Know Your Customer!

As a credit issuer, knowing who you do business with can prevent you from inadvertently facilitating money laundering or other fraud. Failure to do so could even subject your company and its employees to civil or criminal punishment. Know Your Customer (KYC) policies, or Customer Identification Programs (CIP), have become an important tool to prevent identity theft, money laundering and terrorist financing.

When the USA PATRIOT Act was enacted in 2001, all financial service providers were required to establish Anti-Money Laundering (AML) programs to catch potential terrorism financing. Lenders must verify the identities of potential clients and keep detailed records of their vetting processes.

Focus on KYC regulation has amped up over the past year. Earlier this summer, French bank BNP Paribas agreed to pay a $9 billion fine for knowingly facilitating violation of U.S. sanctions on Iran, Cuba and Sudan. Willful disregard of regulations is not required to land a lender into trouble. Simply a lack of a good KYC policy could result in sanctions.

Companies can avoid prosecution by instituting an effective, functioning compliance program that includes a strong KYC policy. There are four key elements of a KYC policy:

Customer Acceptance Policy – performing due diligence with background checks that verify the customer is who they say they are, and is not involved in terrorism or other illegal activities.

Customer Identification Procedures – clearly outlined and adhered to throughout the relationship, including the use of reliable independent data resources.

Monitoring of Transactions – continuous monitoring of your customers to capture incidence of high-risk activities, followed up by deeper investigation when such activities are identified.

Risk Management – internal auditing to ensure adherence to your company’s KYC guidelines.

Whether you lend as a bank, manufacturer, distributor or other type of business that issues credit, adherence to KYC guidelines can help your company avoid adverse financial circumstances.

Business Credit Reports can be part of your solution. The credit reports and background checks provided by BCR qualify as accepted tools under federal KYC, CIP, AML, Sarbanes-Oxley, USA PATRIOT Act and OFAC guidelines.