Financial Crime World

Financial Institutions Must Ensure Customer Due Diligence Measures Are in Place

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In an effort to combat money laundering and terrorist financing, financial institutions must ensure that they have adequate measures in place to verify the identity of customers and monitor their activities.

Verification of Customer Identity and Monitoring of Activities

According to the Financial Action Task Force (FATF) recommendations, financial institutions must take reasonable measures to determine whether a customer or beneficial owner is a domestic politically exposed person (PEP) or a person who has been entrusted with a prominent function by an international organization. In cases of higher-risk business relationships with such individuals, financial institutions must apply enhanced due diligence measures.

Enhanced Due Diligence Measures

  • Determine the source of wealth and source of funds for customers who are PEPs or have close associations with PEPs
  • Conduct ongoing monitoring of business relationships with these individuals

Correspondent Banking Compliance

Financial institutions must also ensure that correspondent banking relationships comply with AML/CFT regulations. This includes:

  • Gathering sufficient information about respondent institutions to understand their business and reputation
  • Assessing their AML/CFT controls
  • Obtaining senior management approval before establishing new correspondent relationships

Prohibitions on Shell Banks

  • Financial institutions are prohibited from entering into or continuing correspondent banking relationships with shell banks
  • Must ensure that respondent institutions do not permit accounts to be used by shell banks

Transaction Records Availability

The FATF also recommends that financial institutions make transaction records available to domestic competent authorities upon request. This includes information about transactions, including:

  • The identity of parties involved
  • The amount and type of funds transferred

New Technologies and Virtual Asset Service Providers

Financial institutions must identify and assess the money laundering or terrorist financing risks associated with new products, business practices, and technologies. They must also ensure that virtual asset service providers are regulated for AML/CFT purposes and licensed or registered.

Wire Transfers

Countries should ensure that financial institutions include required originator information and beneficiary information on wire transfers and related messages. Financial institutions must also monitor wire transfers to detect those that lack required information and respond appropriately.

Reliance on Third Parties

Financial institutions may rely on third parties to perform elements of customer due diligence measures, but the ultimate responsibility for these measures remains with the financial institution. The criteria for relying on third parties include:

  • Ensuring that copies of identification data and other relevant documentation are available upon request
  • Ensuring that the third party is regulated or supervised for AML/CFT purposes

Customer Due Diligence Software

Alessa, a customer due diligence software, can help organizations monitor every financial activity to get a holistic view of customer activities. The solution generates alerts for suspicious activity and sends them to the appropriate personnel for investigation and reporting.

By implementing these measures, financial institutions can ensure compliance with AML/CFT regulations and protect themselves against money laundering and terrorist financing risks.