Primary And Secondary Documentary Verification: Preventing Illicit Activities

A company that relies on papers to authenticate a customer’s identification, such as a bank, must have protocols in place that outline the documents that the bank will seek and utilize. This article elaborates on ‘Primary And Secondary Documentary Verification: Preventing Illicit Activities’.

Authentication documents specified by CIP regulation

The Customer Identification Program (CIP) regulation specifies what sorts of documentation can be used to authenticate a customer’s identification. The rule reflects the federal banking agencies’ expectations that banks review an unexpired government-issued form of identification evidencing a customer’s nationality or residence and bearing a photograph or similar safeguard for most customers who are individuals. Examples include a driver’s license or passport.

On the other hand, other kinds of identification may be utilized if they allow the bank to create a reasonable belief that it knows the customer’s genuine identity. Given the prevalence of fake and illegally acquired papers, an organization should evaluate many documents to verify that it can create a reasonable belief that it knows the customer’s genuine identity. 

Documents establishing the legal existence of a person other than an individual (such as a corporation, partnership, or trust) may include certified articles of incorporation, an unexpired government-issued business license, a partnership agreement, or a trust instrument.

Primary And Secondary Documentary Verification

CIP specified papers for verification

A bank that uses documentary techniques to verify a customer’s identification must have protocols in place that specify which papers will be used. The CIP regulation specifies the sorts of papers traditionally regarded as main sources of identification and reflects the agencies’ assumption that most customers will provide government-issued identities.

On the other hand, other forms of identification may be utilized if they allow the bank to create a reasonable belief that it knows the customer’s genuine identity. Given the prevalence of counterfeit and illegally acquired papers, organizations are advised to retrieve several documents to guarantee that they have a reasonable suspicion that they know the customer’s genuine identity.

Backup CIP procedures

As a backup, the CIP must include procedures for determining whether the customer is on any federal government agency’s list of known or suspected terrorists or terrorist organizations, and procedures for determining whether the customer is on any list of known or suspected terrorists or terrorist organizations designated as such by the Treasury in consultation with federal functional regulators.

The organization must make this assessment within a reasonable time after the account is created, or sooner if required by another federal statute, rule, or Federal directive issued in conjunction with the applicable list.

According to the rules, the bank must also obey any federal guidelines issued in connection with such lists. Separate guidance will be provided to banks regarding the list that must be consulted for the purposes of this provision.

Relying on the performance by an affiliate

The bank’s CIP may include procedures specifying when a bank will rely on the performance by another financial institution (including an affiliate) of any procedures of the organization’s CIP concerning any customer of the bank that is opening, or has opened, an account or has established a similar formal banking or business relationship with the other financial institution to provide or engage in services, dealings, or other financial transactions, provided that such reliance is fair in the circumstances.

The second relied-upon financial institution is regulated by a federal functional regulator and is subject to a regulation implementing 31 USC 5318(h); 42, and the other financial institution signs a contract requiring them to demonstrate to the bank every year that they have implemented their AML programme and that they will fulfil (or have their agents complete) the bank’s CIP requirements.

Final Thoughts

If a company relies on papers to authenticate a customer’s identification, it must have protocols in place that figure out the documents that the bank will seek and use. This article elaborates on ‘Primary And Secondary Documentary Verification: Preventing Illicit Activities’.

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