Mention “International Trade Compliance” in most circles and the common association will be of controlled goods and the need for manufacturers to properly screen their orders. What doesn’t come immediately to mind, if at all, is a popular global industry that serves millions of persons a day, yet is subject to a host of stringent controls. Sanctions and travel bans as well as national and international anti money laundering laws all impact how travel and tourism companies conduct business. In the latest Precision Report we look at trade compliance for travel companies and how automated solutions are the answer.
Every day millions of people around the world book flights and hotel rooms. Many of them will go online to do so. Others prefer to use their local travel agent. And some of them may cause travel companies to break the law. There are a number of ways travel agencies can unknowingly find themselves in trouble. These include:
- Processing transactions from denied parties
- Violating anti money laundering laws
- Non-compliance with sanctions
- Arranging travel to restricted places
- Allowing people or groups with travel bans to purchase tickets
Companies providing travel, tourism and hospitality services are subject to a number of rigorous laws. These aim to prevent terrorists from purchasing flights or traveling, financing terrorism or criminal activity, money laundering, violating laws regarding sanctioned countries, organizations and people to name a few. Travel companies must comply with a number of international as well as national regulations. Furthermore, many travel companies — no matter where they are — may be subject to US laws as well.
Denied Parties and Money Laundering
Travel companies, like any other organization, may not process transactions from groups or individuals on Denied Party Lists (DPLs). A number of bodies produce DPLs. These include agencies and authorities within the United Nations, the United States and the European Union. DPLs restrict companies from doing business with anyone identified as engaging in terrorism, drug trafficking, criminal activities or the proliferation of weapons of mass destruction. Unfortunately, due to the global nature of the tourism industry, terrorists and criminals target travel companies to launder money and finance terrorism.
In the US, travel and tourism companies are subject to regulations set out by the Treasury Department’s Office of Foreign Assets Control (OFAC). This means they need to screen customers and trade partners against OFAC as well as other DPLs to remain compliant.
Like the US, the EU has strict anti money laundering laws. It is illegal to engage in a business relationship or carry out a transaction without completed Customer Due Diligence (CDD) documentation or information. Under EU law, companies need to be able to identify and verify their customers.
Companies in the US, EU and around much of the world must also comply with the Financial Action Task Force (FATF) regulations. FAFT is an international standard setting body for combating money laundering and terrorist financing. There are 35 FATF member countries including Australia, Brazil, Canada, China, South Africa and New Zealand.
As most travel agencies work across borders they need to comply with a variety of DPLs. These, however, are subject to frequent changes — thousands every year. Individuals, groups and organizations are added and removed from different DPLs every day. As a result, travel agencies need robust compliance screening to minimize the risk of doing business with a restricted party or person.
Travel Restrictions for US Citizens
The US government rarely controls the movement of its citizens around the world. The State Department will strongly advise American citizens not to visit war torn regions or failed states such as Afghanistan or Somalia, but outright bans are uncommon. American citizens are strongly discouraged from visiting North Korea, and require special validation to do so. They are also told they should write a will, plan their funeral and make arrangements for dependents before travelling.
Restrictions also apply to Cuba. Relations between the US and Cuba thawed under former president, Barack Obama. This lead to relaxed travel rules for US citizens to the island. However President Donald Trump reintroduced travel restrictions and curbed US investment in Cuba.
OFAC restrictions are in place to prevent Cuba — particularly the government’s military, intelligence and security operations — benefiting from American tourist dollars and trade. Under these regulations, Americans may not do business with around 180 Cuban government bodies as well as holding companies and tourism businesses.
The tourism business ban includes a luxury shopping mall in Havana, as well as 83 hotels owned by the state. One of these is the famous Hotel Ambos Mundos where Ernest Hemingway lived for several years.
This does not mean there is an outright ban on travel to Cuba. There are twelve categories allowing Americans to legally visit Cuba, such as to see family, for cultural or religious activities, academic or journalistic research, and humanitarian purposes. This can include visiting to offer “support for the Cuban people.”
How US Law Can Impact Global Travel Companies — The $5 Million Dollar Fine
US restrictions do not apply to citizens of other countries. A European, for example, can book a holiday to Cuba within a few clicks of a mouse. Alternatively, they can call around to any travel agency and have them make all the arrangements. It is perfectly legal for Europeans to visit Cuba — but that does not mean no law has been broken.
European citizens are not subject to US law, but European-based companies may be. Any company that works in US dollars, has an American bank account or is owned by a US citizen or entity is subject to US trade regulations. It does not matter if the company’s offices are in Australia, Belgium, China or Zimbabwe — if the company meets any of these criteria it is subject to US trade laws.
American authorities have jurisdiction over a huge number of non-US companies because the US dollar is the de facto global currency. It makes up around 64 percent of all known central bank foreign exchange reserves.This gives US authorities a long arm, and OFAC doggedly pursues companies that defy regulations.
Not convinced of the risk? Just ask American Express. In 2013 the company was issued a $5 million fine by the US Treasury Department for issuing travel tickets to Cuba in violation of the Cuban Assets Control Regulations (CACR), despite the fact that the ticket holders were from countries without travel restrictions to Cuba!
The World Cup and the Russian Oligarch
Arranging travel to sanctioned countries can cause a number compliance problems. It is fair to say that most sanctioned countries do not attract a huge amount of tourists. But then again, most of them are not hosting the 2018 World Cup.
Both the US and the EU imposed sanctions on Russia after the 2014 annexation of Crimea. This year, however, American sanctions ramped up. In April, the US government announced a sweeping range of sanctions citing “malign activities” by the Kremlin as the reason. Amongst those blacklisted was Russian oligarch Oleg Deripaska.
This has thrown up unexpected compliance headaches for the 2018 World Cup. A number of teams, including Poland, Sweden and Iceland were due to have used Sochi and Gelendzhik airports. The problem? Deripaska owns the company that operates both airports.
Deripaska is alleged to have commited a number of serious offences, including money laundering, extortion and ordering the murder of a business rival. Furthermore, Robert Mueller, Special Counsel for the United States Department of Justice, has reportedly targeted the Russian billionaire as part of his investigation into Russian interference in the 2016 US election.
US authorities could decide that airlines paying landing charges and service fees at Sochi and Gelendzhik airports are violating sanctions. After all, the US Treasury has warned that they will take punitive measures against non-Americans who flout Russian sanctions.
Visa Restrictions and Travel Bans
Travel companies not only have to consider where they send their customers, but who they send. A travel ban restricts the movement of individuals or groups. The United Nations, the United States, the European Union and any nation state can impose a travel ban.
In 2017, the American government controversially banned citizens of seven countries entering the US. These were Iraq, Syria, Iran, Libya, Somalia, Sudan, and Yemen. Iraq and Sudan were later removed from the list while Venezuela and North Korea were added.
Some surprising people are banned from entering certain countries. The US has imposed visa restrictions on British singer Lily Allen because she has an arrest for assault. American megastar Lady Gaga cannot travel to or perform in Indonesia. Last but not least, China banned Canadian singer Justin Bieber for “misconduct that caused public dissatisfaction.”
Travel companies do not generally have to worry about misbehaving celebrities. A far more likely compliance risk is arranging travel for someone whose movements are restricted under UN, US or EU laws. These travel bans are imposed on people or groups believed to be a danger to the country. This can apply to members of hostile regimes and people associated with terrorist groups. Furthermore, travel bans don’t always apply to entry into a particular country — they can prevent a banned person from transiting there too.
The Importance of Trade Compliance for Travel Companies
In order to stay within the bounds of ever-changing regulations, travel companies need robust compliance screening procedures. Doing this manually is time consuming and subject to errors. It is almost impossible to screen all clients against ever-changing DPLs. A comprehensive automated trade compliance software mitigates the risks travel companies face.
PRECISION Automated Global Trade Compliance Software starts at the very beginning of the transaction process. Travel companies can verify customer transactions and their vendor network to ensure they have passed DPL screening. They can also validate the country of destination and include any special documentation necessary. In this way, travel companies ensure they have satisfied all regulatory controls and performed due diligence. An automated compliance system also creates electronic trails of transactions and audit-ready records.
The PRECISION solution is configurable and extensible according to an organization’s requirements. It provides the necessary oversight required without disrupting your business and allows you to easily manage false positives while remaining compliant.
The penalties for mistakes are costly, even if violations were made unwittingly. Authorities are not sympathetic towards companies who fail to perform due diligence or are negligent with compliance checks. Those who deliberately circumvent the law receive cripplingly high fines. OFAC can impose fines of up to $1 million per violation, and prison sentences are possible. The financial and criminal penalties, and the reputational damage, are simply not worth the risk.
About Precision Software – Trusted Global Trade And Transportation Execution
Precision Software, a division of QAD Inc., provides industry-leading global trade management, transportation execution and multi carrier shipping software solutions from a single, integrated platform. Preeminent industry leaders in every region of the world rely on our global support centers to leverage thousands of carriers and manage millions of shipping transactions every day. The PRECISION solution’s open architecture allows for easy integration with leading Enterprise Resource Planning (ERP), Warehouse Management Systems (WMS) and existing legacy solutions. An ISO-certified company, Precision Software assists companies around the world to minimize shipping costs, optimize first mile and last mile deliveries, avoid compliance delays and mitigate the risks associated with dynamic trading environments. Precision Software’s customers span multiple industries including banking and finance, life sciences, high technology, retail, industrial, automotive, higher education and public sector as well as logistics providers. For more information about Precision Software, visit www.precisionsoftware.com.