Customer Due Diligence Flashcards
Why must firms do customer due diligence?
MLR requires regulated businesses to have appropriate systems and controls in place to both identify and verify the identify of their clients and carry out ongoing monitoring.
When must CDD measure be taken?
- establishing a business relationship
- carrying out an occasional transaction
- suspects money laundering or terrorist financing
- has doubts about the veracity or adequacy of the identification documents, data or information previously provided
What is a business relationship for CDD purposes?
Means that at the outset of a matter it looks like an ongoing relationship will be set up with the client
What is an occasional transaction?
Transaction which is not carried out as part of a business relationship ie a one off transaction
When must CDD be carried out on an occasional transaction?
When transaction exceeds 1,000 euro, whether the transaction is carried out in a single operation or several linked operations
What is required for standard CDD?
- identify the customer and verify their identity on the basis of documents/data received from a reliable and independent source and assess, and where appropriate, obtain information on, the purpose and intended nature of the business relationship
- where the customer is a company, identify its name, company number, the address of its registered office and if different, its principal place of business, the law to which it is subject, its constitutional documents, the names of the directors or members of its management body and senior management
- identify the beneficial owner - the person who owns or controls the customer on whose behalf the work is being undertaken
- ongoing monitoring of the business relationship, eg ensuring any documentation/data/information held is up to date
What CDD must be done in relation to the beneficial owner?
CDD must be carried out on the customer and the beneficial owner.
You must take measures to understand the ownership and control structure of the person, trust or arrangement.
Key is finding out about the individual who controls the entity in question
Who is the beneficial owner of a company?
Anyone who owns more than 25% of the shares or voting rights or who otherwise exercises control over the management
When must enhanced due diligence be carried out?
- high risk of money laundering or terrorist financing
- in any transaction or business relationship with a person established in a high risk third country
- in relation to correspondent relationships
- if a relevant person has determined that a customer or potential customer is a PEP or a family member or known close associate of a PEP
- any case where a customer has provided false or stolen identification
- any case where a transaction is complex, the transaction is unusually large or there is an unusual pattern of transactions or the transaction or transactions have no apparent economic or legal purpose
- in any there case which by its nature can present a higher risk of money laundering and terrorist financing
What should enhanced CDD include as far as reasonably possible?
- examining the background and purpose of the transaction
- increasing the degree and nature of monitoring of the relevant relationship to determine whether the transaction or relationship appear suspicious
- getting additional independent, reliable sources to verify information
- taking additional measures to understand the background and financial situation of the customer and other parties to the transaction and taking further steps to be satisfied the transaction is consistent with the purpose and intended nature of the relationship and
- taking further steps to be satisfied the transaction is consistent with the purpose and intended nature of the relationship
What should be done if enhanced CDD is to be applied due to a party to the transaction being established in a high risk third country?
Enhanced CDD must include:
- obtaining additional information on: the client and the client’s beneficial owner; the intended nature of the business relationship; the source of funds and source of wealth of the client and of the client’s beneficial owner; the reasons for the transaction
- obtaining the approval of senior management of the practice for establishing or continuing the business relationship
- conducting enhanced monitoring of the business relationship by increasing the number and timing of controls applied and selecting patterns of transactions that need further examination
When may simplified CDD be used?
Where there is a low degree of risk of money laundering or terrorist financing having taken into account the risk assessment and risk factors
What must a happen where simplified CDD applies?
- must continue to comply with anti-money laundering regulations but can adjust extend, timing or type of CDD measures to reflect assessment that risk of money laundering is low
- carry out sufficient monitoring to enable it to detect any unusual or suspicious transactions
What types of customer can simplified CDD be used for?
- public administration (eg LA)
- publicly owned enterprise
- financial or credit institution
- company listed on a regulated market (London stock exchange)
- individual resident in geographical area of low risk
What is a geographical area of low risk?
Includes third country which has effective systems to counter money laundering and terrorist financing or a third country which on the basis of credible sources such as evaluation by FATF and IMF has requirements to counter money laundering and terrorist financing consistent with the recommendations of FAFT
