AML 4 MSB 7,8 & 9
Customer Due Diligence
This is the grown-up version of Know Your Customer (KYC)
It's not an only-child. there's big sister Enhanced Due Diligence (EDD) and baby brother Simplified Due Diligence (SDD) too. We'll get to them later.
This is a big one. Ready?
These are the minimum requirements:
complete customer due diligence on all customers and beneficial owners before entering into a business relationship or undertaking an occasional transaction that requires due diligence
complete customer due diligence when you suspect money laundering, or have doubts about the documents or information previously collected for customer due diligence
have adapted procedures to identify those who cannot produce standard documents, for example, a person not able to manage their own affairs
identify and verify a person acting on behalf of a customer and verify that they have authority to act
apply enhanced due diligence to take account of the greater potential for money laundering in higher risk cases, including in respect of politically exposed persons and persons established in high risk third countries.
apply customer due diligence when you become aware that the circumstances of an existing customer have changed. This may require you to review the extent of due diligence undertaken, for example applying enhanced due diligence if the customer now represents a higher risk
not deal with certain persons or entities if you cannot do customer due diligence and consider making a suspicious activity report
have a system for keeping copies of customer due diligence and supporting records and keep the information up to date
understanding the legal and beneficial ownership or control structure of a customer when the customer is one of the following; a legal person, a trust or a company, foundation or similar legal arrangement.
I suspect a lot of caffeine had been taken that morning at HMRC. Breathless, isn't it?
The text is littered with terms that have very specific meanings.
Beneficial owner. You need to know who you are really dealing with - which may not be the customer that you have in front of you. Who is the transaction really for? This can get really complicated, really quickly. We shall return to it later in the series.
A business relationship is a business, professional or commercial relationship between a money service business and a customer, which the business expects, on establishing the contact, to have an element of duration. So - if you think it is a business relationship, it is. If you think it isn't, it still might be. If you setup an account for the customer, or give them a loyalty card for example, it's probably a business relationship.
An occasional transaction is a transaction of €15,000 (or more) that is not part of a business relationship. It also applies to a series of transactions totaling €15,000 or more (or the sterling equivalent), where there appears to be a link between transactions.
It’s easy to over simplify, but simplified due diligence (SDD) is for low risk customers and transactions, and enhanced due diligence (EDD) is for higher risk customers and transactions
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