If your business is subject to Money Laundering Regulations such as a law firm or a financial institution, it is your legal responsibility to meet specific criteria to adhere to the law. Measures such as checks, known as 'customer due diligence checks', are in place to identify and verify the identities of clients before conducting business with them, as well as performing all the necessary risk assessments. Checks such as anti-money laundering (AML) and customer know your customer (KYC) checks.
It is also recommended that clients are monitored over the course of your business relationship for any changes. This can be done manually, which will often be time-consuming; it is recommended that the use of monitoring software is used as this offers a greater level of flexibility and control for what your business needs. You can find out about how Validient does that here: https://validient.com/ongoing-monitoring
When completing customer due diligence, the goal is to verify a customer’s identity by understand their personal details. To do this, you must obtain information and documentation. You need the following:
It is recommended that firms use a digital solution for this such as Validient. You can find out how we help firms collect and verify this information here.
A detailed breakdown of what CDD is and whom it applies to can be found on the UK Government website here.
It is always best practice to ask for a government-issued document like a passport or driver's license, along with utility bills and bank statements as proof of address. The documents obtained must always be legitimate and should always be up to date. Residential address documents should be 3-6 months old at maximum, this is a requirement for AML regulations.
It is essential that if any documents obtained are believed to be forgeries or illegally obtained, they are reported as soon as possible without letting the client know. If you suspect identity theft, you can refer to the ICE (Information Commissioners Office) for further information.
Verifying appointed officers and directors in an organisation is essentially the same as with individuals, however, additional steps need to be followed. Identifying the beneficial owner may be required in some situations. A beneficial owner is someone who owns or has substantial control of an organisation; they may not directly be your client.
We have outlined ways to check who a beneficial owner is in a previous blog post and in the extract below:
There are many ways to determine beneficial ownership or PSC in the UK. A PSC will meet one or more of the following conditions outlined as the nature of control.
Validient, Declaration of Beneficial Ownership, 2022
- more than 25% of shares in the company
- more than 25% of voting rights in the company
- the right to appoint or remove the majority of the board of directors
Understanding an organisation's business structure can prove very important before agreeing to undertake a business relationship with them. You need to. Make sure that you know if the organisation poses any financial risk to your business, i.e. have they filed for bankruptcy or insolvency? This is very important to help prevent money laundering and risk.
If you have concerns regarding your potential client, only conduct business with them if you are 100% sure. If you believe your potential client may be suspect of any form of financial crime, money laundering, identity theft, or terrorist financing, report them immediately.
Usually, the only way you can prove that customer due diligence (CDD) has been carried out, and to a satisfactory standard, is by keeping evidence of the conversations you have had, proof of documents supplied such as photocopies and any reports performed such as background checks made.
However, with advancements in legal software solutions for anti-money laundering (AML) and know-your-customer checks (KYC), automating the tedious manual labour of collecting and verifying documents has become a thing of the past.
Most firms with a well-implemented compliance policy in place will not only be using software to perform the checks because it's quicker but because of the level of accuracy of the checks, as well as a purpose-built customer experience-driven method of collecting these documents.
Software like ours at Validient allows near-full automation of identifying and verifying clients with great accuracy; all reports on clients have generated reports for auditing purposes. This gives firms reassurance and certainty with clients, but comfort knowing that all documents and reports are generated and stored within our system, making proving customer due diligence simple and easy.
The checks that we perform and are outlined within the report are:
These reports are generated in minutes and are accessible right away. And our compliance oversight feature set allows reporting and investigation of suspicious clients. Our software will enable firms to operate at the highest level of due diligence, compliance and confidence, with a risk-based approach to doing business. In addition, we offer ongoing monitoring of commercial clients for the duration of your business relationship.
To see one of our reports, or to get a free trial of our product, do not hesitate to get in touch and arrange a trial.
