Customer due diligence or background checks are closely associated with the fight against money laundering.
Financial institutions and certain other business activities are required by law under the Money Laundering (Prevention) Act to carry out identification and verification of identity procedures before entering into a relationship with a potential customer or client.
Institutions such as banks must identify and know their customer (often referred to as KYC).
Besides personal details of the customer, the bank must have sufficient information on the customer's activities, financial position, banking practices and the purpose for which the services are used.
In practice the institution must verify the customer's identity from an official identity document and inquire as to what kind of service the customer needs.
Moreover, the Money Laundering (Prevention) Act also requires the financial institution or other business activity to determine the source of the incoming money and what the funds are going to be used for in order to satisfy themselves that the moneys have not been derived from or are to be used for criminal activity.
To determine the origin or source of incoming money the financial institution may ask the customer for not only a written statement (source of funds declaration) but also documents evidencing business operations, registration or any other proof (e.g. deed of Sale, will, etc.) which may assist the intuition in verifying the source of funds and the purpose for which the funds are to be used.
Without due diligence financial institutions can become subject to reputational operational and legal risks which can result in significant financial cost in terms of criminal fines and or revocation of licenses. Financial institutions should not want to be viewed as being accomplices or facilitators of money laundering.
The purpose of this question and answer segment is to provide members of the public with interpretive guidance on KYC (Know Your Customer) or customer due diligence particularly as it relates to the initial process of customer or client identification and verification.
I have often heard the term (customer due diligence (CDD), what does this mean?
The term Customer due diligence is the process of identifying the customer and verifying that customer's identity using reliable, independent source documents, data or information. The process also includes. Obtaining information on the purpose and intended nature of the business relationship and or transactions.
IF I cannot satisfy due diligence obligations requested by the financial institution, what happens?
Where the customer is unable to comply with the above, the financial institution is under no obligation to open the account, commence business relations or perform the transaction: or may terminate the business relationship:
When must my identity be verified as a customer?
Whenever an account is to be opened, a new signatory added to an account, or a significant one-off transaction undertaken. the prospective customer must be identified. Once identification procedures have been established and as long as records are maintained, no further evidence of identity is required when transactions are subsequently undertaken.
Can I use an employee’s identification card as the sole means to verify my identity?
No. However in order to establish identity the following documents are considered to be appropriate
Notwithstanding the above and given the availability of counterfeit and fraudulently obtained documents, a customer is encouraged to obtain more than one document to ensure that the financial institution has a reasonable belief that it knows the customer's true identity.
How are intermediaries expected to be treated by a financial institution?
An intermediary is a third party e.g. (insurance or investment brokers) who facilitates a relationship between two parties. If documentation is to be in the customer's name but the intermediary has the power to operate any bank, securities or investment account, the intermediary should be treated as a verification subject.
What documents are required of me by the financial institution for the purposes of opening a company account?
Some of the documents needed are:
If I am a politically exposed person (PEP) do due diligence measures apply to me?
Politically Exposed Persons (PEPs)
Indeed, ongoing enhanced scrutiny must be applied to transactions involving business relationships with individuals such as politicians holding important positions as well as their immediate family and closely related persons and with companies clearly related to them, as they may expose the institution to a significant reputational and/ or legal risk.
The decision to establish business relationships with or open an account for PEP should always be taken at a senior management level.
If I am unable to be physically present at a financial institution should I still be able to conduct business with the institution?
Yes, you may because financial institutions are sometimes asked to open accounts or form business relationships with persons who are not available for a personal interview, for example in the case of non-resident customers. The financial institutions should apply equally effective customer identification procedures and on-going monitoring standards to non -face-to-face customers as for those available for personal interview.
More information on Customer Due Diligence and (KYC) can be found in the Money Laundering (Prevention) (Guidance Notes) Regulations. Statutory Instrument No. 55. Of 2010 available at the National Printing Corporation
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