Sanctions Compliance: A Proactive Flywheel Approach to Risk Management
In the energy and trade sector, sanctions compliance is crucial for business operations. However, it poses significant challenges for companies in this space. A 2019 KPMG report indicated that 61% of energy CCOs planned to enhance their investigation capabilities to improve due diligence efforts.
While developing investigations is essential, companies must adopt a proactive strategy for managing risk. This involves viewing risk as a growth opportunity rather than a business blocker. Energy companies, being global in nature, face unique challenges that other sectors may not encounter. As regulators intensify their focus on non-compliance, the potential for financial penalties and reputational damage becomes increasingly concerning for executives.
To mitigate these risks, companies are increasingly utilizing tools and resources for sanctions-related investigations. Unfortunately, many of these tools tend to be risk-aversive, leading to false positives and excessive measures to manage risk. While this can hinder organizational momentum, effective tools can create a flywheel effect, fostering sustained business growth.
Maritime expertise is vital for effective sanctions compliance. Compliance professionals, often lacking maritime training, must evaluate sanctions risk within the appropriate context. For instance, LNG terminals in specific areas require tankers to reduce their radio output for safety. Systems that can exclude LNGs and regions near these terminals help minimize false positives.
Vendors with expert teams who review inquiries and enhance data are critical for distinguishing legitimate behavior from potential sanctions-related activity. These insights enable teams to differentiate true red flags from benign activities. Our data indicates that only 0.2% of AIS gaps suggest potentially sanctionable activity.
Relying on static data creates gaps in the sanctions compliance process. With changes to sanctions compliance occurring almost weekly, access to real-time data is essential. For example, following the Executive Order authorizing sanctions against individuals within the Ethiopian and Eritrean governments, OFAC issued three general licenses.
In conclusion, adopting a proactive flywheel approach to sanctions compliance can help companies in the energy and trade sector manage risk more effectively. By viewing risk as an opportunity for growth, companies can foster sustained momentum and reduce operational friction.
Original Article: From risk to opportunity: A flywheel approach to sanctions compliance — Windward