The advancements of our digital era have made it easier to connect businesses and consumers around the world. While technology has increased economic activity, it has also increased the risk associated with doing business.
Large organisations, particularly those in the finance industry, should be familiar with AUSTRAC’s Anti-Money Laundering/ Counter-Terrorism Financing Act 2006. Under Part B of the AML/CTF Act, it is a requirement for businesses to identify and verify their customers and understand their financial activities. Failure to comply can result in fines and other serious consequences.
Notable AML related fines:
- June 2018 – CBA fined $700 million
- November 2017 – Tabcorp fined $45 million
Know Your Customer (or KYC) is the process by which organisations verify the identities of their clients and assess any potential risks of doing business with them. The goal of KYC is to prevent organisations from being used, intentionally or not, for money laundering and other illegal activities.
As KYC is part of the AML and CFT Act, it begins during the onboarding process and is made up of a few steps of due diligence – the below is an example when dealing with a company:
- Collect and verify the Company – This includes the full name of the company, associated addresses, and details of the directors.
- Identify the Ultimate Beneficial Owner (UBO) – Identifying the UBO is crucial. A beneficial owner is an individual that either directly or indirectly owns 25% or more of the business. However, businesses have complicated structures (see example of chart) and obtaining a Ultimate Beneficial Owner report can save time and hassle rather than trying to calculate it yourself.
- Complete a Verification of Identity – Identity fraud affects millions of Australians each year. A Verification of Identity (VOI) is a high-level identification process that enables businesses to ensure they are dealing with the correct individual or beneficial owner.
- Perform a Politically exposed person (PEP) or Sanction search – Check to see if the beneficial owner is a politically exposed person (PEP). A PEP presents a higher risk for potential involvement in bribery and corruption due to their influence and power of position. Sanctions are restrictions imposed by Governments and International bodies like the United Nations.
- Ongoing Due Diligence – Once the due diligence has been performed, it is a requirement to keep all records and ensure processes are up to date and maintained. Customer information should be reviewed annually to ensure the beneficial owners are the same, and they no longer pose any risk from a PEP or sanctions point of view.
Wait, what is a politically exposed person (PEP)?
PEPs are individuals who occupy a prominent public position or function in a government body or international organisation, both inside and outside Australia. This definition also extends to their immediate family members and close associates.
OMG, what does that acronym stand for?
• KYC – Know Your Customer
• AML – Anti-Money Laundering
• CTF – Counter-Terrorism Financing
• UBO – Ultimate Beneficial Owner
• VOI – Verification of Identity
• DVS – Document Verification Service
• PEP – Politically Exposed Person
Businesses that operate outside of the legislated industries may still find this relevant
Even if you operate outside of the industries legislated to follow the AML/CTF legislation, the above tools and processes still remain relevant and valuable. Performing a comprehensive identity verification check and identifying UBOs reduces the risk of fraud and bad debt. Fraudsters exist in all industries and are forever identifying weaknesses due diligence processes.
How CreditorWatch can help
CreditorWatch offers a suite of KYC and AML tools including and Ultimate Beneficial Owner report and an AML Screening Report for individuals that comply with legislation.
For more information about KYC, AML and how CreditorWatch can help, watch the webinar.