When must customer due diligence be finished?
Before you start the service. AUSTRAC says initial customer due diligence (CDD) must be complete before you begin providing a designated service to a customer.
If you cannot establish the required matters on reasonable grounds, you must not start. Pressure to “just get going” is not a reason to skip it.
Remember
- Finish initial CDD first.
- No satisfactory answers, no service.
What do you need to find out?
Who the customer is, who they act for or who acts for them, and, for a company or trust, who the beneficial owners are. You also check whether they are a politically exposed person (PEP) or designated for targeted financial sanctions, and what the relationship is for.
How much evidence you collect depends on the risk. Your AML/CTF program says what is needed for each kind of customer.
Remember
- Identity of the customer and of anyone acting for them.
- Beneficial owners of companies and trusts.
- PEP and sanctions checks, and the purpose of the relationship.
Facts and sources for this part
- Initial customer due diligence includes establishing the identity of the customer, of anyone acting for them and their authority, and, if the customer is not an individual, of its beneficial owners. [S16]
- Initial customer due diligence also includes checking whether the customer is a politically exposed person or designated for targeted financial sanctions, and the nature and purpose of the business relationship. [S16]
What does “reasonable grounds” mean?
It is an objective standard. A reasonable person in your position, looking at the same facts, would reach the same conclusion. “It felt fine” does not meet it.
You must also be able to show how you got there. Keep a record of how you established each matter for each customer.
Remember
- Think like a reasonable person with the same facts.
- Write down how you reached each conclusion.
Facts and sources for this part
- AUSTRAC: "Reasonable grounds is an objective standard. This means that a reasonable person in your position would determine that a matter is established for initial CDD based on the facts, circumstances, and information available." [S16]
- AUSTRAC: "You must keep records of how you established each matter on reasonable grounds, for each customer." [S16]
What happens after you take someone on?
You keep watching. AUSTRAC says you must monitor customers for unusual transactions and behaviour, including behaviour that may need a suspicious matter report. With a continuing relationship you also review the customer’s risk and re-verify their information when appropriate.
If you report a customer and carry on serving them, you must apply enhanced CDD. Take extra care not to alert them while you do.
Remember
- Monitor for unusual transactions and behaviour.
- Review risk and re-verify details over time.
- After an SMR, keep serving only with enhanced CDD in place.
Facts and sources for this part
- AUSTRAC: monitoring customers "includes monitoring your customers for unusual transactions and behaviours, and behaviour that may require you to submit a suspicious matter report (SMR) to us". [S17]
- AUSTRAC: with a business relationship you must review and, if appropriate, update the customer’s risk and re-verify their know your customer (KYC) information. [S17]
- AUSTRAC: "If you submit an SMR in relation to a customer and continue to provide them with designated services, you must apply enhanced CDD measures." [S17]
- AUSTRAC: "When interacting with a customer during enhanced CDD, you must make sure you comply with your tipping off obligations". [S18]
Which customers need extra care?
Foreign PEPs are always high risk. So are customers whose answers do not hold together, who hide behind layers of companies, or who cannot explain where their money comes from.
When risk is higher, do more: ask for more evidence, ask senior people to review, and record what you did. The next lesson lists red flags by sector.
Remember
- Treat foreign PEPs as high risk, every time.
- Higher risk means more checks, not fewer.
Facts and sources for this part
- AUSTRAC: "You must always treat foreign PEPs as high-risk customers". [S37]
- AUSTRAC: "On their own, one of these indicators may not suggest suspicious activity." If you are unsure whether there are reasonable grounds, "you should conduct further monitoring and examination, including applying enhanced customer due diligence measures". [S37]
Check what you have learned
Three questions from the test, each explained. Tap an answer.
Question 1 of 3
You cannot establish the required matters on reasonable grounds. What must you do?
Show the answer
Right answer: C, Not start providing the service. AUSTRAC says that if you cannot establish the matters on reasonable grounds, you must not start providing the service. [S16]
Question 2 of 3
Which of these is part of initial CDD?
Show the answer
Right answer: B, Checking whether the customer is a politically exposed person or designated for targeted financial sanctions. Initial CDD includes PEP and targeted financial sanctions checks, and the nature and purpose of the relationship. [S16]
Question 3 of 3
What does ongoing monitoring include?
Show the answer
Right answer: A, Watching for unusual transactions and behaviour that may need a suspicious matter report. AUSTRAC says monitoring includes unusual transactions and behaviours, and behaviour that may require an SMR. [S17]