When opening new client
accounts, banks need to examine the intrinsic nature of the business and assess
the risks involved.
Know Your Customer ‘KYC': is
the initial gathering of information to verify identity on the basis of
independent information, and understand the nature of the underlying business.
Customer Due Diligence ‘CDD':
is the ongoing assessment.
monitoring techniques should be established to identify and avoid potential
money laundering transactions.
Enhanced KYC /
It may be that a certain transaction displays higher risks
than that normally associated with the customer. In these cases, one or more of
the following additional checks may be considered:
- make enquiries, as appropriate, into the
ownership and background of the other parties to the transaction e.g., the
beneficiary, agents, carriers, and taking any further steps to verify
information or the identity of key individuals as the case demands;
- seek information from the instructing party
about the frequency of trade and the quality of the business relationships
existing between the parties to the transaction. This should be documented to
assist future due diligence;
- refer the transaction to external agencies
specialising in search and validation services in respect of bills of lading,
shipping services and commodity prices, for example, the International Maritime
- check details of the source of goods;
- check public source information for prices
of goods such as commodities - where the contractprice is significantly
different from the market [say 25%] then consider further investigation;
- attend and record relationship meetings with
the instructing party, visit them by arrangement;
- for export letters of credit, refer details
to other internal or group resources on the ground in the countryof
origin, to seek corroboration; or
- verification of
shipments after the UCP process is concluded, drawn at randomfrom a
sample of transactions, across a cross section of the bank's trade finance
clients. Thismay help to identify spurious transactions where buyers and
sellers act in collusion.
A more detailed analysis of financial crime, together with
specific examples, can be found within the Financial Crime module at www.tradefinance.training