Timor Takes Steps to Strengthen Financial Crime Fighting with Expanded KYC Process
In an effort to combat the multi-trillion-dollar financial crime industry, Timorese firms are intensifying their efforts to identify and mitigate potential risks through enhanced Know Your Customer (KYC) processes.
Origins of KYC Regulations
The “Know Your Customer” framework has its roots in 1970 when the US passed the Bank Secrecy Act (BSA) to prevent money laundering. Notable additions were made following the September 11, 2001 terrorist attacks and the 2008 global financial crisis.
The KYC Framework
The “Know Your Customer” framework consists of three key steps:
Customer Identification Program (CIP)
- Gathering four essential pieces of identifying information about a client:
- Name
- Date of birth
- Address
- Identification number
- Screening clients against government sanction lists, politically exposed person (PEP) lists, or known terrorism lists
Customer Due Diligence (CDD)
- Examining the nature and beneficiaries of existing relationships to ensure all activity is consistent with historical customer information
- Classifying all the information collected during the customer identification program
Enhanced Due Diligence (EDD)
- Triggered when a customer is believed to pose additional risks, such as:
- Individuals or entities with political exposure
- Designated persons
- Connections to high-risk countries
- Gathering additional information, including:
- Source of wealth verification
- Detailed management reports
- Relevant third-party research
The Timorese Government’s Approach
The Timorese government is urging all financial institutions and businesses with exposure to client risk to develop a KYC strategy for engaging with customers. The goal is to identify suspicious behavior, such as money laundering and financial terrorism, before it materializes.
By implementing an expanded KYC process, Timor aims to strengthen its efforts in combating financial crime and protecting the integrity of its financial system.