What Is Customer Due Diligence?
As mentioned in our blog on 4th July, the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 was enacted in July 2010.
This Act transposes the EU Third AML Directive into Irish law, and requires Firms and persons subject to its provisions (referred to as designated persons) to apply Customer Due Diligence (CDD) measures.
What Is Customer Due Diligence?
The EU Third AML Directive states that CDD shall comprise of the following:
(a) Identifying the customer on the basis of documents, data or information obtained from a reliable and independent source;
(b) Identifying, where applicable, the beneficial owner and taking risk-based and adequate measures to understand the ownership and control structure of the customer;
(c) Obtaining information on the purpose and intended nature of the business relationship;
(d) Conducting ongoing monitoring of the business relationship including ensuring that the transactions being conducted are consistent with the knowledge of the customer, the business and risk profile, including, where necessary, the source of funds and ensuring that documents, data or information held are kept up-to-date.
Guidance notes have been drafted by a working group made up of the Irish Banking Federation, the Irish Insurance Federation, the Irish Funds Industry Association, the Irish Stock Exchange, the Consultative Committee of Accountancy Bodies Ireland (CCAB–I), the Irish League of Credit Unions and An Post.
Whilst still in draft format, the purpose of the guidance notes is to provide assistance to firms and persons who are subject to anti-money laundering (AML) legislation in understanding their obligations.
Firms and persons who are subject to AML legislation (designated persons) should take a combination of appropriate steps, on the basis of their assessment of the AML risk that each customer presents, and accordingly can apply varying levels of CDD.
The guidance notes provide a detailed description of the levels of CDD that can be applied...
Simplified Customer Due Diligence
A designated person does not have to identify information on the purpose or intended nature of the business relationship of a customer, or the beneficial owner of a customer, where the customer is considered to present a low risk of money laundering or terrorist financing.
However, the designated person must obtain sufficient information about the customer to satisfy itself that the customer meets the criteria for SCDD to be applied to it.
Enhanced Customer Due Diligence
In situations that present a higher risk of money-laundering or terrorist financing, designated persons are obliged to undertake CDD measures above and beyond normal measures i.e. Enhanced Customer Due Diligence (ECDD).
The extent of additional information sought, and of any monitoring carried out in respect of any particular customer, will depend on the money laundering or terrorist financing risk that the customer is assessed to present to the designated person.
The EU Third AML Directive prescribes three specific circumstances when ECDD measures must be applied:
(a) where the customer has not been physically present for identification purposes;
(b) in respect of a correspondent banking relationship;
(c) in respect of a business relationship or occasional transaction with a politically exposed person (PEP).
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