Due Diligence: A Crucial Step in Combating Money Laundering and Terrorist Financing
In today’s fast-paced financial world, due diligence is a vital component of any effective anti-money laundering (AML) and terrorist financing (TF) system. This article will delve into the importance of due diligence, its procedures, and timing to ensure the safety and integrity of businesses.
Purpose and Scope
Due diligence towards customers means identifying their identity, legal status, activity, purpose of business relationship, nature, and beneficial owner (if any). It involves verifying all this information and continuous follow-up on transactions within the framework of the ongoing relationship. Due diligence is a necessary step in determining whether establishing a business relationship with a customer exposes the company to money laundering or terrorist financing risks.
Key Customer Information
The company must collect and verify accurate information about the customer, including:
- Type of customer: natural or legal person, non-profit organization, or legal arrangement
- Place of residence: resident or non-resident
- Origin-country
- Occupation or nature of activity
- Ownership structure of a legal person: especially those that appear unusual or complex compared to their business nature
- Politically exposed persons (PEPs)
Transaction Monitoring
The company must monitor transactions carried out by the customer and identify any suspicious activities. This includes monitoring large amounts, unusual payment systems, and interrelated transactions.
Situations Requiring Due Diligence Measures
The company should undertake customer due diligence measures in the following situations:
- Starting a business relationship or during it: to ensure accurate information is collected and verified.
- Doubts about the veracity or adequacy of previously obtained customer identification data: to investigate and update customer information.
- Changes in the identity of the customer or beneficial owner, or fundamental changes in documenting customer information: to verify new information and update records.
- Suspicion that a transaction is related to money laundering or terrorist financing (regardless of value): to investigate and report suspicious activities.
- Changes in the customer’s circumstances or nature of business: to re-evaluate the risk level and adjust due diligence measures accordingly.
Ongoing Monitoring
The company must implement due diligence measures towards customers on an ongoing basis and take into account materiality and risk level. This includes checking transactions to ensure consistency with what the company knows about customers, their pattern of activity, and the source of funds.
In conclusion, due diligence is a critical step in combating money laundering and terrorist financing. By understanding the purpose and scope of due diligence, collecting accurate customer information, monitoring transactions, and implementing due diligence measures at the right time, companies can ensure the safety and integrity of their business operations.