Keep Money Laundering and Fraud out - TONBELLER® AG

1. Know your Customer (KYC)
Whitepaper | Keep Money Laundering and Fraud out -
Know your Customer (KYC)
Know your customer (KYC) is the due diligence and bank regulation that financial institutions and
other regulated companies must perform to identify their clients and ascertain relevant information
before doing business with them. In some countries, KYC is typically a policy implemented to conform
to a customer identification program mandated under the Bank Secrecy Act, USA PATRIOT Act and
3 rd EU Directive. Know your customer policies globally are becoming increasingly important to prevent
identity theft fraud, money laundering and terrorist financing.
The decision whether a customer is accepted or rejected is the easiest and earliest point to avoid the
risk of money laundering. Customer acceptance thus becomes the first step in preventing money
laundering and terrorist financing. It is imperative that institutions capture information about their
customers background, their source of funds, business, domicile and the desired financial products in
order to properly understand the risk profile of a potential customer.
One aspect of the KYC process is to verify that the customer is not listed as a known fraudster,
terrorist or money launderer, e.g. by cross checking with the Office of Foreign Assets Control (OFAC)
Specially Designated Nationals list. This list contains thousands of entries and is updated at least
monthly. In addition to the above mentioned sanctions lists, there are lists of third party vendors that
track links between persons regarded as high-risk due to negative reports in the media or in public
records.
Beyond name matching, a key aspect of KYC controls is to monitor transactions of a customer against
their recorded profile, the history of the customers account(s) and their transaction with peers in order
to identify money laundering schemes.
The KYC process is not solely focused on risk rating and controlling of transactions. Another important
aspect is the customer identification process (CIP). To verify collected identification documents third
party vendors provide software to scan and check their authenticity.
Banks that use KYC monitoring for anti-money laundering (AML) purposes or for checks relating to
counter the financing of terrorism (CFT) use research tools such as Siron ® AML and Siron ® FD (fraud
detection). The thereby generated alerts identify unusual activity which is then subject to due diligence
or enhanced due diligence (EDD) processes that use internal and external sources of information on
the subject. This helps to determine whether a transaction or activity is suspicious and requires
reporting to the authorities.
Know Your Customer processes are also employed by regular companies of all sizes, for the purpose
of ensuring their proposed agents, consultants or distributors anti-bribery compliance. Banks, insurers
and export credit agencies are increasingly demanding that customers provide detailed anti-corruption
due diligence information, to verify their probity and integrity.
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