Businesses must ensure that they do not unknowingly accept customers outside their normal risk tolerance, or whose business is not understand with sufficient clarity. In short, businesses must Know Your Customer (KYC).
Steps should be taken to identify customers and check that are who they claim to be. In practice, this means obtaining copies of personal information such as their name, residential address, photograph and copies of official documents such as passport or driving licence in order to confirm their identity.
Measures should also be taken to confirm if the transaction is being undertaken by an agent or principal. It may be relevant to identify the beneficial owner controlling the transaction.
Customer Due Diligence is a process that can be performed when first establishing a business relationship and can be maintained throughout that relationship. Providing up-to-date records and information about customers can reduce risk should a customer’s circumstance change. Thus opening a bank account is an event that is focused on controlling money laundering, whilst regular periodic checks to update information on customers are made by banks.
The process of Customer Due Diligence should also be reapplied for transactions that fall within the definition of “occasional transaction” – where the value is EUR €15,000 or higher, or those that are not carried out within the on-going and usual business relationship. This includes individual and linked transactions that might make up a larger amount.
Enhanced Due Diligence, where additional effort and checks are required of a customer, should be undertaken when the customer is not present when any identification checks are made or when the business relationship is with a “politically exposed person” – typically an overseas politician or government member.
The enhanced due diligence measures include obtaining additional information to establish identity, apply extra measures to check documents supplied by financial institutions and finding out the source of funding for a transaction.
Anti-money laundering controls
- assessing the risk of your business being used by criminals to launder money
- checking the identity of your customers
- checking the identity of ‘beneficial owners’ of corporate bodies and partnerships
- monitoring your customers’ business activities and reporting anything suspicious to appropriate authorities. (In the UK, this is the Serious Organised Crime Agency)
- making sure you have the necessary management control systems in place
- keeping all documents that relate to financial transactions, the identity of your customers, risk assessment and management procedures and processes
- making sure that your employees are aware of the regulations and have had the necessary training