KYC: Tips on Know Your Customer Controls when dealing with Sanctions

Sanctions on Individuals, Entities and Bodies require businesses to know their customers very well (KYC) We provide some top tips that you may wish to consider before engaging in a business venture

Know Your Customer or KYC

"Know Your Customer" or "Know Your Client (KYC)" is a set of guidance or rules which require businesses and individuals to make an effort to

• verify the identity,

• suitability, and

• risks involved with maintaining

• a business relationship.

It is particularly pertinent when being exposed to individuals, entities or bodies which may be found on a sanctions list.

For example, the EU, UK US and many other nations have issued extensive sanctions against Russia, placing more than 600 individuals, bodies and entities on sanctions lists. As a result, having a normal business relationship with these individuals, entities and bodies is impossible

Usually, KYC processes are executed mainly by banks and financial institutions, however, they become increasingly important for importing and exporting businesses, too. The size of the business does not matter, this affects SME's and larger companies equally.

Traditionally used for anti-bribery efforts

KYC processes are usually used to make sure that they're proposed

• customers,

• suppliers,

• customs brokers,

• banks,

• agents,

• consultants, or

• distributors

are anti-bribery compliant, and are actually who they claim to be.

Traditionally, Banks, insurers, export creditors, and other financial institutions are increasingly demanding that customers provide detailed due diligence information.

Initially, these regulations were imposed only on the economicinstitutions but now the non-financial industry, fintech, virtual assets dealers, and even non-profit organizations are liable to oblige.

KYC can also be used to understand if there is a potential exposure to interference with sanctions legislation and to assess the risk of doing business with undesired individuals.

KYC in the context of sanctions

To a certain extent, KYC guidelines can be used by businesses not only to detect and prevent money laundering but also to address sanctions' concerns. Here are some tips.

Tip #1 - Adjust and Extend an Existing KYC Policy

If there is an existing KYC policy in your business, it can easily be adjusted to consider the impact of sanctions, too. For example, you can extend the wording by referring to "we will screen new and existing customers continuously against denied party lists and carry our due diligence assessments.

For example, at Customs Manager Ltd. We offer

• automated denied party screening against key denied party lists, constantly updated

• Manually denied party screening with individual consultancy (for example, where they are large-scale clients)

• due diligence assessments and KYC policy development and implementation (processes and procedures).

Tip #2 - Design Policies with these four key elements

There are significant regulatory requirements regarding KYC and it is considered a mandatory and crucial procedure for financial institutions as well as non-financial institutions. As such, having such a policy is vital for importing and exporting businesses, too. Here are four elements to include in such policy:

• Customer acceptance policy incorporating Sanctions' Best Practises

• Customer identification procedures; incorporating Sanctions' Screening

• Monitoring of transactions; and

• Risk management.

"There is exenstive guidance on how to address Sanctions. The EU published Best Practice Guidance"

Tip #3 - Keep up to date with legislation changes on KYC

Sanctions rules, listings and more change every week. Make sure you know what changed and by what country/jurisdiction for what country jurisdiction. At Customs Manager Ltd, we keep you up to date EVERY WEEK with the latest law and guidance changes here:

https://www.customsmanager.org/post/customs-global-trade-update-direct-links-to-legislation

Tip #4 - Read the Best Practice Guidance of the EU Commission on KYC

Several years ago, the EU published very useful guidance on Best Practices with Sanctions and how to deal with Assess Freezes:

⇒ EU: Best Practices for the effective implementation of sanctions (P) Download the Guide on Best Practices for the effective implementation of sanctions

https://www.customsmanager.org/post/eu-best-practices-for-the-effective-implementation-of-sanctions

-> Sanctions: When You Are Asked to Freeze Assets. What Shall Businesses do?

(P) Countries impose sanctions requiring companies to freeze certain assets from individuals, entities and businesses. But how?

https://www.customsmanager.org/post/guidance-on-asset-freezes

Tip #5 - Get a Sanction's Expert

Lastly, Sanctions can be complicated to deal with. Expert advice and support will be essential to deal with compliance and any area of non-compliance

Conclusion: KYC & Sanctions can go together, make sure you get it right

We looked at the top 5 tips to install a policy of KYC. We said that this policy, coming originally from financial anti-bribery legislation, can also be useful when addressing sanctions' concerns, if adjusted in the right way. Sanctions can be complicated, and it is vital to stay up to date with developments and to learn about best practices, install a methodology for carrying out restricted party screening and larger due diligence checks. We at Customs Manager Ltd can help with managing your sanctions policy effectively, efficiently and, of course, compliantly.