Financial Crime World

Banks Under Fire for Lack of Transparency in Customer Due Diligence

New Guidelines Issued: Emphasis on Proactive Approach to Prevent Money Laundering and Terrorist Financing

A recent guideline has been issued by regulatory authorities, highlighting the challenges faced by supervisory bodies in monitoring bank conduct. The guideline emphasizes the importance of customer due diligence (CDD) and encourages banks to take a proactive approach in identifying and mitigating risks.

Understanding Ownership and Control Structures

  • Banks must ensure they have a clear understanding of the ownership and control structure of their customers, particularly when complex structures are involved.
  • Institutions must expend more effort in understanding the domestic or international shareholding and control structure of the organization.

Identifying Ultimate Beneficial Owners (UBOs)

  • The guideline stresses the importance of identifying UBOs and designating natural persons who must be designated as UBOs.
  • Banks are advised to take a proactive approach in identifying UBOs through customer due diligence, rather than relying solely on the Wwft Implementation Decree 2018’s non-exhaustive list of legal forms.

Transparency and “In Name Of” Accounts

  • The guideline warns against the use of “in name of” accounts, which can be misleading and may not accurately reflect the true ownership structure.
  • Banks are advised to be particularly vigilant when customers request such accounts, as they may be used to conceal the true identity of account holders.

Maintaining a Central Register of Protected Accounts

  • The guideline emphasizes the importance of maintaining a central register of protected accounts, which contains data recorded under Section 33 of the Wwft.
  • This register is designed to protect the identities of customers during transaction processing while still allowing supervisory authorities to monitor transactions.

Conclusion

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The new guideline emphasizes the importance of transparency and customer due diligence in preventing money laundering and terrorist financing. Banks are advised to take a proactive approach in identifying UBOs, understanding complex structures, and maintaining accurate records of transactions. Failure to comply with these guidelines may result in severe penalties and reputational damage.