The regulatory landscape of Know Your Customer (KYC) Policies and Customer Due Diligence (CDD) requirements and expectations for Financial Institutions like Banks, Brokers, FinTech and Insurance Companies are always a moving target.
In another write-ups I alluded to the Banking mandatory requirement of conducting Customer Due Diligence (CDD). For practical purpose and simplification, CDD was said to be a deliberate but elaborate process where Financial Institutions such as Banks, Insurance Companies, Securities and Brokering firms collect, maintain, periodically review and update information and data about their individual clients, corporate, commercial and Institutional customers.
Customer Due Diligence (CDD) process was also said to be a Legal and Regulatory requirement in most Jurisdictions (Countries, Nations and States) to allow an informed choice to be made whether to on-board a new customer, continue with an existing customer relationship, or provide a new product or service or in worst case scenario, deny/reject the service and exit the relationship and close the Client’s or Bank account.
Oh, yes, if you keep on robbing people, Companies and Banks at gun point, you keep on swindling and embezzling funds from your employers and neighbors, officially abuse your official position and office, solicit for and receive bribes from individuals and companies or plunder the National coffers and want to haul the loot all the way to the offshore bank accounts, the banks reserve the legal right to refuse to take and deposit your dirty money, or to take your criminal proceeds (cash, check or transfer, Certificate of Title for your 48 houses)
If indeed the officials from the bank become aware of your financial criminal activities and conduct, they are legally obligated to formally file Suspicious Activities Reports (SARs) to the Financial Intelligence Unit (FIU) or Financial Intelligence Centre (FIC) or any appropriate Law Enforcement Officers as per requirements of the local laws.
It has been noted that CDD is also one of the most powerful and available tools for all Financial Institutions to prevent and deter financial criminals and terrorist financiers from using the banks as conduits to conduct their illegal activities including those who are involved in money laundering activities.
KINDLY TAKE NOTE: As of May 11th 2018, the Customer Due Diligence (CDD) added new CDD – FINAL RULE: This is a Requirement that Financial Institutions (Banks, Brokers) must collect and verify the personal Information of the REAL People (Beneficial Owners) who own, control and profit from Companies when those Companies open Bank Accounts. This requirement is designed to enhance financial transparency and safeguard the Financial System against illicit use. This is a 2-Pronged approach.
CONTROL PRONG: An Individual with significant responsibility to control, manage and direct a legal entity customer, including the Managing Director and Chief Executive Officer (MD/CEO) must be identified and verifie
OWNERSHIP PRONG: Each Individual, who directly or indirectly, through any contract, arrangement, understanding, or relationship own 25% or more of the Equity Interests or Shares of a Legal entity customer (Company, Firm, Corporate) must be identified – at least up to 4 such individuals.
Essentially, the Offshore Account holders and those appearing in Panama Papers can clearly be identified and or investigated. Equally important is the realization that in order for Banks and other Financial Institutions to assist Government to fight the funding of Terrorism Financing and Money Laundering Activities, most National and Federal Laws require that all Financial Institutions must obtain, verify and record information that identifies each person who opens an account.
In a lay man/woman’s language, what this means is that when you open Bank account, the Bank will ask you for your Names, Physical and Mailing addresses, Date of Birth, and other Information that allows the Bank to identify you such as Social Security Number (SSN), National Registration Card (NRC), Passport, or Driving Licenses. Those Documents MUST not be forged or Manufactured from the black market or streets as knowingly uttering a Forged Document is a serious criminal offence, in addition to perjury, forgery and impersonation).
Even amid COVID-19 pandemic, several African Countries have joined the frenzy in ensuring that BENEFICIAL OWNERSHIP STRUCTURE AND CONTROL PRONGS of Corporate /Commercial Companies are prioritized and made cardinal in order to know the BIG Guys behind the smokescreen and Front or Shell Companies using Smurfs or small boys and girls in financial criminal activities such as money laundering, corruption, bribery, abuse of office etc.
In Zambia for example, there is Corporate/Commercial Companies (Amendment) Bill, 2020, [N.A.B. 12, 2020] dated 7th October 2020, which is currently at first reading before the Zambian Parliament. The Bill seeks to amend the Companies Act, 2017, so as to:
• revise the definition of beneficial ownership; and
• provide for the definition of substantial economic benefit and substantial interest
The shareholding structures and Politically Exposed Persons (PEPs) hiding behind their low-profile associates, relatives and extended family members now will have to be properly documented through proper KYC and CDD “unwrapping process” for anyone claiming to be doing business in Zambia and Africa. This is the way to go.