How We Got to a 2-Tier Due Diligence World

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What’s inside?

    By Ami Daniel, Windward’s Co-Founder & CEO

    The U.S. Office of Foreign Assets Control (OFAC) offered guidance on “deceptive shipping practices” in May 2020 – advising shipping companies, traders, banks, etc. to review counterparties for how they operate their vessels. This included screening for ship-to-ship (STP) transfers, “dark activity” (significant durations without a properly functioning identification system on a vessel) and other factors. 

    Despite the guidance, many shipping companies and other players in the maritime ecosystem didn’t feel the urgency to implement OFAC’s recommended measures, until Russia’s invasion of Ukraine fundamentally changed the shipping and maritime worlds (and many other spheres)…

    From a trade restrictions/sanctions perspective, a new framework for judging business decisions has quickly emerged. 

    Environmental, Social, and Governance (ESG) programs have immediately been boosted. The question is no longer what is merely “legal” – consumers, investors, partners and industry insiders care deeply about what’s moral and wise, taking into account reputational and stakeholder management considerations. In this murky environment, you could find your organization splashed across leading news websites or featured by popular social media accounts for doing business that is completely legal. 

    The same goes for running a trading operation – it seems like that on top of the changing prices, credit crunch and self-sanctioning of banks – CFOs, general counsel and COOs now have additional worries while attempting to do business. 

    A two-tier business world is emerging – those who will do business with Russia and Russia-affiliated entities, and those who will not. Temptation is high – shipowners and charterers report they are being offered 8-10 times the market rate just for lifting crude oil from Russia! 

    The Problem with Separate Counterparty Due Diligence

    Shipping has always used complex corporate structures, making it more difficult for shipping companies to understand who they are doing business with. But in this current climate, shipping companies and other maritime ecosystem players will not be allowed to plead ignorance. They will be expected to know exactly who they are doing business with, despite the complexities involved, and this includes a drill-down to counterparties on the periphery. This means counterparty entities such as factories, ports, refineries, mines, trucking companies, etc., as well as the key employees of these organizations.

    In the banking space, it has been the norm for years to have two sets of systems in place – a shipping data and compliance system, and a separate counterparty due diligence platform that is central to operations, but requires expensive, customized IT platforms. In addition to being costly and time-consuming (training, manual work, support, etc.), such an arrangement does not promote holistic, seamless or comprehensive processes and outcomes, a lesson that has been learned by many in the shipping world recently. 

    Teaming with LexisNexis Risk Solutions to Fill the Void

    In the last few months, our clients and users – as well as practically everyone in shipping and trading – have been under tremendous pressure to up their game very quickly on everything related to counterparty due diligence. Listening to their challenges and requirements, we have built crucial and complementary due diligence capabilities into our market-leading AI maritime platform. By utilizing LexisNexis Risk Solutions’ best-in-class data, our Counterparty Due Diligence (CDD) capability provides Windward’s customers with a screening feature that enables them to go beyond the maritime ecosystem and screen all companies and individuals, both non-maritime and maritime. It will empower our users with a one-stop-shop, enabling them to:

    • Possess an integrated search capability – merging Windward’s proprietary ownership and vessel databases with LexisNexis Risk Solutions’ global database. So when users search for a person or a company, they’ll receive a single list, instead of running two searches constantly and then having to manage the delta 
    • Screen any person or company in the world for adverse media coverage and politically-exposed persons or entities (PEPs), and utilize watchlists. This expands Windward’s pool of screenable entities by two orders of magnitude
    • Case manage, investigate and save audit reports
    • Set up repeating watch lists to ensure on an ongoing basis that counterparties are not implicated in immoral or illegal behavior

    This new counterparty due diligence capability offers additional user benefits – no need to work with two vendors, use two UXs, set up complex standard operating procedures (SOPs) or resolve different outputs from platforms. Windward customers can utilize a holistic and convenient platform that provides a single source of truth on the world’s constantly evolving due diligence requirements for shipping.

    At the beginning of the Russia-Ukraine war, Windward offered organizations access to our platform for a period of two weeks. We discovered that a large segment of the shipping and trading ecosystem has remained underserved in everything related to due diligence and compliance. We believe that our new capability is another important step towards supporting the shipping companies, traders and other key players in the maritime ecosystem to trade with confidence.

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