Customer Due Diligence

Mar, 03 2020

Customer Due Diligence or CDD, is the process where relevant information about the customer is collected and evaluated for any potential risk for the company or money laundering/terrorist financing activities. CDD is essential for Know Your Customer process (KYC), and although these processes differ around the globe, Customer Due Diligence usually supposes identifying customer and knowing their activities.

Customer Due Diligence Basics

Customer due diligence, at its most basic level, involves verifying a customer’s identity and the business in which they are involved, to a sufficient level of confidence. The process involves several regulatory obligations:

  • Customer Identification: Companies must identify their customers by obtaining personal information, including name, photographic ID, address, and birth certification, from a reliable, independent source.
  • Beneficial Ownership: Due diligence measures should identify beneficial ownership of a company in situations where this is not the client. Identifying beneficial ownership should include understanding the control structure of the company.
  • Business Relationship: Following customer and beneficial ownership identification, companies must also obtain information on the nature of the business relationship they are entering into, and its purpose.

Customer Due Diligence (CDD) information comprises the facts about a customer that should enable company to assess extent to which the customer exposes it to a range of risks. These risks include money laundering and terrorist financing. Companies need to know their customers for a number of reasons:

  • to comply with the requirements of relevant legislation and regulation
  • to provide them with the products or services requested
  • to guard against fraud, including impersonation and identity fraud
  • to help company to identify, during the course of a continuing relationship, what is unusual and to enable the unusual to be examined
  • if unusual events do not have a commercial or otherwise straightforward rationale, they may involve money laundering, fraud, or handling criminal or terrorist property
  • to enable company to assist law enforcement, by providing available information on customers being investigated following the making of a suspicion report to the FIU.

Consequently, a prohibition on setting up anonymous accounts or relationships is the baseline for the international standards.

Risk-based approach to Customer Due Diligence

International standards require that a risk-based approach is applied to customer due diligence.

Consequently, measures should be applied on a risk-sensitive basis depending on the type of customer, business relationship or nature of transactions or activity. Higher risk categories should be subject to enhanced due diligence.

Risk assessment will determine how much of information collected needs to be independently verified, as the following examples indicate.

For standard-risk customers, i.e. those who are permanently resident in the country, with a salaried job or other transparent source of income, only the standard information provided may need to be verified.

Enhanced due diligence should be applied to higher-risk customers/clients. Enhanced due diligence must also be applied to the beneficial owners or controllers of higher-risk companies or structures.

Quoted companies and their wholly owned subsidiaries are considered to be lower risk, requiring only simplified due diligence.

Privately owned companies and other entities, e.g. trusts, are generally assessed as higher risk than quoted companies because they are exposed to a lower level of external scrutiny than those that are publicly owned. For such relationships, identities of the beneficial owners and controllers must also be verified in addition to verifying the identity of the corporate entity. Beneficial owners may also be executive directors or settlors of trusts.

VALEN will help you conduct customer due diligence in your company efficiently and high quality. Our specialists are very experienced in this area and are ready to provide customer and enhanced due diligence both comprehensively and in separate blocks. Also, you can contact VALEN for advice on any legal issues.

You can contact the lawyers of VALEN by any of the available methods of communication or visit our office by making an appointment by phone +7 (495) 7-888-096

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