It is required to know the nature and purpose of the relationship of the accounts in the organization, to be established with the prospective customers or the existing customers. The nature of the account may be different for the customers, such as the individual account, business account, or corporate accounts. There is various other nature of accounts, which are usually marked as high-risk accounts, such as charity accounts, correspondent accounts, etc.
The Nature and Purpose of the Relationship
The purpose of the account may be for the credit of the salaries, in the case of employed customers, or the purpose may be to credit the revenue receipts of the business and corporate customers. The purpose of charity accounts is to transfer the charity or donations provided by the people.
Identification of the nature and purpose of the relationship helps the organization in performing ongoing due diligence and transaction monitoring because the risk profile of the customer is based on the nature and purpose, which were communicated at the time of opening the account.
FATF recommendations require the entity to perform the CDD measures, which include the identification of the purpose of the account. The CDD measures to be taken are as follows:
a) Identifying the customer and verifying that customer’s identity using reliable, independent source documents, data, or information.
b) Identifying the beneficial owner, and taking reasonable measures to verify the identity of the beneficial owner.
c) Obtaining information on the purpose and intended nature of the business relationship.
d) Conducting ongoing due diligence on the business relationship and scrutiny of transactions, including, where necessary, the source of funds.
Financial institutions should pay special attention to all complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose. The background and purpose of such transactions should, as far as possible, be examined, the findings established in writing, and be available to help competent authorities and auditors.
Furthermore, financial institutions are required to pay special attention to the business relationships and transactions with customers/ persons, including companies and financial institutions, from countries that do not or insufficiently apply the FATF Recommendations. Whenever these transactions have no apparent economic or visible lawful purpose, their background and purpose should be examined, the findings noted, and be available to help the competent authorities.
Banks are to apply each of these CDD measures to all customers; however, these measures or additional measures should be determined based on a customer risk level. When assessing customer risk, a bank should consider relevant factors, such as the customer’s background, for example, occupation, country of origin or residence, bank products used, nature and purpose of the account, transactions, and business activities.
The concepts behind the know your customer (KYC) and customer due diligence (CDD) measures is to prevent occurrence of risk related to onboarding of and developing relationships with criminals including money launderers and terrorists. A relationship’s nature is not always determined immediately; it frequently evolves, is defined, and redefined over time. Duration, contact frequency, sharing, support, interaction variability, and goals are all characteristics of a relationship.