Making the Case for RegTech: Lufthansa Cargo

Transcription

1 Making the Case for RegTech: Lufthansa Cargo Transform your cargo screening Making the Case for RegTech: Lufthansa Cargo Transform your cargo screening 16 November 2017 accuity.com

2 Agenda Market trends affecting cargo compliance Challenges of compliance in the cargo industry Lufthansa Cargo case study Best practice 1

3 Non-proliferation and the supply of weapons to North Korea is an increasingly urgent issue 2

4 Shipments from, as well as to, North Korea are a concern 3

5 Fines are a reality for shipping firms 4

6 Preventing the facilitation of terrorist organisations remains a high priority 5

7 Screening standards for air cargo are being reviewed as a result 6

8 These mounting regulatory concerns are set against a backdrop of mixed economic signals WTO upgrades forecast for 2017 as trade rebounds strongly The estimate for growth in world merchandise trade volume in 2017 was raised to 3.6%, the previous estimate for 2017 was 2.4% Though this was set within a range of 1.8%-3.6%, reflecting the high level of economic and policy uncertainty.

9 A year ago container shipping looked under threat 8

10 Air freight, although down overall since 2011, is growing at pace Cargo airlines have had a difficult few years Industry revenues have fallen from a peak of $67bn in 2011 to $50bn now, according to IATA For the first time since the global financial crisis in 2008, demand for air freight has started to expand quickly again The rather downbeat tone of the industry has given way to renewed optimism and most are expecting much better years ahead Rahul Kapoor, Asia Pacific Transportation Analyst, Bloomberg Intelligence

11 Recovery may be brittle, is this a time for cautious optimism? 10

12 Demand for air cargo grew by 9.2% in September. While that's slower than in previous months, it remains stronger than anything we have seen in recent memory. But there are signs that this demand spurt may have peaked. So it becomes even more important to reinforce the industry's competitiveness by accelerating the modernization of its many antiquated processes Alexandre de Juniac, IATA's Director General and CEO. 11

13 Typical Compliance Processes 12

14 Manual and time consuming processes are common Manual checks conducted from paper Airway Bills, or Bills of Lading If there s a match on one of the names, the checks take about 3-4 days to resolve No record is made of the checks carried out, or decisions made Or, responsibility for this is outsourced to freight forwarders

15 Typical compliance challenges Compliance checks are time consuming to conduct and involve adherence to regulations of multiple jurisdictions Checks are done manually and open to human error It is difficult and time-consuming to verify the nature of goods (sometimes goods could be indicated by chemical formulas, synonyms etc.) There is no proper audit trail of all checks to deliver to the regulator if requested Reputational risk is a concern, particularly after the Australian terror plot

16 What is the impact of this? Delays to scheduled flight, or goods do not make the scheduled flights, resulting in unsatisfied customers and potential loss of business There is a risk that goods could be shipped for military or terrorist purposes Potential fines from the regulator and restrictions on landing in some countries that results in loss of business in some countries

17 Case Study: Lufthansa Cargo 16

18 Lufthansa Cargo One of the world s leading airfreight carriers Transports 1.6million tonnes of freight a year to more than 300 destinations in over 100 countries Employs over 4,600 people worldwide Revenues in 2015 of 2.35billion 17

19 The Challenge Risk Exposure In 2011, Lufthansa Cargo became aware of emerging regulatory concerns around dual-use goods and sanctions compliance, highlighting multiple risks to its business. Though the shipper has a legal responsibility to carry out checks in these areas, Lufthansa Cargo felt a responsibility to ensure this was being done accurately. Potential risks included: Exposure to business and financial risk Loss of import and export rights Reputational risk Staff could be held personally liable 18

20 Non-compliance with sanctions lists carries a risk of up to six months imprisonment. We also fly freight on Lufthansa passenger flights, so our parent company s business could have been affected. Patricia Pfeiffer - Regulatory Affairs Manager, Lufthansa Cargo 19

21 The Challenge Complexity Lufthansa flies to more than 300 destinations, and has to adhere to German and EU law, as well as to the regulations of every country it flies to Many of the shipments are consolidated, meaning that capacity has been sold on to dozens of consignees. For instance, one plane could easily be carrying 150 shipments from 150 consignees and involve 150 types of good Manually checking shipments was not an option, due to the enormous scale of the operation and the requirement to process customer requests in minutes The business had no choice but to temporarily suspend consolidated shipments to countries such as Iran, where restrictions were high, until they found a solution 20

22 The Solution Compliance Link from Accuity enables Lufthansa to check airway bills against comprehensive sanctions and dualuse goods watch lists, with speed and accuracy Screening data goes beyond that which is publicly available Inbuilt phonetic matching, dual-use and controlled goods matching to aid identification, and fuzzy logic to identify misspellings, mistranslations, and alternative descriptions of commodities 21

23 The Results Lufthansa Cargo has created an across-the-board trade compliance vetting capability The system is invisible to customers and shipping staff In one year, they have checked over 47 million records in the automated system The business has resumed shipping to some destinations that it had ceased to do business with 22

24 We have definitely stopped shipments that could have ended very badly for us and our customers. We even had a situation last year where the customer thanked us for stopping a shipment for which he would have been liable Patricia Pfeiffer - Regulatory Affairs Manager, Lufthansa Cargo 23

25 Best Practice 24

26 Best practice compliance process for air cargo screening From booking handling delivery, what are the compliance checkpoints? Checks FWB / FHL messages (and versions), or Airways Bills if not using IATA Cargo Goods acceptance / transfer acceptance Last check before departure Web service / API calls from a cargo system reduces the need to key in information at each check point.

27 Airway Bill checks Shipper name Shipper country Consignee name Consignee country Goods description Origin airport Destination airport Countries passed 26

28 Bill of Lading checks Shipper Consignee Notify party Country of origin Destination country Port of loading Port of discharge Intermediate ports Forwarder Carrier Goods description

29 Escalation process for suspicious shipments Ensure that responsibilities and policies are documented, and mirrored in your escalation process First level review to discard any obvious false matches Second level review to deal with the escalation of suspicious matches Final escalation point for matches or further license requirements

30 Automated screening keeps you up to date with a changing risk landscape When updates occur, to a watch list or a shipment, our advanced screening tool will flag where you need to take action. You can: Tailor each screening field to give optimal screening results and manage false positives Rely on on-going screening to alert you to change to the risk of shipments over time Manage your matches effectively through case management Analyse and escalate matches and distribute hits for review by different departments or people Use advance work flow support maker/checker set up Use your own internal high-risk goods list for screening through the Controlled Goods Manager Update your trade cases as the regulations list changes flagging cases for your review with automated screening manager

31 How RegTech can help Improve turnaround time for processing applications Improve the standard of compliance Reduce reputational risk Reduce the resources needed for compliance checks Prevent needless rescreening on repeat business Adapt to your policies and risk profile

32 Find out more in the group discussion this afternoon Stream B - Trade Finance & Technology: Use Cases & Best Practice Or visit Accuity at stand #21 // GTR Nordic Region Trade & Export Finance Conference