The integrity of the business and financial sectors depends on their ability to attract and manage legitimate funds and transactions from legitimate customers. Companies are able to attract and retain the business of legitimate customers because of the quality and reliability of the services being rendered as well as their brand and reputation. Illicit activities, such as money laundering, synthetic identities, fraud, financing of terrorist activities, and other transactions designed to assist criminals and terrorists in their illegal ventures, pose a serious threat to the integrity of businesses and financial institutions. When transactions involving illicit funds or false identities are revealed, these transactions invariably damage the reputation of the business and financial institutions involved. Victims of identity fraud blame the business when their identity is compromised and misused, as the perpetrators are rarely traceable.
What is Money Laundering and What Regulations Impact Businesses?
Money laundering is generally defined as engaging in acts designed to conceal or disguise the true origins of criminally derived proceeds so that the proceeds appear to have been derived from legitimate origins or constitute legitimate assets. If undertaken successfully, money laundering allows criminals to maintain control over those “proceeds of crime”. It provides the fuel for the drug dealers, terrorists, illegal arms dealers, corrupt public officials, organized crime, and other criminals to operate and expand their criminal enterprises. Due to rapid advances in technology and the globalization of the financial services industry, the financial aspects of crime have become more complex.
The United States Bank Secrecy Act of 1970 (“BSA”) established the basic framework under which financial institutions are responsible to adhere to various Anti-Money Laundering (AML) regulations. In addition, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act),enacted by Congress in response to the 9/11 terrorist attacks, amended the BSA to impose an additional number of AML and “Know Your Customer” (KYC) requirements onto financial institutions.
Not Just Traditional Banks Need To Know Your Customer
Prior to the enactment of the PATRIOT Act, Federal anti-money laundering laws applied to a limited set of financial institutions, primarily deposit-taking banks. The PATRIOT Act expanded that reach significantly, by applying a broader set of anti-money laundering provisions to a wide variety of businesses designated “financial institutions” under the BSA.
According to US Code Title 31, Subtitle IV, Chapter 53, Subchapter II, Section 5312(2) – Definitions and application “financial institutions” include:
- Banks and other deposit taking institutions;
- Broker Dealers;
- Check cashing, money transmission and currency exchange businesses;
- Payment card networks;
- Insurance companies;
- Loan and finance companies, including pawnbrokers;
- Auto, airplane and boat dealerships;
- Precious metals and jewelry dealerships;
- Real estate brokers and title closers;
- Any other similar or cash businesses as the Treasury may designate.
The adoption of KYC guidelines or procedures has proven extremely effective in detecting suspicious activity by “customers” in a timely manner. An integral part of an effective “know your customer policy” is a comprehensive knowledge of the transactions carried out by the customers of the financial institution. Therefore, it is necessary that the KYC procedures established allow for the collection of sufficient information to develop a “customer profile”. The primary objective of such procedures is to enable financial institutions to predict with relative certainty the types of transactions in which a customer is likely to be engaged.
By understanding all facets of the customer’s intended relationship and monitoring transactions to determine if transactions occur which are inconsistent with the “customer profile”, the financial institution can realistically determine when transactions are suspicious or potentially illegal.
In today’s world, however, with rampant reports of identity theft and ensuing applications by false or stolen identities businesses must expand their KYC policies to include procedures that require proper identification and authentication at the time a relationship is established in order to prevent the creation of fictitious accounts.
Know Your Customer in the Digital Age
Today’s KYC procedures must include detailed and authenticated information required by financial institutions and other regulated companies before conducting business with a customer. KYC is the process of a business verifying the identity of its clients. KYC policies mandated by regulators globally are becoming increasingly important to prevent identity theft fraud, money laundering, and terrorist financing. The use of biometric identification management technology for accurate customer identity verification has proven to deliver efficiency and convenience for organizations and helps comply with government regulations to prevent identity theft fraud, money laundering, and terrorist financing.
Regardless of whether specific regulations apply to your business, business owners need to know with whom they are dealing in order to protect themselves from fraud and other damaging activities. In the digital age where customers demand speed, convenience and “user friendly” business procedures and businesses are seeking to grow by massive customer adoption through digital marketing, the risks of fraudulent identities are increased in the effort to streamline businesses’ customer acquisition and intake procedures. Therefore, customer identification procedures have to be upgraded with appropriate technologies, such as biometric identification, in order to meet the challenges and requirements of electronic customer acquisition.
Upgrade your Identity Verification Solution
Looking to upgrade your KYC procedures or business operations portfolio? Proof by Ipsidy is a mobile biometric identity proofing solution that allows you to check an official ID in seconds, from anywhere in the world. Verify the identity of anyone, using government-issued credentials and biometrics from a convenient mobile app. Streamline business operation, perform secure KYC processes and reduce processing time on applications, enrollments, and account openings with Proof by Ipsidy.