Anti-Money Laundering and Know Your Customer

As the bank embarks on the journey of onboarding a customer onto its client portfolio, the bank is mandated by AML/CFT regulations to form a reasonable belief that the bank knows who it is dealing with. In order to know who the bank is dealing with the bank is mandated to have a policy referred to as the Know Your Customer (or "KYC") policy or the Customer Information Program (or "CIP"). In addition, the bank is also mandated to keep itself informed on the customer's character during the customer relationship and update its ongoing due diligence from time to time. The KYC policy comprises three things namely; the account opening procedures; information verification procedures and; customer due diligence (or "CDD") procedures. In my banking risk advisory experience, I found that there is the common practice among the banks and bank professionals of carrying out only two of the three elements of the KYC policy. They leave out one completely or partially. When a bank and its professionals carry out the account opening procedures and verify the information provided by the customer they tend to end there and believe that the KYC work is done. The CDD processes of most of the banks that I interacted with in my banking risk advisory practice are inadequate. It goes without saying that this exposes not only the bank but also the bank professionals, who may be personally held liable, to huge AML risk. The bank and its professionals are simply "driving without a seat belt". And when the risk event occurs, and when the bank and its bank professionals suffer huge fines for inadequacies in the bank's AML compliance policy they are usually surprised and question "what is going on?" CDD is simply customer risk assessment. Therefore, similar risk management principles that the bank professionals apply in traditional operational areas should also be applied to measuring and managing AML risk. Risk scoring has long been used in the traditional areas of the bank such as in the area of managing credit risk. This book, Anti-Money Laundering and Know Your Customer: A Short Guide to the Bank's Customer Due Diligence, combines the risk management principles applied in the tradition risk management areas of the bank into a comprehensive guide that will enable both the bank and bank professionals to improve their CDD policies, procedures and processes at every step of the way in the AML development, administration and maintenance process.This book describes how to build the scoring model relating to AML risk. A host of important model development issues are covered including factors to consider when compiling a data set for model development. This book is written for banking professionals and students dealing in the financial services industry: bank executives, analysts, internal and external auditors, consultants, risk managers, compliance officers, money laundering reporting officers and bank regulators.