishing is a global problem, with both global and local consequences. The paper that follows examines IUU fishing, its impact on communities, and how the banking/financial sector can help combat it. The complexities of IUU fishing have spun its web into other illicit activities such as corruption, smuggling, drug and arms trafficking, and fraud, not to mention countless human rights violations. Harbored by the fluid nature of the sea, IUU fishing comes at a very costly price to the communities and nations that are drained of resources. All while international markets that average citizens crave continue to fuel the demand. International anti-money laundering (AML) institutions, as well as nation-level AML policy can learn from the inner workings of IUU fishing presented below and seek to implement their own techniques to catch these vessels and organizations engaged in the illicit activity.
Aside from the countless human rights violations that happen within IUU fishing, there is an incredible resource drain that makes sustainable fishing practices obsolete in some parts of the world. Take a small coastal fishing community in Indonesia for example; fishermen and women engage in small scale fishing practices. These communities create sustainable practices in their own way to ensure the fish population lasts throughout a season. Then, in comes an unreported and undocumented fishing vessel. Raking in millions of dollars’ worth of fish and fleeing before authorities even realize what's going on. The IUU fishing vessel pays no taxes on its haul and is strictly interested in profit maximization. The ones left to dry, are the small fishers who have to now figure something else out or risk starvation. This is just a hypothetical example, but in the chapters to come we will explore real and current examples of these vessels, and the security risks associated. In the final chapters, we will learn how AML laws and the AML community writ-large can assist, as well as how organizations such as Interpol and the UN play an important role.
Chapter 1 - Literature Review
There has been considerable scholarly work done pertaining to IUU fishing. This section will examine some noteworthy academic endeavors that either relate to or are involved in IUU fishing to better your understanding of the issue. This section will also cover international documents that reign supreme over the IUU fishing sector to help highlight best practices for combating IUU fishing. Scholarly research primarily has focused on IUU fishing and its risks in the Indo-Pacific, but as we will see, there is no set border or boundary in which IUU vessels strictly operate.
Focusing on gross yield from IUU fishing, Agnew et.al.[2] show in their review of 54 countries, that between $10 and $23.bn annually is the value of the IUU fishing market. In their report, they highlight the correlation between developing nations and IUU fishing, showing that developing nations are those most at risk, with West African nations estimating that unreported catches are about 40% higher than reported catches. This type of exploitation would prove severely detrimental to any sustainable management of marine ecosystems. Agnew et. al. also provided excellent insight into the relatively cheap starting cost of getting into the IUU fishing business, and what potential yields could be. The turnover and re-issuing of old out of date fishing vessels is a huge issue to combating IUU fishing. The authors point out, that a vessel built in the 1970s in Japan, can end up on a Sierra Leone market in 2014 for around $200,000. If deployed consistently, Agnew points out, that the potential yield in a year from fishing tuna would result in roughly $1.2m. Making the initial capital up front very worthwhile. This is just an example provided by Agnew but is relevant to highlight how a fairly inexpensive initial investment can result in millions of dollars gained by criminal organizations, and millions of dollars lost by host nations, and even more in damages to ecosystems.
Chapsos and Hamilton[3] highlight links between IUU fishing and organized crime in Indonesia. The authors suggest, that classifying IUU fishing as transnational criminal activity, grants greater avenues for prosecution, targeting, and policy. As stated in the introduction, one of the biggest crimes to stem from IUU fishing is forced labor and slavery. Chapsos and Hamilton put this at the forefront of their work, signifying that it is not just fishery crimes, but rather a larger, deeper, and more complex industry deserving a reclassification and as such, greater importance. The cost of IUU fishing in Indonesia is estimated at around $3b, while the nations own reporting concludes up to $20b in damages to coral reefs, and lost tariffs. The authors present pristine data from surveyed persons working on IUU fishing vessels after capture, to show how these individuals managed to be taken onto these ships in the first place, what happened during their time onboard, and ultimately what we still don’t know about the human trafficking links to IUU fishing.
We would be remiss if here we did not touch upon George Mason's own Dr. Louise Shelley and her work in transnational crime and human trafficking. Both of which are intrinsically linked to IUU fishing. In her work[4] Dr. Shelley highlights for us how human trafficking undermines the rule of law and weakens political institutions. Within IUU fishing, human trafficking poses great risk to civilian populations and presents risk to governmental rule as citizens in destitute communities will be increasingly targeted and stripped of their rights as they are taken by IUU fishing vessels and forced to work. Dr. Shelley's work enables us to put human trafficking at the crux of IUU fishing, as without the free labor, IUU fishing vessels would not stand to gain as much as they do. Not the primary motivation for this paper, but a greater focus on human trafficking would no doubt be of critical use to combat IUU fishing.
Petrossian and Pezzella's[5] 2018 piece uses crime script analysis to outline the likely steps of IUU fishing and seafood fraud specific to the United States. For the purposes of this paper, this crime script analysis could be beneficial for AML institutions to use to determine best practice intervention techniques. Essentially seeking to analyze the modus operandi of IUU fishing, this piece breaks down the complex manner of IUU fishing and the components that make it up. This piece is relevant as it offers unmatched data and policy recommendations for the US' improvement of seafood import regulations, that naturally can help shape IUU policy. This piece is also useful as its crime script analysis presents many useful recommendations for policymakers in terms of how to deal with short-weighting fishing hauls, mislabeled packaging, wholesale distribution and other functions within the IUU scheme.
The research is vast on the topic of IUU fishing and tying in AML linkages is the easy part. Finding ways to counter the illicit activity in actuality is another problem. Research and academia can only go so far; binding agreements and commitment are what can put a stop to IUU fishing. There are a host of international actors working in the space currently, but there are four agreements in place that are of critical importance. The UN’s Convention on the Law of the Sea (UNCLOS), the UN’s Port States Measures Agreement (PSMA), the International Labour Organizations Work in Fishing Convention No. 188 (C188), and the International Maritime Organizations Cape Town Agreement (CTA). In brief; the UNCLOS establishes international fisheries law as it pertains to the commercial exploitation of fish resources as well as the creation of exclusive economic zones; the PSMA establishes port controls to prevent illegally caught fish from entering the global markets; C188 establishes standards for working conditions in the commercial fishing industry; and the CTA establishes safety standards on fishing vessels over 24 meters long, as well as contains regulations for nations to adopt to protect fishing crews. The CTA is currently not officially adopted, however as of January 2022 has 16 of 22 member states ratified.
Besides the above, there are also many international conventions that are important instruments for combating IUU fishing. Examples such as the UN Convention on Transnational Organized Crime (UNTOC), the UN Convention against Illicit Traffic in Narcotic Drugs, International Convention on Arrest of Ships, and the Nairobi Convention are also of critical use in combating crimes in the fishery sector and as we have seen, the complexities of IUU fishing tie together a multitude of governing agreements and actors. Within the UNTOC are articles ensuring four serious types of crimes are defined as clinical offices, money laundering being one of them
The issue at hand is that while there are the above agreements in place, and one soon to be, there is an incredible need for healthy lines of communication and cooperation amongst all those involved for any of the above agreements to be of proper use. Those who wish to circumvent the law will always do so, however the agreements above are certainly steps in the right direction. International organizations such as Interpol also play a unique role in the actual prosecution of IUU fishing vessels and their captains, as well as providing guiding frameworks for nations seeking to combat it on their own to follow.
Interpol has several useful working groups and programs geared specifically to IUU fishing. In 2018 Interpol published their own report entitled International Law Enforcement Cooperation in the Fisheries Sector: A Guide for Law Enforcement Practitioners.[6] This comprehensive report seeks to better enable member states to tackle IUU fishing, and to give law enforcement an umbrella guideline for how to combat it. Their Global Fisheries Enforcement Program (GFiE) enables members countries to prevent identify, deter, and disrupt transnational crimes associated with or related to the fisheries sector. There are also Interpol issued Notices. Since 2013 Interpol has issued 51 Notices at the request of its member nations. A Purple Notice, for instance, is geared to provide information on the practices of criminals. Relating to IUU fishing crimes, Purple Notices are useful to report on things such as the recruitment process of IUU vessels or abuse of state flag registries.
Chapter 2 - Where can AML come in?
To be of use in the context of IUU fishing, the AML community needs to first understand the complexities of the field, and then be able to use the strengths of a robust banking community to everyone's benefit. IUU fishing is so much more than an unregistered vessel operating in waters it should not be. As we have already seen, there are many human rights violations that run in tandem with IUU fishing. But what's even more, is the ever-evolving manner of the criminal organizations pulling the strings to get product from the ocean and to market in return for astronomical financial gain. Once these vessels have their haul, complex methods of canning, weighting, reporting, and mislabeling all take place in order to get customers the final product. As we've seen, there are plenty of steps being taken to try to prevent illegally fished product from reaching market, the most useful is more strict port entry requirements and background checks in order to dock. Steps such as these are being taken and are evolving to keep up with the times.
Only through greater integration and communication between the banking, law enforcement, and the fishing sectors is any of this possible. It is a massively large task, but with advancements in satellite technology, the task becomes a little more manageable. Using data from organizations such as Global Fishing Watch, satellite imagery of carrier vessel routes and ecosystem protection mapping can help the banking industry flag vessels and operators who may be involved in IUU fishing. Earlier this year, Global Fishing Watch published a report[7] on seafood supply chains which examined IUU risks within the seafood supply chain. Only in the first phase, ultimately the project aims to supply wholesale distributors with accurate data on sustainably and ethically sourced seafood. Using the data on those vessels that are not engaged in ethical fishing, the banking sector could backtrack the data to find the ultimate parent of those vessels and work with law enforcement to ensure those persons/vessels are not receiving funds and are prosecuted.
In 2003 Indonesia passed Law 25 on the Crime of Money Laundering, requiring banks and financial institutions to make SAR-like data more readily accessible to law enforcement. This is a positive step, but further due diligence will be needed. There could be room for banks and insurance brokers dealing with fishing vessel customers to be more stringent in their onboarding process. Tighter screening measures could help banks weed out potential customers who may be engaged in IUU fishing and further integration with law enforcement, both local and international, could help authorities track down these persons and vessels. What is needed firstly, is for banks taking on clients operating in this space to have tighter screening methods. With improved KYC protocols, clients operating in high-IUU areas, such as in Southeast Asia, should be flagged and placed on a suspicious activity report for law enforcement to take over.
The 2018 Interpol Report highlights how money laundering can occur at various stages of the IUU fishing supply chain. Illicit funds can be invested into infrastructure such as better fishing nets or processing facilities, they can also be laundered during the sale of fish at ports or through cash bribes of various local officials. The report also goes as far as to blame government officials and administrators; “it is not just fishing vessel captains and owners who are responsible for present-day fisheries crime. It is largely down to business executives, public officials, lawyers, accountants and other white-collar professionals.”[8]
As stated above, AML can and should be involved at every point in the IUU fishing chain, and combining advanced technologies with KYC protocols, the banking sector can continue to work closely with public officials and law enforcement to crack down on criminals in this space. However, a tough pill to swallow for us at home, is the fact that so long as we are creating the market for marine goods, then the IUU fishing business will continue to thrive. It will take a drastic effort of curbing fish consumption mixed with governments closing off large swaths of the ocean to commercial fishing to see any substantive change.
Conclusion: Moving in the right direction
Both the United States and the European Union have taken incredible steps to combat IUU fishing at the source, but also have been proactive in deterring product getting to market. On June 27, 2022, President Biden put out his Memo. On Combating Illegal Unreported, and Unregulated Fishing and Associated Labor Abuses[9]. Essentially committing his administration to the continued fight against not just IUU fishing, but the human rights violations associated with it. The memo takes a hard-line stance on forced labor, and President Biden addresses his Sec. of Labor, State, and Homeland Security to all establish teams and programs within their respective bureaus to work together against forced labor in the fishing industry. The memo goes a long way to pledge support for various programs and cooperative agreements, and actually does a really good bit in pledging support for a greater Quad partnership against IUU fishing. Quad dialogue on this part could go a long way, since IUU fishing is most prevalent in the Indo-Pacific.
The EU was further ahead of the US in this respect, as they adopted an IUU Regulation[10] back in 2008. This official legislation requires seafood imports to have what is called a Legal Harvest certificate, essentially vetting the product by existing conservation and sustainability measures the EU has in place. Now of course, this only covers product being brought in via EU EEZ-registered vessels as well as US flagged vessels who also possess a Legal Harvest document; the issue still persists as various other vessels and operators maneuver various loopholes and back channels to get their product to market.
The international community writ large has placed a greater emphasis on combating IUU fishing and giving the crimes a more serious definition. United Nations Sustainable Development Goal 14 puts forth the goal of conservation and sustainable use of the oceans, seas and marine resources. Goal 14.4 seeks to regulate harvesting and to end overfishing, IUU fishing, and destructive fishing practices by 2020. Clearly, the world has not achieved this goal. While considerable progress has been made since the 2015 implementation of these SDG’s, not enough is being done to crack down on IUU and the human rights abuses that go in tandem with it.
Interpol is arguably the most legitimate international body in the IUU fishing sphere. In 2013 Interpol launched Project SCALE; aimed at exposing criminal organizations and their networks as well as information sharing amongst Interpol’s 192 member states. Intelligence collection and analysis by various Interpol teams helps flag vessels that “pose a high risk of carrying out illegal activity…those that have frequently changed their name and country of registration, used counterfeit identities or flags…”[11]
Project SCALE is the only international platform and framework geared specifically to fighting IUU fishing. The most critical aspect of Project SCALE is how it creates an environment of information sharing and communication between local governments, authorities, and the international community. Criminals in the IUU space exploit the lack of communication on and around the high seas, so platforms that seek to close the gap are important. With further integration of transnational communication networks, and worldwide alerts, Project SCALE and the banking sector can offer critical assistance to the flagging, tracking down, and prosecution of the vessels and criminal organizations behind IUU fishing crimes.
In November of 2018 the OECD released a report[12] on combating IUU fishing containing both member-country survey and polling data on responsibilities, as well as providing an in-depth understanding of the various actors involved. Out of the 13 recommendations laid out, below are several key ones:
A.) Strengthen automatic identification system (AIS) transponder data. This is essentially GPS tracking data that shipping vessels registered under a nations flag transmit to local authorities. This type of data can go hand in hand with Global Fishing Watch’s monitoring and route-mapping program to enable both nations and the AML community to create more thorough data on vessels and operators.
B.) Stricter port state measures (PSMs). Establishing advance request requirements, as well as establishing foreign-flagged use ports, will enable port states to have more control over the offloading of goods at their respective ports. PSMs are crucial for combating IUU vessels especially those flying under a false flag and enables the ports to conduct their own due diligence before the ships make it to port.
C.) Improving flag-granting states protocol and registration procedures. Through adoption of “unique vessel identifiers”[13] by the International Maritime Organization, flag-granting states will have more control over the cataloging and understanding the various flags that vessels use. Greater coordination and communication will enable this information to be shared amongst all involved and create a safer environment for registered fishing vessels and operators, as well as give port and flag states more control over the vessels operating in their waters.
Local governments can take their own actions towards mitigating IUU fishing with stricter port entry requirements and product scanning techniques such as those mentioned above in the OECD report. Interpol can also play a greater role in cracking down on local corruption of the officials who perpetuate the IUU fishing cycle for their own financial gain. The banking sector can also continue to evolve their techniques and cooperation with law enforcement and international institutions in the fight against IUU fishing. Enhancing AML policies through advancements in technology and greater communication between all involved, the world can further the prosecution of IUU fishing operators and criminal organizations. Improved KYC protocols as well as back-mapping transactions of customers in the fishing sector using vessel mapping data can help shed light on the illusive nature of IUU vessels and their operators. This data can also go a long way in finding out UBO’s of the various shell companies being used to fund these vessels and the industry. Needless to say, there is a long way to go, and the climb is certainly steep, however 21st C. technology and AML creativity can continue the good fight.
[1] United Nations Food and Agriculture Organization. International Plan of Action to prevent, deter and eliminate illegal, unreported and unregulated fishing. Rome, FAO. 2001. 24p.
[2] Agnew, David J., John Pearce, Ganapathiraju Pramod, Tom Peatman, Reg Watson, John R. Beddington, and Tony J. Pitcher. “Estimating the Worldwide Extent of Illegal Fishing.” PLOS ONE 4, no. 2 (February 25, 2009): e4570. https://doi.org/10.1371/journal.pone.0004570.
[3] Chapsos, Ioannis, and Steve Hamilton. “Illegal Fishing and Fisheries Crime as a Transnational Organized Crime in Indonesia.” Trends in Organized Crime 22, no. 3 (2018): 255–73. https://doi.org/10.1007/s12117-018-9329-8.
[4] Shelley, Louise I. “Transnational Organized Crime: An Imminent Threat to the Nation-State?” Journal of International Affairs 48, no. 2 (1995): 463–89.
[5] Petrossian, Gohar A., and Frank S. Pezzella. “IUU Fishing and Seafood Fraud: Using Crime Script Analysis to Inform Intervention.” The Annals of the American Academy of Political and Social Science 679, no. 1 (2018): 121–39. https://doi.org/10.1177/0002716218784533
[6] Interpol - International Law Enforcement Cooperation in the Fisheries Sector: A Guide for Law Enforcement Practitioners. Interpol, Division of Organized and Emerging Crime. February 2018
[7] “Assessing Seafood Supply Chains: New Public-Private Partnership Will Support Companies in Assessing IUU Fishing Risks Using Vessel Data.” IUU SCRT Impact Report. Global Fishing Watch; Friends of Ocean Action; Fish Wise; World Economic Forum, April 2022. https://globalfishingwatch.org/news-views/assessing-seafood-supply-chains/.
[8] Interpol. “Fighting Illegal, Unreported and Unregulated Fishing.” News and Events, 7 Dec. 2020, https://www.interpol.int/News-and-Events/News/2020/Fighting-illegal-unreported-and-unregulated-fishing.
[9] Biden, Joseph. Memorandum on Combating Illegal, Unreported, and Unregulated Fishing and Associated Labor Abuses. National Security Memorandum, NSM-11, 27 June 2022, https://www.whitehouse.gov/briefing-room/presidential-actions/2022/06/27/memorandum-on-combating-illegal-unreported-and-unregulated-fishing-and-associated-labor-abuses/.
[10] Council of the European Union. “Stablishing a Community System to Prevent, Deter and Eliminate Illegal, Unreported and Unregulated Fishing, Amending Regulations (EEC) No 2847/93, (EC) No 1936/2001 and (EC) No 601/2004 and Repealing Regulations (EC) No 1093/94 and (EC) No 1447/1999.” 32008R1005, Council Regulation (EC) No 1005/2008. https://eur-lex.europa.eu/eli/reg/2008/1005/oj
[11] The Pew Charitable Trusts. “How Interpol’s Project Scale Is Changing the Game in Illegal Fishing.” Ending Illegal Fishing, 6 Mar. 2018, https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2018/03/how-interpols-project-scale-is-changing-the-game-in-illegal-fishing.
[12] Hutniczak, Barbara, and Claire Delpeuch. Combatting Illegal, Unreported, and Unregulated FIshing: Where Countries Stand and Where Efforts Should Concentrate in the Future. Trade and Agriculture Directorate Fisheries Committee, 16, Organisation for Economic Co-operation and Development, 30 Nov. 2018, p. 135.
[13] Ibid. p. 12