Financial Crime World

Financial Institutions Must Verify Beneficial Owners to Combat Money Laundering

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In a bid to prevent money laundering and terrorist financing, financial institutions have been instructed to identify and verify the beneficial owners of customers. This article will outline the requirements set forth by Article 8 of the Regulation and provide guidance on how financial institutions can comply.

Identifying Beneficial Owners

Financial institutions must take reasonable measures to determine if a customer is acting on their own or on behalf of one or more beneficial owners. If a customer is found to be acting on behalf of a beneficial owner, the financial institution must gather information about the beneficial owner and verify it through documents, data, or other reliable sources.

  • Identify the beneficial owner’s name
  • Verify their identity using government-issued identification
  • Gather additional information such as address, date of birth, occupation, and any other relevant details

Simplified Customer Due Diligence Procedures

In certain circumstances, financial institutions may apply simplified customer due diligence procedures upon undertaking a documented risk assessment of the customer relationship. This includes situations where:

  • Information on the identity of the customer and beneficial owner is publicly available
  • Adequate checks and controls exist elsewhere in national systems

However, financial institutions must not apply simplified CDD measures whenever there is a suspicion of money laundering or terrorist financing or when the customer has a business relationship with or in countries listed in Annex III of the Regulation.

Delayed Customer Identification Verification

Financial institutions may engage in a business relationship with a customer prior to the completion of the customer verification process, but only if certain conditions are met. These include:

  • Ensuring that the verification occurs as soon as reasonably practicable
  • It is essential not to interrupt the normal conduct of business

The Regulation also requires financial institutions to adopt risk management procedures for delayed customer identification verification, which should include measures to manage money laundering and terrorist financing risks.

Additional Requirements

Financial institutions must gather and maintain customer and beneficial owner information throughout the course of the business relationship. This includes:

  • Gathering documents, data, or other reliable sources of information about the customer and beneficial owner
  • Verifying their identity using government-issued identification
  • Ensuring that business and company registration and licensing documents are current and remain valid throughout the duration of the relationship
  • Obtaining updated financial statements from customers and taxation information, such as tax returns and certification, on an annual basis

Conclusion

The Regulation aims to prevent money laundering and terrorist financing by requiring financial institutions to identify and verify the beneficial owners of customers and to keep records of the verification process. By understanding these requirements, financial institutions can ensure compliance and play a vital role in preventing financial crimes.