Customer Due Diligence

Mar, 03 2020

Here we consider a customer due diligence procedure. What is it, what is that for and who can order such a service. So let’s start with the definition.

Customer due diligence (CDD) is a legal procedure of collecting information for the most complete image about a customer, analyzing and drawing conclusions about potential risks (bad faith, financial loss, or money laundering, etc.). It should be noted that this procedure is one of the most important components of another larger process, Know Your Customer (KYC). In different jurisdictions, these procedures may differ slightly, but in general, the basic principles they are based on are the same.

Basic CDD Technique

In its simplest basic form, a CDD includes proof of the client’s identity and an assessment of his/her business. This includes the following components:

  • Identification of an individual. In order for a company to protect own interests with individual customers, it has to identify them. Among the basic information are: name, surname, date of birth, registration address, etc., and this data must be obtained from a reliable source.
  • The ownership structure of a legal entity: the CDD procedure should also include measures to determine the beneficial ownership of legal entities-customers. Thus, a company that conducts CDD must clearly understand the ownership and management structure of a customer-legal entity.
  • Assessment of the nature of the business relationship. At this stage, one has to get data about the nature of the business relationship with potential customers, and their goals.

The information received within the framework of the (CDD) procedure enables a company to assess the possible risks that will accompany the work with this customer (individual or legal entity). Risks include possible non-fulfillment of obligations assumed, financing of terrorism, etc.

Besides, the CDD procedure may be required for the following reasons:

  • In order not to violate local laws and regulations
  • To provide the best possible products and services
  • To exclude possible fraud
  • To track any suspicious events that could be indicative of criminal activity so that to help law enforcement agencies, and provide them with all available information about a client who is suspected of a crime.

Thus, various restrictions on anonymous business activity are actively applied in international practice.

A risk-based approach to CDD

It is the risk-based approach applied to CDDs based on international standards that are most often applied in practice.

Depending on which client you want to interact with and the nature of this interaction, either standard customer due diligence procedures or enhanced due diligence can be applied in the case of business-critical customers.

Under normal client due diligence and standard approaches, the amount of data collected is minimal, and under enhanced verification, they collect all the available data.

Thus, for example, customers with a low level of risk are residents of the country who have legal income, and in this case, they only check the standard data about this client (confirming a full name, place of registration, etc.).

Clients of a more risky group include private companies, or trusts, especially foreign ones, and companies of particularly high risk are those registered in offshores (as a rule, they have closed registers and it is almost impossible to find any official information about a company structure and its beneficial owners). Government structures are considered less risky since information about them is usually publicly available.

When analyzing companies, their separate beneficiaries and owners are also analyzed, often they are top managers, founders of trusts, or otherwise involved in the management of their companies.

Customer Due Diligence as a Service

To carry out the customer due diligence procedure as it should be, the necessary specialist knowledge and skills, as well as an understanding of the regional characteristics of the chosen jurisdiction, so professionals are required. Specialists from the VALEN company will provide you with the CDD procedure of the best quality in Russia. All our lawyers have sufficient experience and qualifications to carry out any complex legal expertise. Besides you can get an initial consultation to assess your situation on all legal issues.

Feel free to call us (tel.: +7 (495) 78-88-096), or contact us in any way convenient for you, or visit our office in Moscow. We are glad to help you with any legal issues.

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