Indonesia: The Importance of Due Diligence in Financial Transactions
As the Indonesian economy continues to grow, companies, especially financial institutions, are increasingly recognizing the importance of customer due diligence (CDD) and enhanced due diligence (EDD) in managing customer risk.
What is Customer Due Diligence?
Customer Due Diligence, also known as background checks or background reports on individuals or companies, enables businesses to quickly and conveniently gather necessary information and determine the risk a customer or entity poses to their operations. CDD procedures include:
- Requesting information from customers or entities
- Identifying a beneficial owner of an account
- Executing CDD on the beneficial owners
- Verifying documents submitted by customers
- Constantly updating and observing data obtained from customers
CDD is mandatory where there is a suspicious financial transaction or doubtful information submitted by customers.
What is Enhanced Due Diligence?
Enhanced Due Diligence is a process where a customer has been assessed and determined to be at a heightened risk to a company. The main process of EDD includes:
- Getting approval from senior management prior to establishing a relationship with customers
- Taking reasonable measures to evaluate the source of wealth and funds
Examples of high-risk customers or transactions that make EDD compulsory include:
- Politicians exposed persons
- Terrorists
- Transactions with another high-risk party
- Accounts opened virtually and not face-to-face
- Transactions that deviate from the transaction profile of a customer
- Customers located in high-risk countries or regions
- Correspondent accounts
- A customer linked to a politician exposed person
In Indonesia, if a customer or transaction meets one of these criteria, a financial institution must:
- Analyze the customer
- Purpose of transactions
- Source of funds
- All business relationships among all parties involved in a transaction
- Apply stringent observation of the high-risk customer
The Importance of Due Diligence in Indonesia
The Indonesian government has issued Regulation No. 14/27/PBI/2012, which requires banks to conduct CDD effective from December 28, 2012.
Cekindo can help you protect your company’s reputation and prevent potential financial damages and crimes with our due diligence or background check services. Contact us now to obtain a free quotation.
By conducting due diligence, financial institutions in Indonesia can:
- Prevent money laundering
- Combat terrorism financing
- Identify high-risk customers and transactions
- Mitigate reputational risk
- Ensure compliance with regulatory requirements
In conclusion, due diligence is an essential process for financial institutions in Indonesia to manage customer risk and prevent potential financial damages and crimes. Cekindo’s due diligence or background check services can help you protect your company’s reputation and ensure compliance with regulatory requirements.