Customer Risk Profiling

What is KYC?

Know You Customer is the process through a bank identifies customers, understands their purpose, assesses financial-crime risk, and keeps information updated throughout the relationship

What is CIP

Customer Identification Program, Regulatory requirements to obtain identifying information and use risk-based procedures to verify identity

What is CDD

Customer Due Diligence, Understanding the nature and purpose of the relationship, developing a risk profile, and conducting ongoing monitoring

What is EDD

Additional scrutiny where the customer, relationship, or activity presents heightened risk

Most basic things needed by CIP

Name, Date of Birth, Address, ID Number

CIP Documentary Verification for Individuals

• Drivers License or State ID

• U.S or Foreign Passport

• Permanent Resident Card/ Green Card

• Military or other government-issues photo ID

CIP Documentary Verification for Legal Entities

• Certified Articles of Incorporation

• Certificate of Formation/ Organization

• Government-Issued Business License

• Partnership Agreement or Trust Instrument

Non-Documentary Verification

• Contact the customer

• Consumer Reporting Agency

• Public / Commercial Databases

• References & Financial Statements

When identity cannot be verified

Restrict, Decline, Close, Escalate

What is ongoing monitoring

Banks compare actual customer activity against the established profile to identify changes or behaviors that may unusual or suspicious

Who is a beneficial owner?

A beneficial owner is the individual who ultimately owns or controls a legal entity, even if the account is held in another name

Owner Prong

Each individual owning 25% or more of the equity interest

Control Prong

On individual with significant responsibility to manage or control the entity

Fallback Beneficial Owner

A senior managing official identified when no natural person can be determined as the beneficial owner through ownership or control after reasonable steps

EDD

Enhanced Due Diligence, applies additional scrutiny where the customer, relationship, or activity presents heightened risk

Customer Screening vs. Transaction Screening

“who are we dealing with?” vs “who/what is involved in this payment?”

OFAC does what?

The U.S Treasury’s sanctions authority administering multiple economic and trade sanctions programs. Restrictions differ by program and can include blocking and other prohibitions.

SDN List

Blocked persons/ entities- U.S persons generally prohibited from dealing with them

Non-SDN Lists

Persons subject to narrower program-specific sanctions restrictions

OFAC 50% Rule

An entity owned 50% or more in aggregate by one or more blocked persons is considered blocked - event if not separately listed

Sanctions Screening Process

Customer → Name Match → Potential Match → Research → Disposition

False Positive

Alert appears similar to a listed party, but investigation confirm it is not the same person or entity

Potential Match

Information is similar or insufficient to rule out a match - further investigation or escalation required

True Match

Investigation confirms the customer or counterparty is the same person or entity on the sanctions/watchlist

Who is a PEP?

A politically exposed person is an individual in a prominent political functions, their immediate family, close associates, and businesses they hold or control

Why do PEP’s pose risk?

PEP’s may direct government contracts for kickbacks, influence legislation for bribes, or misappropriate government funds

Who is included besides the PEP themselves?

• Immediate family members

• Close friends or associates

• Business owned or controlled by those individuals

What is Adverse Media?

Negative information from credible public sources indicating a customer’s potential involvement in financial crime, misconduct, regulatory violations, or other high-rick activities

What are some resources you could use for looking up sanctions or high-risk countries?

OFAC Sanctions Programs, FinCen Advisories, FATF Grey & Black Lists, Internal Country-Risk Methodology

Does SDN absence mean there is no sanctions risk?

Apply the 50% rule, assess ownership, jurisdiction, sector, and applicable program

Should you block a PEP?

No, PEP’s require due diligence - not automatic blocking. Use a broad definition including family and associates

Simple things for adverse media

Assess your source reliability, identity confirmation, relevance, and corroboration before acting