Whenever there is a debate on money laundering, people usually think of the financial sector. The argument is true but not completely, financial institutions are only the target of money laundering. The reason for this can be the strong proactive measures by banks and money corporations. Not criminals are looking to launder money using other legitimate businesses. This has forced regulatory authorities to add stringent regulations to curb money laundering, Know Your Customer’s Customer being the most recent one.
Front businesses, shell companies or dummy corporations, all are illegitimate ways to hide and launder money. They act as a shield to some illegal business, let’s understand it with an example, where a restaurant is covering a drug business. This works like this, the funds earned by selling drugs are blended with the restaurant’s income. It becomes very difficult for regulatory authorities to find illegal money there. In this case, banks are also used to deposit or transfer funds. Thus, banks are involved in money laundering also without any hurdle. The business is presented as a restaurant in papers, but the drug’s income is also deposited in banks.
The bank’s involvement in money laundering may lead to fines and sanctions by law enforcement authorities. It is becoming businesses not only to screen their customers but their association, partnership and relationships also.
What is Know Your Customer’s Customer KYCC?
Global regulators have mandated businesses to verify the identity of their customers under KYC protocols. People in the financial sector are well aware of KYC. It involves procedures, steps and checks to confirm that the data provided by a customer is correct and authentic.
The verification is conducted by AI-powered software in real-time. It is done while customers are about to create accounts on an online platform. Usually, the customers give their bio-data to the platform, and it creates accounts. But in KYC, the information is verified with government-issued ID documents. The proof is provided in the form of images and the required data is extracted from it using OCR technology. It makes the hard paper computer-editable that can be later used for matching purposes. At last, the data is matched with the customer-typed details. The authenticity of the ID is confirmed by document verification where its holograms and rainbow marks are checked.
Facial recognition technology confirms that the ID belongs to the same person who claims its ownership. The photo ID is cross-checked with the live selfie.
KYCC compliance takes the identity verification one mile extra where businesses also have to check what their customers are doing, what their source of funds are and their legal positions.
How to Incorporate KYCC protocols for a Business?
First of all, a strong customer identification program (CIP) is needed that can accurately acquire data from them. This can be done using an automated form or commonly known as e-form. The best can be done by using optical character recognition technology, where the customer does not have to type any data, instead, it is extracted from the document. Doing so, gives accurate data, as customers can make mistakes while typing data, incorrect spellings are seen more commonly. Then the CIP can be performed more easily without any hurdle.
Then the customers should undergo KYC, CDD (Customer Due Diligence) and KYCC. The business should maintain customer profiles. Through which they can filter their customers as per their risk level. For example, a person who was associated with an illegal business is marked as a high-risk customer, and one whose financial statements are matching with his business possess a low-risk profile.
It is very essential to understand the business nature through know your business. This checks the business networks, statements and other documents to confirm their authenticity. Some time ago, they relied on manual verification where the investigation was performed by the staff. But in the digitally advanced world, that system is outdated, and now it can be done using the software.
It will help businesses to overcome the difficulty of counterfeit identities and money laundering. The compliance can be better as well as the market reputation.