Customer due diligence requirements
What customer due diligence is
Customer due diligence means taking steps to identify your customers and checking they are who they say they are. In practice this means obtaining a customer’s:
- name
- photograph on an official document which confirms their identity
- residential address and date of birth
The best way to do this is to ask for a government issued document like a passport, along with utility bills, bank statements and other official documents. Other sources of customer information include the electoral register and information held by credit reference agencies such as Experian and Equifax.
You also need to identify the ‘beneficial owner’ in certain situations. This may be because someone else is acting on behalf of another person in a particular transaction, or it may be because you need to establish the ownership structure of a company, partnership or trust.
As a general rule, the beneficial owner is the person who’s behind the customer and who owns or controls the customer, or it’s the person on whose behalf a transaction or activity is carried out.
If you have doubts about a customer’s identity, you must stop dealing with them until you’re sure.
Due diligence formal definition
Customer due diligence (CDD) is a critical element of effectively managing your organizations risks and protecting it against potential financial crimes and nefarious activities. There are two steps in CDD, understanding the customer activities and assessing the money laundering risk.
There are many legal documents (like AML 4th directive or implemented in UK AML Act No. 692) that explain and describe how due diligence should look like and what criteria should be taken into consideration. Some of the includes:
- political exposure of the person
- residence in the high-risk country
- doing a business in high-risk sector
When onboarding a new customer or if the customer activities substantially change, an analysis of the source of funds and risk associated with those funds is prudent and, in most countries, a legal requirement.
When you need to apply customer due diligence measures
You must apply customer due diligence measures:
- when you establish a business relationship with a customer (or another party in a property sale)
- when you suspect money laundering or terrorist financing
- when you have doubts about a customer’s identification information that you obtained previously
- when it’s necessary for existing customers – for example if their circumstances change
- if you are not a high value dealer, when you carry out an ‘occasional transaction’ worth €15,000 or more
- as a high value dealer, when you:
- make a payment to a supplier worth €10,000 or more
- carry out an ‘occasional transaction’ worth €10,000 or more