Anti-Financial Crime Function: KYC/CDD for Persons vs. Legal Entities

Anti-Financial Crime Function

The roles and responsibilities of Anti-Financial Crime function is to ensure regulatory compliance and prevent the occurrence of financial crime risks and incidents under the supervision of Anti-Financial Crime Committee.

The diversified number and different types of customers naturally expose the entity to financial crime risks and non-compliance with applicable regulatory requirements. However, managing financial crime risks is equally important to large and small organizations, and they must be consistent with the entity’s overall strategy, risk profile, and structure. Where the entity has international operations, the financial crime compliance officers are deputed at international locations, which maintains a financial crime risk matrix. 

Anti-Financial Crime Function

Anti-Financial Crime Function: KYC/CDD of a Person

KYC/CDD of a person means to ensure that the information received as an identification document from a customer or other reliable information sources are verified. Verification of the entity of a person is a foundational element of anti-money laundering and anti-terrorist financing regime. KYC helps to know the customer and to understand and assess any ML/TF risks that may be associated with their transactions or activities.

For example, Mr. A is a resident of the US and employed in a multinational company XYZ Limited. His only source of income is the salary income that he earns from his employment with ABC Limited.

Mr. A approaches ABC Bank in the United States, for opening his bank account. The account opening officer of the ABC banks asks for the identification document from Mr. A.

Mr. A provides the following documents to the ABC bank, for identification and verification:

  • National ID Card
  • Recent Photograph
  • Employment details including current Salary Slip
  • National Tax Number

On inquiry, Mr. A informs that only his monthly salary shall be credited in the account, from XYZ Limited. The account opening officer performs the Simplified Due Diligence measures on this case because of no apparent ML/TF risks. The account opening team checks the name of Mr. A in the OFAC negative list and checks the other identification information issued by the State. The account opening officer mat verifies the identity of the customer, by referring to a government-issued photo identification document.

The account opening officer shall ensure that the photo or ID information provided by the customer is:

  • Authenticvalid, and current
  • Issued by a federal, provincial, or territorial government (or by a foreign government if it is equivalent to a Canadian document)
  • Indicating the person’s name
  • Including a unique identifying number
  • Matching with the name of the person being identified

On identification and verification, ABC Bank opens his salary account.

Anti-Financial Crime Function

Anti-Financial Crime Function: KYC/CDD of a Corporate Entity

KYC/CDD of a corporate entity means using the appropriate KYC measures, to ensure that the identification information, including the constituent documents is received, and due diligence measures are performed, to check the correctness of business and other details of the entity. 

Such identification and verification of the entity is a foundational element of anti-money laundering and anti-terrorist financing regime. KYC helps to know the entity and to assess ML/TF risks that may be associated with the transactions or activities.

For example, ABC Limited is a listed entity, listed on the New York Stock Exchange and is involved in the business of selling clothes, to the whole sellers in the United States. Mr. A is the CEO of ABC Limited, who is a US national. The Board of Directors of the company comprises members from the United States, and the company is not owned by any other company or group of companies. 

Mr. A approaches the ABC Bank in the United States, as a principal officer, for opening the company bank account. The account opening officer of the bank asks for opening the bank account and the expected revenue or funds to be credited.

The account opening officer of the ABC bank asks for the following minimum documents, initially from Mr. A (CEO):

  • Mr. A’s National ID Card
  • Recent Photograph
  • Employment details including the current Salary Slip,
  • National Tax Number of the ABC Limited
  • Details of Board of Directors
  • Constituent documents of the ABC Limited, such as Articles of Association, Tax Information
  • Business address, and contact details that are registered, with the registrar of the companies
  • Details of Beneficial Owner
  • Jurisdiction in which the company operates
  • Financial information of the company

Final Thoughts

The management board has ultimate responsibility for AFC, while the AFC division is tasked with the day-to-day prevention of money laundering and terrorism financing, adhering to regime sanctions and embargoes, and preventing fraud, bribery, and corruption, as well as any other criminal activity.