The regulated sector, and beyond
The ultimate aim of customer screening is to find out whether your customers are, or could be, linked to money laundering, bribery and corruption, terrorism financing or another form of financial crime, and, if they are, to protect your business by taking appropriate follow up action. Screening is not a panacea. It is a critical first step in ensuring that your business doesn’t become a conduit for criminal money.
The types of business which are legally required to screen their customers vary between jurisdictions. In nearly all countries there is a ‘regulated sector’ – that is to say, regulated for Anti-Money Laundering (‘AML’) purposes. Firms in the regulated sector are legally required to screen customers as part of broader know your customer (KYC) checks.
The types of business commonly included in the regulated sector include:
• banks and credit institutions
• stock exchanges, FX dealers and money services businesses
• asset managers
• company and trust formation services
In many jurisdictions, including the UK, the types of businesses included in the regulated sector have been steadily increasing over time, and now include:
• accountants, auditors and tax advisors
• legal professionals
• bookmakers and casinos
• estate agents
• insolvency practitioners
• dealers in high value goods where transactions involve cash payments equivalent to EUR 15,000 or more
If you’re unsure whether your business is regulated for AML purposes, your industry body or trade association will be able to clarify the rules that apply to you.
Screening is also employed by some businesses outside the regulated sector to help protect against the risk of contravening anti-bribery and corruption legislation, particularly in the natural resources and mining industries.
As regulatory regimes around the world continue to tighten (with, for example, the passing of the Criminal Finances Act in the UK), the range of businesses that need to carry out KYC checks is widening. Simply crossing your fingers and hoping that you don’t end up with the wrong sort of customer exposes your business to penalties— reputational, financial and even criminal—that can be severe. If your business is abused by criminals and becomes the subject of an investigation, regulators will take a kinder view if you can demonstrate that you had rigorous KYC procedures in place and were doing your best to prevent criminals from gaining access to your services.
Such procedures can be time consuming and expensive, but they needn’t be if you take a risk-based approach to the depth and regularity with which customers are screened, and avoid paying an inflated price for software with eIDV and other unnecessary features.
It’s a great idea to get frontline staff involved in screening wherever possible – this helps to broaden anti-money laundering knowledge within your business, and allows any issues concerning a potential customer to be flagged – and dealt with – early. This saves time and effort further down the road.