Due Diligence Required to Avoid Money Laundering Companies

Money laundering is the term used when someone transforms the profits of crime or corruption into legitimate funds. It got its name from turning ‘dirty money’ into ‘clean money’ through various channels, including money exchange. There are certain day-to-day responsibilities a business must abide by in order to avoid being an unwilling participant in money laundering. There are customer due diligence measures, along with internal controls and monitoring systems that you must have in place.

The regulations surrounding the responsibilities of businesses in regards to money laundering are based on the size and scope of the business. The UK government website has all of the details laid out and it would be wise to read the material they have so that your business is in line and acting accordingly. This article gives a rough view of these regulations, but it is not exhaustive nor is it to be construed as a guideline.

One of the main areas that needs to be controlled is customer due diligence. You’ll need to apply this due diligence when: you establish a business relationship, you suspect money laundering or terrorist financing, you have doubts about identification information you obtained previously, or when an existing customer’s circumstances change. There are monetary markers or thresholds that you must be aware of, as well. Even if you only carry out the occasional transaction in your business, customer due diligence is still necessary.

Customer due diligence means taking steps to identify your customers and checking they are who they say they are. In practice this means obtaining a customer’s name, a photograph on an official document which confirms their identity, their residential address and their date of birth. Asking for a government issued document like a passport is a good start. You will also have to ask for documents that confirm they reside at the address they give you. This can be in the form of a utility bill or bank statement that has been sent to their address, in their name. If you have doubts about a customer’s identity, you shouldn’t deal with them until those doubts have been assuaged.

Enhance due diligence is necessary in cases where, for instance, the customer isn’t physically present or where the customer is another Money Service Business. When the customer is trying to do business with you online, they are not physically present. In our global world, this is not uncommon but enhanced due diligence is necessary to ensure you are not getting yourself involved in a money laundering scheme. To safeguard yourself and your business you must obtain further information to establish the customer’s identity. You should also apply extra measures to check documents supplied by a credit or financial institution. Finding out where funds have come from and what the purpose of the transaction is, is common sense and good practice.

If you find yourself dealing with another money service business, you need to seriously consider applying enhanced due diligence. This situation presents a higher risk of money laundering or terrorist financing because the money you receive will be a ‘bulk transfer’ representing a collection of underlying transactions placed with your customer. The extent of enhanced due diligence measures you apply should be based on the risk and circumstances of each case.

Internal controls and monitoring systems are a must for your business. Creating an anti-money laundering policy, including what controls and procedures are in place to prevent money laundering, provides a good framework. Keeping this document updated, and your employees trained on what they should be looking for, will help to secure your business from the risks of money laundering. Ensure that your business is compliant by visiting the UK government website and carrying out a risk assessment. You can keep your business safe by following these rules and regulations.

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