Have you ever thought about how one sanctioned client caused your business severe damage and millions of dollars fines?
This wouldn’t be acceptable to any business. Since the nature of business and the way money transactions have transformed to digital, every business must know about its clients.
Because it’s not just a precautionary measure, but a regulatory requirement that helps businesses identify the potential risk that every client can bring itself.
But the question is, what are these customer due diligence checklists? These checks involve the series of steps that businesses must implement to protect their business from fraud, money laundering, and terrorist financing crimes.
In today’s blog, we will discuss the top 5 CDD parameters that every business must implement to comply with the regulatory requirements and protect your business from any damage.
1.Client Identification and Verification
How can any business make a person a client without knowing who actually this person is? this could be a damaging and devastating decision for any financial institution. so, to avoid that, businesses need to collect the necessary information about their clients to confirm their identity. Collecting full name, DOB, residential and office address national identity card number, and any other legal document that can support client identity as real.
And to ensure the authentication of customer information, financial institutions must rely on advanced tools that help businesses verify identity through different tools like biometrics, E-ID verification, and facial recognition software which reduces the chances of false positives.
2.Understand the Client’s Business Purpose
Politically Exposed Persons and their close associates often try to exploit financial institutions to deposit their bribes, embezzle, and corrupt money into the financial system by influencing them. so whenever you onboard a new client, must check them against the PEP list and check the risk level as well.
Other than that, ask your client what is their source of income, and screen them against global watchlists, section lists, adverse media, and other lists published by the regulatory bodies.
Is obtaining such information helpful for businesses? Yeah, obtaining the information about the client where he operates in, and the statements they gave at the time of onboarding aligns. And this will ultimately help businesses identify any red flags and unusual transactions by such customers.
3.Identify Ultimate Beneficial Owners (UBOs)
Determining the Ultimate Beneficial Owners (UBOs) of a business is a fundamental aspect of CDD. Because UBOs are those individuals who ultimately have the authority to control a company. But they can hide their name on official accounts. Therefore, Identifying UBOs helps uncover hidden ownership structures that might be used to conceal illicit activities.
And even the AMLD now obliged the entities to give public access to the ownership structures through public registers. Therefore, the compliance offices need to use corporate registries, financial databases, and specialized software designed to map out complex ownership structures.
4.Conduct a Risk Assessment and Categorization
Once the compliance officers successfully get the required information and confirm the client’s identity and purpose, a comprehensive risk assessment is implemented to determine the risk level that every client could pose. And This assessment includes different factors that are as follows.
Geography: if the customer belongs to a territory, country, or state that has a weak level of AML regulations, high levels of corruption, or terrorist financing. Customer from these locations poses a higher risk.
Industry: Real estate investors, luxury goods, or transactions using cryptocurrency make the person more prone to money laundering and other financial crimes.
Political Exposure: If a client is a Politically Exposed Person (PEP), they may be at higher risk due to potential involvement in corruption or misuse of public funds.
5.Ongoing Monitoring and Review
Client’s due diligence isn’t a process that only once is done. need financial institutions to continuously monitor their client’s activity to stay updated with the risk profiles or their suspicious behavior.
Therefore, businesses must regularly review their client information, and monitor customer transactions. and also conduct a real-time analysis of client activities to identify potential issues before they become significant problems.
How can Businesses Stay compliant with AML Regulations?
Staying ahead of the criminals is what every business desires. And in this digitally evolving era, knowing who your customer is more important than ever. Because before turning into launderers and terrorist financiers, they first become your potential clients.
Therefore, businesses need to implement advanced AML CDD solutions that automatically monitor the customer and verify their identity by screening them against multiple sanctions and watchlists.
