Financial Crime World

Financial Institutions Must Tighten Business Relationship Screening to Combat Money Laundering and Terror Financing

New International Standards Issued by the Financial Action Task Force (FATF)

The Financial Action Task Force (FATF) has issued a new set of international standards, calling on financial institutions worldwide to strengthen their customer due diligence (CDD) measures to prevent money laundering and terrorist financing. These guidelines come into effect immediately and require financial institutions to conduct thorough background checks on customers and beneficial owners before establishing a business relationship or conducting occasional transactions above $15,000.

Key Requirements

  • Conduct thorough background checks on customers and beneficial owners
  • Verify the identity of customers and beneficial owners before or during the establishment of a business relationship
  • Maintain records of transactions for at least five years
  • Use a risk-based approach (RBA) in determining the extent of CDD measures
  • Gather sufficient information about respondent institutions when dealing with correspondent banking relationships

Specific Recommendations for High-Risk Customers

  • Politically Exposed Persons (PEPs):
    • Have appropriate risk-management systems in place to determine whether a customer or beneficial owner is a PEP
    • Obtain senior management approval for establishing business relationships with such individuals
    • Conduct enhanced ongoing monitoring
  • Correspondent Banking:
    • Gather sufficient information about respondent institutions
    • Assess their anti-money laundering and combating the financing of terrorism (AML/CFT) controls
    • Obtain approval from senior management before establishing a relationship

Benefits of Implementing these Measures

By implementing these measures, financial institutions can help protect the integrity of the global financial system and reduce the risk of being used for illicit activities. These guidelines are designed to ensure that financial institutions have robust systems in place to detect and prevent money laundering and terrorist financing.

Key Takeaways

  • Financial institutions must conduct CDD measures on all new customers, as well as existing customers with a high-risk profile.
  • The CDD measures include identifying the customer and beneficial owner, understanding the purpose and nature of the business relationship, and conducting ongoing due diligence.
  • Financial institutions must maintain records of transactions for at least five years.
  • Specific requirements apply to financial institutions dealing with PEPs and correspondent banking relationships.