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:
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.
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
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.
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.”
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!
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.
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
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.
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.
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.
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,