Know Your Customer (KYC)

What is Know Your Customer (KYC)?

KYC, or Know Your Customer, is the process of verifying the identity of clients or counterparties before establishing a business relationship. KYC verification typically involves validating documents, ownership structures, and operational behavior to ensure compliance with anti-money laundering (AML), counter-terrorism financing (CTF), and sanctions regulations. KYC is a critical compliance step for banks, insurers, shipping companies, and logistics providers operating in high-risk and regulated environments.

Why is KYC Important for the Maritime Ecosystem?

In maritime trade, a single oversight can expose a company to reputational, financial, or legal risks. With the rise of deceptive shipping practices (DSPs), sanctions evasion tactics, and complex ownership structures, KYC compliance is a strategic imperative.

For those within the maritime ecosystem, including freight forwarders, traders, insurers, government agencies, and more, KYC helps:

• Prevent trade with sanctioned entities or high-risk actors
• Maintain regulatory compliance across jurisdictions
• Protect stakeholders from fines, vessel detentions, and legal exposure
• Build trustworthy supply chain partnerships

What Does KYC Compliance Involve?

Common KYC Verification Steps

• Identity verification: validating business registration, legal entity identifiers (LEIs), and UBOs (Ultimate Beneficial Owners)
• Risk assessment: evaluating exposure based on geography, trade history, or behavioral red flags
• Ongoing monitoring: detecting changes in ownership, sanctions listings, or suspicious patterns
• Recordkeeping: maintaining audit-ready logs of compliance steps and decision-making rationale

Key Regulations That Mandate KYC

Several international frameworks and national laws require businesses to implement Know Your Customer protocols. These regulations serve as the foundation for KYC requirements and aim to prevent illicit activities like money laundering, terrorist financing, and sanctions evasion. Let’s take a closer look at the most influential regulations driving KYC verification standards globally.

The Financial Action Task Force (FATF) Recommendations

The FATF is an intergovernmental body that sets global standards for combating money laundering and terrorist financing. Its 40 recommendations provide a framework for KYC, including customer due diligence (CDD), enhanced due diligence (EDD) for high-risk customers, and ongoing monitoring. Countries and institutions that fail to follow FATF guidance may be blacklisted, limiting their access to global financial markets.

The EU’s 6th Anti-Money Laundering Directive (6AMLD)

The 6AMLD builds on previous AML directives and strengthens the legal framework for financial crime enforcement within the European Union. It expands the list of predicate offenses for money laundering, increases penalties, and introduces criminal liability for legal entities. KYC compliance is central to meeting 6AMLD obligations, as it enables firms to verify identities, detect suspicious behavior, and file reports to Financial Intelligence Units (FIUs).

OFAC Guidelines From the U.S. Department of the Treasury

The Office of Foreign Assets Control (OFAC) enforces economic and trade sanctions based on U.S. foreign policy and national security goals. Organizations must conduct KYC checks to screen customers and counterparties against OFAC’s sanctions lists. Failure to comply can result in substantial fines and reputational damage, even for unintentional violations.

UN Sanctions Lists

The United Nations Security Council imposes sanctions targeting individuals, groups, and entities involved in threats to international peace and security. Companies engaged in cross-border transactions must ensure they are not dealing with blacklisted entities. Integrating UN sanctions screening into KYC workflows is essential for maintaining global compliance.

KYC Use Cases in Shipping and Trade

KYC is relevant across the full maritime value chain. Common scenarios include:

1. Charterer vetting: before leasing out a vessel, shipowners verify the charterer’s background, ownership, and risk level
2. Cargo screening: freight forwarders conduct KYC on shippers and consignees to ensure compliance before moving goods
3. Bank financing and insurance: financial institutions and underwriters rely on KYC to avoid facilitating sanctioned or high-risk trade
4. Port authority checks: governments and port authorities perform KYC to screen vessels, cargo, and ownership for safety and security

How Windward Supports KYC Compliance

Windward’s Maritime AI™ platform elevates Know Your Customer compliance by enabling continuous, real-time due diligence that goes far beyond traditional screenings. Rather than relying solely on static documents or list-based checks, Windward merges structured company data with dynamic maritime behavior to provide a full-spectrum view of risk.

This intelligence-led approach forms the foundation of Know Your Vessel (KYV™) – Windward’s trademarked framework for behavioral vessel risk assessment. Built in response to evolving regulatory guidance, including OFAC’s 2025 advisory, KYV™ empowers stakeholders to conduct KYC with deeper insight into how a vessel behaves, who it’s connected to, and whether its activity could pose regulatory or operational risks.

With Windward, users can:

• Uncover beneficial ownership through layered corporate structures
• Detect deceptive shipping practices like flag hopping, AIS spoofing, and ship-to-ship transfers
• Get automatic alerts on sanctions updates or risk profile changes
• Audit compliance activity through transparent, time-stamped logs

Key Benefits of Automating KYC Verification

Implementing robust KYC compliance measures brings multiple operational and strategic advantages to maritime organizations:

• Sanctions risk mitigation: avoid costly fines and detentions by vetting customers against global watchlists
• Enhanced due diligence: gain clarity into beneficial ownership and control structures
• Operational efficiency: automate repetitive KYC verification tasks and reduce manual workload
• Regulatory alignment: ensure compliance with evolving global regulations like OFAC, UN sanctions, and EU AML directives
• Reputational protection: prevent association with illicit actors by uncovering deceptive practices early

Building Trust Through Smart KYC

KYC is foundational to secure, compliant global trade. As regulatory scrutiny intensifies and deceptive practices evolve, traditional methods are no longer enough. Platforms like Windward enable companies to future-proof their operations through real-time KYC automation and deep maritime insight.