Financial Crime World

Businesses Must Conduct Customer Due Diligence to Manage Money Laundering Risk

A significant money laundering risk exists for businesses that fail to conduct customer due diligence (CDD) checks, making it essential for companies to implement effective measures to mitigate this threat.

The Importance of Conducting CDD on a Risk-Based Basis

By conducting CDD on a risk-based basis, businesses can identify and assess the level of risk posed by their customers. This involves three levels of due diligence:

Simplified Due Diligence (SDD)

  • Used in low-risk situations, such as small transactions
  • Limited scope of verification and assessment

Customer Due Diligence (CDD)

  • Most widely used level of due diligence
  • Verification of customer identity and assessment of risk
  • Comprehensive review of customer information and documentation

Enhanced Due Diligence (EDD)

  • More comprehensive and in-depth review of customer activities
  • Deeper understanding of customer’s business and financial transactions
  • Used for customers posing a high level of risk

Implementing an Effective Due Diligence Program

To implement a successful due diligence program, businesses must:

  • Ascertain the identity and location of potential customers
  • Gain an understanding of their business activities
  • Classify the risk category of each customer
  • Digitally store all relevant information and documentation
  • Create processes for ongoing monitoring and criteria for triggering additional due diligence measures

Identifying High-Risk Customers and Conducting EDD

If a customer is identified as posing a heightened level of risk, businesses must follow the correct process to determine whether EDD measures are required. Factors that may indicate EDD is necessary include:

  • Location of the customer
  • Occupation of the customer
  • Purpose for opening an account
  • Expected pattern of activity

Ongoing Monitoring and Compliance

Businesses must also outline criteria for ongoing monitoring, which includes continuous monitoring of customers’ activities to ensure they remain consistent with their established risk profile. This may involve filing a Suspicious Activity Report (SAR) if unusual activities are detected.

Leveraging AI-Powered AML Screening Solutions

To support businesses in their KYC compliance efforts, Veriff offers an AI-powered AML screening solution that provides:

  • Identity verification
  • Sanctions and PEP watchlist screening
  • Ongoing monitoring

By leveraging this solution, businesses can ensure compliance with regulations while prioritizing user experience and reducing false positives by 70%.

Book a Free Demo Today

For more information on how Veriff’s KYC compliance solutions can help your business, book a free demo today.