Captains have a duty to report criminal acts

By Ian Biles

from an original article for The Triton

With all the facets of money management captains of megayachts are responsible for, it should come as no surprise that money laundering awareness is part of that.

Money laundering is usually associated with the proceeds of the drugs trade, organized crime and terrorism. In fact, money laundering relates to the proceeds of any crime and the conversion of that money into disposable forms.

There is now the political will worldwide to tackle the problems of money laundering, particularly since 9/11, and it has led to a significant increase in the powers of law enforcement agencies. Terrorism is very difficult to stop at its source, however, if the funding of these activities can be restricted within the financial system throughout the world then it will make life that much more difficult for those involved.

In recent years the definitions of crimes that result in money laundering have been extended in all the major countries of the world. The regulations differ across countries as do their implementation, but the driving force is the OECD and the intergovernmental FATF the Financial Action Task Force. In the UK the primary legislation is the Proceeds of Crime Act 2002 and there are also EU Directives that deal with the matter.

One of the major changes that many people have not realized is that tax evasion has moved from being a civil matter within individual countries into a financial crime. What they see as tax evasion is now very much the target of the anti-money laundering regulatory authorities.

The law sets out quite clearly that if anyone, in the course of their business or profession, comes across a transaction they consider to be suspicious then they must report that transaction to the police.

There is no requirement to have evidence of a crime or to have knowledge of a crime, only suspicion.

This is a powerful weapon in the hands of the regulatory authorities and the police. It can be argued easily that the captain of a large yacht is the master by way of business or profession. Requirements to report are not only limited to professionals but apply to staff and employees of any organization. Failure to report can itself be an offense.

From a captain's point of view, frauds that have been described here are all within the definition of crime and are reportable. In addition to that, any suspicion of similar activities outside one's own vessel technically would be reportable. There are no minimum levels, so any cash payments not backed up by authentic paperwork could give rise to suspicion.

A serious problem that may arise for the captain does not relate to his crew or the industries around him, but may implicate the owner. To acquire a large and expensive yacht is an effective way of laundering ill-gotten gains. A multimillion-dollar yacht purchased in a far-off country or through intermediaries would be difficult to identify as proceeds of crime. If it were then sold on the open market, the owner would have a substantial amount of legitimate money that he can explain.

Every captain should be aware of this problem and also that the law requires that, if he has suspicions, he is required to report them. Reporting a suspicion will protect the captain himself from prosecution should the matter come to court. If he has not reported it then he may well be in line for a conspiracy charge.

Everyone should be concerned if they are involved in the operations of a large yacht and there are significant amounts of cash being used to meet expenses. Cash is the most difficult product to dispose of and any means by which it can be used to enhance the value of an asset is in the interest of a money launderer.

It is absolutely fundamental to understand that the reporting of these incidents can be based on suspicion alone.

It is also incumbent upon the captain of a yacht to ensure that his crew is aware of the dangers of money laundering. A prudent captain would hold a training course as part of the induction of crew members and would record the fact that he has conducted such a course in his Financial Policy Manual. He should also ensure that there is a procedure for his crew to follow if they have a suspicion.

If a captain feels he should report a suspicion, he may be reluctant to inform the local police. The report may be made to the vessel's flag state. Such a report would meet the captain's responsibility under the law.

On land, one of the major steps that businesses are required to make is to institute a policy that identifies the people with whom they do business. Opening bank accounts used to be a straightforward procedure but now it can be very complicated. The same rules also apply to accountants, lawyers and other service providers.

It should be standard practice to obtain information on the crew and anyone else supplying services to the yacht. It is very important that these practices are recorded and that there is a written policy relating to knowing your customer in the FPM.