Criminals sometimes abuse businesses for the purpose of committing financial crime, which includes money laundering (ML), the financing of terrorism (TF), and proliferation (PF) related to weapons of mass destruction.
As a result, companies should be taking steps to adopt a strong CDD process as part of their overall due diligence to assist in identifying and mitigating the ML, TF, and PF risks their customers present. In furtherance of this effort, Khairallah Law Firm has developed the following useful guide to assist you in imposing stronger Due diligence procedures to protect your business and fight off attempts of ML/TF.
What Does Customer Due Diligence Mean in Compliance?
Customer due diligence (CDD) is discovering prospective customers and verifying their authenticity and legitimacy proactively. It also requires companies to verify the information provided by customers and cross-check it to ascertain their accuracy and validity in a legal sense.
While the nature of customer due diligence remains the same, its processes vary in different industries. Customer due diligence generally includes four main types: simplified, standard, enhanced, and ongoing.
By performing customer due diligence, businesses proactively avoid the risk of financial crimes such as money laundering (ML), financing of terrorism (FT), and proliferation financing (PF). Along with this, the careful process helps to build trust, improve credibility, and encourage regulatory compliance in the dynamic business world.
When is Customer Due Diligence (CDD) Necessary
As far as the Customer Due Diligence (CDD) Policy and Procedures are concerned, firms must explicitly understand and assess several significant factors before moving ahead. They must determine why an account is being opened, how the account will be utilized, what the nature of transactions will be, and what the anticipated frequency and volume of the same will be.
To provide a proper risk assessment, companies need to confirm the identity of the customer and create a risk profile. Therefore, Designated Non-Financial Businesses and Professions (DNFBPs) and Financial Institutions (FIs) should conduct the Know Your Customer (KYC) procedure as part of the customer due diligence in certain circumstances.
Customer due diligence must be done while entering into a new business relationship with a person or a legal entity. It is a vital step to confirm the identity of the customer. During the CDD, the business also evaluates the risk profile of the customer and determines whether increased due diligence is necessary.
Furthermore, businesses must adopt CDD procedures for some sporadic transactions. For instance, every transaction of AED 55,000/- and above triggers a legal obligation for necessary due diligence. Similarly, a sporadic wire transfer of AED 3,500/- and above necessitates immediate application of CDD procedures.
Furthermore, whenever a company is suspicious that a customer or potential customer is involved in money laundering or financing terrorism, it must implement KYC and CDD measures at the earliest. Finally, when identification documents appear to be lacking, inconsistent, or unusual, the company must take action at the earliest through rigorous customer due diligence and KYC measures.
When Do Businesses Conduct Customer Due Diligence?
(CDD) is conducted:
- Before the onset of a business relationship
- During the business relationship establishment process
- Before account opening
- During account opening
- Before carrying out a transaction with a new customer
- Before carrying out periodic transactions of a predefined monetary value
- Whenever there is suspicion of money laundering (ML) or financing of terrorism (TF)
Where customer identification data previously obtained is determined to be insufficient or unreliable.
Conclusion
(CDD) is one of the pillars of the protection of businesses against financial crime like money laundering, terror financing, and proliferation financing in the legal framework of the UAE. By confirming the identities of customers and establishing risks in advance—either upon account opening, upon establishing business relationships, or upon making significant transactions—businesses can reduce their susceptibility to crime.
The CDD process has varying levels, such as simplified, standard, enhanced, and continuous checks, depending on the customer’s risk profile. The firms should also react with speed in case of suspected suspicious transactions or unsatisfactory customer information.
Compliance with regulations is just one of the benefits; following sound CDD processes also creates confidence and credibility. The Khairallah Law Firm guide provides important steps to help firms carry out good due diligence and safeguard their business.
Having said that, contact Khairallah Advocates & Legal Consultants and benefit from our free 30-min legal consultation.
*Disclaimer: our blogs, law updates, and FAQ’s are freely distributed for educational purposes and to showcase recent updates and regulations in the UAE’s framework.
If you have any questions and need assistance, contact us at our number or book an appointment online
