We must meet certain day-to-day responsibilities if our business is to adhere to Money Laundering Regulations. These include carrying out ‘customer due diligence’ measures to check that our customers are who they say they are.
We must also put in place internal controls and monitoring steps.
Client due diligence means taking steps to identify our customers and checking they are who they say they are. In practice this means obtaining a customer’s:
- name
- bank details verified
- residential address and registered
You also need to identify the ‘beneficial owner’ in certain situations. This may be because someone else is acting on behalf of another person in a particular transaction, or it may be because you need to establish the ownership structure of a company, partnership or trust.
As a general rule, the beneficial owner is the person who’s behind the client and who owns or controls the client's interests. Or it’s the person on whose behalf a transaction or activity is carried out.
If you have doubts about a client's identity, you mustn’t continue to deal with them until you are sure and notify a Director.
You must apply customer due diligence measures:
- when you establish a business relationship with a client
- when you suspect money laundering or terrorist financing
- when you have doubts about a client's identification information that you obtained previously
A business relationship is one that you enter into with a client where both of you expect that the relationship will be ongoing. It can be a formal or an informal arrangement.
When you establish a new business relationship you need to obtain information on:
- the purpose of the relationship
- the intended nature of the relationship - for example where funds will come from, the purpose of transactions, and so on
The type of information that you need to obtain may include:
- details of your client’s business or employment
- the source and origin of funds that your client will be using in the relationship
- copies (if applicable) of recent and current financial statements
- details of the relationships between signatories and any underlying beneficial owners
- the expected level and type of activity that will take place in your relationship
You need to keep up-to-date information on your customers so that you can:
- amend your risk assessment of a particular customer if their circumstances change
- carry out further due diligence measures if necessary
Changes of circumstance may include:
- a big change in the level or type of business activity
- a change in the ownership structure of a business
You must carry out client due diligence measures when your business carries out occasional transactions. Your business must have systems in place to detect potentially linked transactions.
Once a potentially linked transaction has been identified, you need to decide if it has been deliberately split. Some issues to consider are when:
- a number of payments have been made by the same client in a short period of time and are non standard
In some situations you must carry out ‘enhanced due diligence’. These situations are:
- when the client identification checks and not as expected
- when you enter into a business relationship with a ‘politically exposed person’ - typically, a non UK or domestic member of parliament, head of state or government, or government minister and their family members and known close associates
- when you enter into a transaction with a person or client from a high risk third country identified by the EU
- any other situation where there’s a higher risk of money laundering
The enhanced due diligence measures for customers who aren’t physically present and other higher risk situations include:
- obtaining further information to establish the client’s identity
- applying extra measures to check documents supplied by a credit or financial institution
- making sure that the first payment is made from an account that was opened with a credit institution in the client’s name
- finding out where funds have come from and what the purpose of the transaction is
The enhanced due diligence measures when you deal with a politically exposed person are:
- making sure that only a Director gives approval for a new business relationship
- taking adequate measures to establish where the person’s wealth and the funds involved in the business relationship come from
- carrying out stricter ongoing monitoring of the business relationship
You should seriously consider applying enhanced due diligence if your client is a money transmitter or currency exchange office. This situation presents a higher risk of money laundering or terrorist financing because the money you receive will be a ‘bulk transfer’ representing a collection of underlying transactions placed with your customer. The extent of enhanced due diligence measures you apply should be based on the risk and circumstances of each case.
At the very least you must get the number of underlying transactions of each bulk transfer made to you by your client. This information will allow you to check that the number and average value of transactions is consistent with the level of business you anticipated when you began your business relationship.
It will also give you an indication of risk, particularly where either the number of underlying transactions or the average transaction value is significantly above what you expected. In such cases you must establish and record why it’s different.
You must undertake checks if you consider there is a risk, to ensure that your client is carrying out due diligence (and if a money transmitter is involved obtain ‘Complete Information on the Payer’). This will include checking the relevant records for specific transactions.
You must make sure that your business has adequate internal controls and monitoring systems. These should alert you and other relevant people in your business if criminals try to use your business for money laundering. Once you’ve been made aware of a potential threat, you can take steps to prevent it and report any suspicious activity.