Keep Money Laundering and Fraud out - TONBELLER® AG

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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. 1-4
1.1 Know Your Customer Policies Whitepaper | Keep Money Laundering and Fraud out - Know your Customer (KYC) “Know your customer” regulations are valid in most countries since many years. The primary best practice on “know your customer”, “customer identification” and “customer due diligence” can be found in several international publications such as the 2003 FATF Recommendations on AML/CTF, the “customer due diligence” guidance notes from the Basel Committee on Banking Supervision and the 3 rd EU Directive. This directive for example calls for several requirements that need to be fulfilled by the financial institutes: � Risk-based approach (see: 2.1 Step 1: Risk Assessment) to customer due diligence (3 rd EU Directive provides specification for Customer Due Diligence and Enhanced Customer Due Diligence) � Identification & verification of high-risk customers such as Politically Exposed Persons (see: 2.2.1.3 PEP screening & watch list management) � Definition and control of beneficial ownership (see: 2.2.1.4 Beneficial owner) � Establishment of a risk profile (see: 2.2 Step 2: Know your Customer and following chapters) for each customer (legal entity or natural person) during customer acceptance and check for consistency during the ongoing customer due diligence process (see: 2.3 Step 3: Ongoing Customer Due Diligence) 1.2 Regulations Those regulations and guidelines must be or already have been translated into national law. The status of implementing these regulations differs by region and country. A list of the regional regulations can be found in the following chapters. 1.2.1 Europe Austria http://www.imf.org/external/pubs/ft/scr/2004/cr04238.pdf Belgium http://www.imf.org/external/pubs/ft/scr/2006/cr0672.pdf Czech Republic www.imf.org/external/pubs/ft/scr/2004/cr0446.pdf and http://www.coe.int/t/dghl/monitoring/moneyval/Evaluations/round3/MONEYVAL(2006)21Rep- CZE3_en.pdf Denmark http://www.fatf-gafi.org/dataoecd/1/26/37588381.pdf Finland http://www.fatf-gafi.org/dataoecd/20/46/39794392.pdf 1-5
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