Basic Customer Due Diligence (CDD) With the Help of Risk Insight Experts
Traditionally, customer due diligence (CDD) requirements have been encompassed in the system of internal controls. However, more recently it is considered to be a fifth element of an AML-CFT compliance program. In particular, FinCEN, the regulatory authority in the United States, requires companies to design and implement appropriate risk-based procedures for conducting ongoing customer due diligence (ODD).
An AML-CFT compliance program should include CDD policies, procedures and processes for all customers, especially high-risk customers.
CDD procedures should include:
- Understanding the nature and purpose of customer relationships in order to develop a customer risk profile
- Conducting ongoing monitoring to identify and report suspicious activities
- Maintaining and updating customer information.
A sound CDD program should include elements:
- Customer Identification: Full identification of customer and business entities, including source of funds and wealth when appropriate.
- Profiles: Development of transaction and activity profiles for each customer.
- Customer Acceptance: Definition and acceptance of the customer.
- Risk Rating: Assessment and grading of risks presented by the customer relationship.
- Monitoring: Account and transaction monitoring based on the risks presented.
- Investigation: Investigation and examination of unusual customer activity.
In most cases, a basic customer due diligence (CDD) will be sufficient, whereas in other cases, enhanced customer due diligence (EDD) is required. This latter can be very extensive and time consuming. The company’s customer due diligence (CDD) program must indicate which CDD process to follow for each risk level. The risk levels are assessed relate to types of customers, countries or geographic areas, and particular products, services, transactions or delivery channels.
There are cases where the risk of money laundering or terrorist financing may be lower. In such circumstances, and provided there has been an adequate analysis of the risk, it could be reasonable for a company to apply basic customer due diligence (CDD) measures.
Examples of possible measures are:
- Verifying the identity of the customer and the beneficial owner
- Reducing the frequency of customer identification updates
- Reducing the degree of on-going monitoring and scrutinizing transactions
- Inferring the purpose and nature from the type of activity or business relationship established
Basic customer due diligence (CDD) measures cannot be adopted in situations where there is a suspicion of money laundering or specific higher-risk elements emerge.
Any company needing to conduct basic customer due diligence (CDD) should seek the external assistance of Risk Insight experts.
Risk Insight experts can conduct basic customer due diligence (CDD) to protect your company from legal, financial, organization and reputation risks.