Spotlight on Transparency
In this brief, Trygg Mat Tracking (TMT) and C4ADS shine a light on the risks associated with fishing operations utilizing complex ownership structures such as shell companies, front companies, and joint ventures to both cover up illegal operations and hide ultimate beneficial ownership. This detailed briefing is the first in a new series called “Spotlight On” being developed by TMT with partners to shine a light on the operational practices, legal loopholes and enforcement gaps that can be and are exploited by illegal fishing operators to access fishing resources, ports and markets, and to evade sanctions.
Executive Summary #
Distant-water fishing is a transboundary operation, meaning vessel ownership, vessel registration, ports, labour sources and supply chains can be spread across several different countries and jurisdictions.
The result is a situation in which legal matters can become the responsibility of several enforcement authorities, often located far from where a violation occurred.
This enforcement framework gets more complicated as many distant-water fishing companies and owners deliberately exploit a variety of complex company structures, with individual companies based across many jurisdictions, to own and run their operations.
Specifically, the use of shell companies, front companies, and joint ventures provides significant opportunities for distant water fishing operators to cover up illegal operations and conceal their true identities. Operations using these company structures have been linked to a wide variety of illegal fishing and broader legal violations, including illegal harvesting, document forgery, vessel identity fraud, human trafficking, crew labour abuses, and tax evasion.
Opaque company structures are also frequently used by beneficial owners in conjunction with ‘open’ vessel registries, otherwise known as Flags of Convenience (FoC), that further obscure the identity of beneficial owners of fishing vessels. Maybe unsurprisingly, several countries that operate FoC registries also facilitate the creation of shell companies and tax avoidance schemes.
Perhaps the biggest concern is that these complex company structures can be used by fisheries operations to mask ultimate beneficial owners, thereby protecting them from the consequences of the illegal activities they sponsor. The investigation and successful prosecution of violations by operators using shell companies, front companies and joint ventures can be extremely difficult, and the application of penalties targeting those responsible can be almost impossible.
Cooperation between States in their various capacities in relation to the fishing industry (as flag, coastal, or port States) is vital, but in cases where the vessel’s ultimate beneficial owners are not nationals of or based in the flag State, legal avenues available to investigate or prosecute beneficial owners are often extremely limited. This presents a significant challenge for authorities attempting to identify, manage, investigate, or prosecute the true owners of fishing operations that are using such complex company structures, despite the fact that the owners are the actual financial beneficiaries of any illegal activity. Yet in the fisheries context, there is currently little focus on the responsibilities of those countries whose nationals are the beneficial owners of fishing companies and vessels implicated in illegal fishing and related offenses.
The Spotlight brief was developed to support all maritime and fisheries stakeholders to better understand where risks lie in fisheries operations to support closing enforcement gaps and increasing transparency in global fisheries.
The brief provides an in depth overview of seven different company structures we identified that provide operators the opportunity to hide illegal fishing activities and associated crimes, and an overview of the risks that should be considered by authorities when reviewing the operations of a fishing company under their jurisdiction. High profile case studies examining the exploitation of shell, front and joint venture companies to perpetuate illegal fishing and associated crimes, including circumvention of national ownership requirements, access to fish resources reserved for nationals, and corruption, are also examined.
While addressing the legality and use of complex company structures is an issue that is larger than fisheries operations alone, the fisheries sector provides a clear example of the urgency of this issue. Furthermore, the Spotlight brief identifies opportunities within the fisheries sector for national authorities and international fisheries bodies to mitigate the risks of companies exploiting these structures to conduct illegal activities, many of which are relatively straightforward to apply. These include enhancing ownership reporting requirements, refusing flag or fishing authorizations to vessels owned by high risk companies, ensuring that national laws on company and vessel ownership are vigorously applied, and requiring IMO numbers for fishing vessels.
Particularly crucial is the role of the ‘Beneficial Ownership States’ themselves, those countries whose nationals sit behind complex company structures and ultimately receive the profits of illegal activities. In the fisheries context, there is currently little focus on the responsibilities of those countries whose nationals are the beneficial owners of fishing companies and vessels implicated in illegal fishing and related offenses.
While some nations have started to incorporate provisions to prevent illegal fishing by nationals into their fisheries laws no matter their country of residence or the Flag State of the fishing vessel in question, the majority of countries do not, and where laws do exist there has been limited implementation to date. Application of these laws also often focuses on operational personnel such as vessel captains, rather than beneficial owners. Similarly, virtually no country requires its nationals who own or flag vessels in other jurisdictions to meet the same operational standards and requirements of those that are nationally owned or flagged.
There is a clear need to address the responsibilities of these ‘Beneficial Ownership States’, particularly as research indicates that the number of beneficial owner ‘origin’ countries is very limited. If these States took action to limit the ability of their nationals to operate opaque fishing operations and benefit from illegal fishing activities, the ability for high-risk operators to hide their identities and perpetuate their crimes would be significantly reduced.
TMT and C4ADS will continue to investigate and support efforts to address these issues. In a newly launched initiative aimed at defining and mapping Ultimate Beneficial Ownership in the global fishing sector, our organizations will work in partnership with the Pew Charitable Trusts to better define Ultimate Beneficial Ownership in the fisheries context, map ownership structures of key distant water fishing fleets, and work with key countries to
strengthen legal requirements for nationals owning and operating vessels through foreign companies and registers.
In parallel, C4ADS is developing a fisheries transparency platform, a publicly accessible tool allowing stakeholders access to fishing vessel ownership mapping. The platform will be integrated with TMT’s FACT fisheries analytical system, drawing on its global database of fishing vessels and companies, and their associated compliance risks, towards increasing transparency of high risk fishing operations and access to information for key enforcement and other stakeholders.