AML: 12 Key KYC/CDD Checks on Private Business Partners

Ensure robust AML compliance through comprehensive KYC and CDD. Learn the 12 key steps to verify your private business partners.

Why screening private business partners matters in International Trade

Strengthen your AML strategy with essential KYC and CDD procedures: Explore the 12 crucial steps for verifying private business partners to prevent financial crime.

In international trade, the risk of money laundering and fraud can be exceptionally high when engaging with private business partners whose structures may not be transparent.

The complexity and scale of cross-border transactions make it essential to understand who you're doing business with fully. Customer Due Diligence (CDD) and Know Your Customer (KYC) are vital elements of Anti-Money Laundering (AML) compliance that help businesses mitigate these risks.

When trading with private entities, there may be hidden risks that could lead to financial crimes such as money laundering, terrorist financing, or tax evasion. Implementing thorough KYC and CDD measures enables businesses to verify their customers' identity, detect potential illicit activities, and avoid associations with high-risk entities.

By effectively collecting and verifying critical information about private business partners, companies can ensure the legitimacy of their operations, reduce exposure to financial crimes, and protect their reputation. This not only helps maintain compliance with regulatory requirements but also contributes to the broader global effort to combat financial crime, ensuring your business remains secure and trustworthy in the international trade landscape.

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1. Personal Details & Customer Information Collection

The first step in KYC/CDD is to gather detailed personal information about the individual customer. This involves verifying their full legal name, date of birth, nationality, residential address, and contact details (phone number and email).

Verification Methods include using government-issued IDs (e.g., passport, driver’s license, national ID card), utility bills or bank statements for address verification, and other methods accepted by national law (such as electronic verification).

2. Occupation/Activities Collection and Verification

Information to collect includes the customer’s current occupation, a description of their job role or professional activities, and the name and address of their employer.

Verification Methods involve employment verification letters, pay slips or employer confirmation, professional licenses or certifications, and, if appropriate, requesting the CV (with caution).

3. Screening/Background Checks

Screening tools are essential for performing background checks. These checks should include Politically Exposed Person (PEP) checks, adverse media checks, sanctions lists checks, and other relevant background checks.

4. Countries of Information Collection and Verification

It is important to collect information on the countries where the individual holds citizenship, tax residency, nationality, or has financial interests or assets. Additionally, it is necessary to identify the countries involved in incoming or outgoing funds, as well as the duration and nature of the individual’s activities in each country.

Verification methods include utility bills, bank statements, or other documents or methods as allowed by the regulator.

5. Annual Turnover

The annual turnover refers to the total amounts flowing through the customer’s account within a year. To gather this information, you can use an onboarding questionnaire, conduct a customer interview, and review internal information.

Verification involves tax returns, financial statements (for self-employed individuals), and bank statements.

6. Size of Income

Collect details about the individual’s monthly or yearly income, along with the sources of income (e.g., salary, investments, business profits). This will help provide a clearer picture of the financial situation of the individual.

Verification Methods include salary slips or employer confirmation, tax returns, bank statements, dividend statements, investment income reports, and any other supporting documentation.

7. Means of Deposits

To verify the means by which funds are deposited into the customer’s account, gather information on the methods used (e.g., cash, bank transfers, checks). This helps ensure the origin of the funds is legitimate and traceable.

8. Means of Withdrawals

Similarly, it is important to verify the methods used for withdrawing funds from the customer’s account (e.g., ATM withdrawals, bank transfers, checks). This ensures that the funds are being utilized in line with the customer’s financial activities.

9. Source of Wealth

Gather details about how the customer’s wealth was accumulated, which could involve inheritance, business sales, or investment returns. Ensuring the source of wealth is verified is essential to confirm that funds are not linked to criminal activities or illegal practices.

Verification Methods include inheritance documents, business sale agreements, investment account statements, land registers, asset disclosure registers, and beneficial ownership registers. Additional methods may involve conducting internet searches from reputable sources, confirming details with regulated professionals, and examining trust deeds, financial statements, audited reports, salary, tax returns, and bank statements.

10. Size of Wealth

To assess a customer's financial status, gather details about their total assets and liabilities. This should include a detailed account of major asset categories like real estate, investments, and savings. Verification Methods will utilize the same documents used to verify the source of wealth to maintain consistency and accuracy in the customer's financial profile.

By adhering to these steps, businesses can implement a comprehensive and compliant KYC/CDD process for individual customers, minimizing the risk of financial crime and ensuring compliance with AML regulations.

11. Source of Funds

Gathering information about the origin of funds for specific transactions or accounts is essential to confirm the legitimacy of a customer’s financial activities. Knowing the source of the funds helps ensure they are not associated with illegal activities.

Verification methods include examining transaction history, payslips or employer verification, tax declarations, bank statements, inquiries about the source of funds, property sale contracts, title deeds, loan agreements, copies of contracts for the sale of shares, company sale contracts, company registers, audited financial statements, dividend distributions and tax declarations, inheritance details (deceased person’s information, tax clearance, etc.), certificate of good standing, documentation for gifts (date, amount, and donor's source of wealth), and supporting documents for other income sources.

12. Size of Funds

Gathering information on the total funds to be utilized is crucial. Knowing the magnitude of these funds aids in evaluating the customer's financial status and the associated risks. Verification methods employ the same documents used to confirm the source of funds, ensuring consistency and offering a clear overview of the funds in question.