From risk to opportunity: A flywheel approach to sanctions compliance

Risk & Compliance

What’s inside?

    In the energy and trade sector, sanctions compliance is a not-so-pretty but necessary part of doing business. Less talked about, however, is the opportunity hidden in the process. So we asked our VP commercial, Ron Crean, to share his insights on how your risk operations can actually become a lever for growth. 

    The sanctions compliance flywheel

    According to a 2019 KPMG report, 61% of energy CCOs surveyed said they would focus on developing investigations capabilities in the coming year to enhance their due diligence efforts. 

    And while this is an important step – if teams center investigations on a reactive approach – rather than reducing risk in the first place, the number of tools and resources will only grow. So to go from reactive to proactive, you need to see risk as a source of growth, not an unavoidable business blocker. 

    In an industry where fighting risk can be overwhelming, to say the least, this is not a common perspective. Energy companies are global in nature and face challenges that other sectors don’t; continuously growing to new regions, expanding operations across borders, and taking on new customers can expose the business to any number of risks. As regulators crackdown, the fear of financial penalties and reputational damage only becomes more real to executives. So more tools are onboarded. A lot of these tools aim to provide the necessary information to support sanctions-related investigations. Unfortunately, these investigations are often costly and timely, even if boosted with relevant data. Further, many of these tools are risk-aversive, resulting in false positives and more measures to keep risk at bay.

    This can create a drag on the organization. But, on the flip side, strong tools can have a flywheel effect – creating sustained business momentum. In this guide, we explore key components of a flywheel model for sanctions compliance, what it can mean for your business, and how the right approach can ultimately remove friction and encourage opportunity.

    1. Maritime expertise

    Part of the fear of risk comes from not knowing. Compliance professionals are inherently not maritime experts – nor should they have to be. But a problem arises when sanctions risk is not evaluated in the right context. For example, LNG terminals in certain areas require tankers to lower their radio output as a safety means. Systems that can then exclude LNGs and a region near these terminals can result in fewer false positives. Vendors with a team of experts who review and investigate any inquiry and accordingly make any necessary enhancements to the data are mission-critical when differentiating between legitimate behavior and potential activity linked to sanctions. 

    These insights help teams separate true red flags from those that aren’t. On a given day, the global merchant fleet records 9,947 AIS gaps. According to our data, only 1,400 events are considered dark activities, with a high likelihood of deliberate AIS disablement, while only 20 events indicated potentially sanctionable activity. That’s 0.2%. Risk doesn’t have to be a burden – it simply requires tools that can sort through the noise and pinpoint the most relevant cases that merit attention.

    2. The right data

    Relying on static data leaves too many gaps. Almost every week, there are changes and updates to sanctions compliance. For example, following the Executive Order of the White House authorizing sanctions against persons within the Ethiopian, and Eritrean government, OFAC issued three general licenses. That same week, OFAC named over 20 entities as SDNs related. Shortly after, OFAC issued an updated advisory on the sanctions risks of facilitating ransomware payments. And this was just in the month of September. 

    It’s like an endless feed that continually refreshes. And every one of these decisions has the potential to send ripple effects into the sector. So due diligence providers claim to meet OFAC’s latest requirements, but it’s about much more than that. It’s not about meeting a particular line item. Rather, it’s about having insights based on real-time risk factors that can predict future sanctions compliance risk, investing in data science, research, and product development geared towards constantly detecting the latest risk trends

    Without the right data, the compliance flywheel will never take off.

    3. More visibility   

    Major energy companies are constantly onboarding new partners, acquiring new digital solutions, and rolling out new initiatives. Yet when it comes to due diligence, the same innovation is often lacking. Why? It’s not always so clear-cut where the problem is. Teams need to start with a detective approach to identify what risk is going unaccounted for. But this can take time, which can be a major setback.

    To clear business fast, you need actionable insights. And the key to this is explainable data. The problem with data providers is that they don’t always support quick decision-making. But this is what’s needed to boost business growth. Data needs to be accessible and easy to understand. Instant and accurate insights beyond raw data give you a complete picture of risk exposure across your business. 

    Further, insights don’t leave room for interpretation. When you can see everything from the exact duration and location of dark activity to real-time STS transfers, you can identify risky events as they occur and meet regulatory expectations more readily. What’s more, it shifts the perspective of risk from an elusive term or data point to a tangible business insight. And from there, it’s incredible how you can go from simply managing risk to protecting future exposure to maritime risk.

    4. Reduced operational bottlenecks with AI

    Today’s sanctions compliance teams are under tremendous pressure and stretched incredibly thin while due diligence standards grow and requirements multiply. One of the most important things to look out for is a solution that maximizes operational efficiency, instead of adding costs, maintenance, and time.

    Compliance teams often take a more cautious approach – manually reviewing more cases rather than aggressively updating technological infrastructure to bring down the false positive rate. But manually reviewing the sheer volume of cases is a short-term solution at best. 

    The global fleet consists of over IMO active 100,000 vessels, and about 0.4% are sanctioned. But that’s just the tip of the iceberg. Our data reveals that there are 6,379 medium and high-risk vessels linked to 8,111 unique companies. When including ultimate beneficial ownership, the exposure increases to 11,593 legal entities, of which approximately 20% are individuals. You need a way to identify risk across these entities without spending a lot of time and resources. Your team shouldn’t have to sacrifice time and resources for more accuracy.

    The key is cutting through the noise – and only strong technological tools can do that without exposing your business to risk. What indicators are important? Are you looking at real-time data? What is a reasonable AIS gap? Is a vessel’s reported location in line with it’s expected one? The questions are endless, and the cutoffs arbitrary. Machine learning takes the guesswork out of risk so you can take action quickly when it matters most. 

    5. Better business 

    There is no one-size-fits when it comes to due diligence processes. But there is one bottom line way to measure success: More business, with more confidence. Anything less is not enough.

    Would you rather depend on manual work, multiple data providers and systems, or on one comprehensive risk tool that helps you quickly decide which vessels or companies to work with? Maritime risk is fluid. If it’s stopped in one place, it’ll move to another. It’s a long-term game.

    By leveraging tools that can detect risk at scale, stakeholders don’t have to jeopardize growth for compliance.

    Artboard 1 4

    The sanctions compliance flywheel effect

    Risk can either boost or stifle growth. The right tools are not about meeting the bare minimum. They are about turning challenges into opportunities. And a carefully constructed flywheel can do just this – accelerating business rather than slowing it down. By leveraging maritime expertise and real-time data, teams benefit from more visibility into every deal or customer in question. More visibility helps better focus resources to manage risk in a streamlined way – optimizing operations and ultimately boosting growth.

    Contact us to learn how your business can benefit from Windward’s flywheel. 

    Everything you need to know about Maritime AI™ direct to your inbox

    subscribe background image


    1. 2 Years That Upended Global Trade: Russia Report  Mar 7, 2024
    2. 2024 Maritime Trends: The Year of Survival & Success  Jan 24, 2024
    3. 6 must-ask questions for evaluating maritime risk providers Feb 3, 2022