Customer Identification – A Critical Component of AML Compliance

What is Money Laundering?

Money Laundering is the process that hides the origin of illegally obtained money and runs it through banking or any other legit financial institution to make it appear as an income received from legitimate resources. This illicit money is then invested in funding criminal and terrorist activities.

What is Customer Identification?

Financial Institutions have specific procedures set in place to identify and verify customer identities. Customer Identification is one of the basic steps that banks, DNFBPs, and financial institutions must follow to verify the identity of the prospective customers. It helps identify legitimate businesses, individuals, and institutions so that one may enter into a business relationship with them. In simple words, the customer identification program demonstrates a series of steps that proves the customer’s identity.

UAE's Customer Identification Process

In 2016, UAE Central Bank passed a resolution which states that while opening a bank account, the bank must ensure that it has received all the information and documents required to identify the beneficial owner. The banks need to obtain and verify the customers' full name as it appears on the papers. While opening the bank account, either the passport or the UAE identity card is used to determine the customer's identity. The next step to be followed is to record the current residential address and the workplace address of the customer. To open the account, the banks must physically examine the documents submitted – the passport or the UAE ID card. Further, they need to maintain a copy of the identification document to open the account. This resolution has boosted the anti-money laundering regulations to identify fraudulent charges and transactions.

Who needs to follow the resolution?

All banks, money exchange houses, investment and finance companies, and financial institutions must follow the resolution. The aim is to strengthen the banking system's security and infuse more transparency into the banking operations.

Components of the Customer Identification Program

UAE has adopted a progressive approach to AML compliance. The Central bank of UAE has provided stringent customer identification procedures that banks, DNFBPs, and financial institutions must follow to identify fraudulent accounts and suspicious transactions. Each country can determine how it implements the necessary CDD process by making a law or using other enforceable methods. It is noteworthy that the FATF- Financial Action Task Force provides recommendations – international guidelines to combat money laundering and terrorist financing. 

Steps in Customer Identification

The CDD measures implemented involve the following steps:

Verify Customer Identity:  Identifying the customer and customer identity by using different data.
Identify UBOs: Ultimate Beneficial Owner, verify their identity, which provides a satisfactory answer to the DNFBPs, financial institution about financial ownership. It gives a clear idea about the financial control exercised by the customer. Read The Complete Guide to UBO Verification.
Purpose of Business: Obtaining information and understanding the objective of the business relationship.
Continuous monitoring: Continuous monitoring and due diligence is done on the business association and thorough examining of transactions is carried out during the business relationship. 

All the processes mentioned above apply to all the new customers. 

As per the AML law, banks, DNFBPs, and financial institutions should follow the above-discussed process to strengthen their AML framework. It is the responsibility of the account opening officer to follow the norms of the Customer Identification Program and keep the process in sync with the AML laws and regulations as imposed by the Government and the FATF recommendations. Opening an account is described as establishing a formal business relationship between a customer and a regulated entity.

Technology & AML Compliance

With the help of technology and advanced AML software, organizations can create a close-knit AML framework. A good customer identification program must have written policies for banks, DNFBPs, financial institutions, and other regulated entities to follow. A clear protocol for customer identification weeds out any ambiguity and provides banks, DNFBPs, and financial institutions an apparent reference while implementing the customer identification policies. The policy should clearly mention the customer’s requirements while opening an account. DNFBPs, Financial institutions should be aware of the process listed in the AML rules and regulations to identify fraudulent accounts and suspicious transactions immediately. It is important to note that continuous monitoring is required to evaluate the risk profile and update the risk assessment process to identify any money laundering instances. An AML software is highly beneficial in identifying the cases of identity thefts and increasing data security. It helps retain the customers’ trust and protects the institutions’ goodwill in the market.

Strict Verification System

The AML software solution will introduce an effective customer verification system. It helps prevent identity thefts and verifies the criminals who are trying to hide behind the legal system.

AML training will provide the employees with the correct information and inform them regarding the proper processes which need to be followed while identifying the suspicious accounts.

AML software can help prevent money laundering. Employees can create risk profiles based on information from multiple sources, such as public records, including information about immigration, current criminal history, and previous legal issues. It also provides information on asset tracking, which verifies if the customers are the real owners of the property they claim to be. On-site inspections can also be conducted if there is any suspicion regarding the details and documents furnished.

An independent audit process is required to fulfill the requirements of the independent anti-money laundering regulatory bodies, which ask for a periodical audit. The CIP will ensure that the organization implements the AML guidelines correctly and adheres to the AML rules and regulations. An independent audit will keep the business on its toes, and it will diligently follow the AML rules and regulations.

UAE follows the recommendations closely by adhering to the CDD process and record-keeping process to identify suspicious accounts and transactions and report the suspicious activities.

Creating an effective AML compliance program is crucial for customer identification. The policy with a strict customer identification process identifies and deals with the challenges of the money laundering process and prevents financing of criminal and terrorist activity.

Outsourcing AML Compliance

If you need help with AML compliance, you can always trust AML service providers like AML UAE. A reliable company that offers complete AML solutions – it is a one-stop destination for AML compliance dedicated to the UAE market. The company has the right exposure and the requisite skills, updated knowledge, and training to provide AML and CFT compliance. Get Documentation of AML/ CFT policies, AML training, Annual AML/ CFT Risk Assessment Report, In-house AML compliance department set up, AML software selection and AML/ CFT health check-up. Check Out goAML Registration Guide

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FAQs

The customer identification process is the process of identifying customers through verification of their identity documents and other reliable data to assess their risk to your business.  

About the Author

Pathik Shah

CISA, FCA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a multi-disciplinary professional with more than 22 years of experience in compliance, risk management, accounting, system audits, IT consultancy, and digital marketing. He has extensive knowledge of Anti-Money Laundering rules and regulations, and he helps companies comply with legal requirements. Pathik also helps companies generate value from their IT investments.