‘Dissecting the concept of money laundering: an effective step towards safeguarding our financial system

Continued from last Thursday

Know Your Cus­tomer/Customer Due Diligence (KYC/CDD) Know Your Customer (KYC) may be considered as a one-time step to collect details of customers before onboarding. I recall in some time past, as part of KYC process­es, financial institutions collected the original identity cards, made photocopies of these identity cards and wrote ‘original sighted’ without verifying the authenticity of the cards from the issuing authori­ties. At the time, most financial institutions did not also request clients to provide updates on their accounts regarding changes in their occupational status, the nature and purpose of the account, amounts to be transacted on the account, among others.

Customer Due Diligence (CDD), on the other hand, is a crucial preventive measure against money laundering. It involves verifying the identity of custom­ers from an independent source, understanding the nature of their business relationships and pre­venting the misuse of the finan­cial systems. CDD also requires performing background checks and screening potential and existing customers against international, third-party lists and domestic lists to ensure that they are not involved in illicit activities. The conduct of CDD also ensures that frequent updates are received on the man­date, occupational status, nature and purpose of transactions and expected amounts for monitoring and reporting purposes.

What CDD entails:

Customer Identification and Verification:

CDD requires financial institu­tions and other accountable/re­porting entities to use reliable and independent sources to verify the identities of customers. This in­cludes gathering information such as names, addresses, date of birth, and verifying this information with official documents. These official documents, which may include the ECOWAS card (otherwise known as Ghana Card), Birth Certificates, Passports, and Driver’s License, are to be verified and authenticated by issuing authorities. Financial insti­tutions and other reporting entities are to maintain records of all CDD information for at least five years as provided by law.

Purpose/Nature of the Business Relationship:

CDD involves understanding the purpose and nature of the business relationship with the customer. Every customer is to communi­cate his/her intended purpose for establishing a business relation­ship at the point of onboarding. The purpose of the relationship would then inform the nature of the transaction and the amounts involved in the course of the relationship. Any inconsistencies identified in the pattern and nature of transactions may be suggestive of money laundering, and that should trigger the suspicion of the financial institution or account­able/reporting entity.

Identifying Beneficial

Owners:

CDD requires identifying the beneficial owners of legal entities, which are the individuals who ultimately own or control the entity. Beneficial owners are natural persons controlling the interest of legal persons. They usually make decisions for the legal person (company) and sometimes do not have their names on the compa­ny registration document. The Companies Act, 2019 (Act 992) mandates companies to disclose beneficial ownership informa­tion, enhancing transparency and combating illicit financial flows. This involves establishing a central register with the Office of the Reg­istrar of Companies and disclosing beneficial owners during company registration and through the filing of annual returns by legal persons. Changes in beneficial owners are to be filed, and records at the Registrar of Companies updated. Financial institutions and reporting entities are to collect these details from all legal persons when estab­lishing relationships with them.

Ongoing Monitoring:

Unlike the traditional concept of KYC, CDD is not a one-time pro­cess. It requires ongoing monitor­ing of customer transactions and activities to identify any suspicious patterns or unusual behaviour that may indicate money laundering. This monitoring could be effec­tively executed through system monitoring and any other available processes.

Risk Assessment:

CDD helps assess the risk associated with each customer and transaction. Financial institutions and other accountable institutions may decide to categorise their customer and transaction risks into high, medium and low. High-risk customers or transactions may require enhanced due diligence (EDD) measures. EDD may re­quire additional scrutiny or internal approval processes before a busi­ness relationship is established.

Suspicious Activity/

Transaction Reporting:

Should an accountable institu­tion/ reporting entity identify any suspicious activity, that accountable institution or reporting entity is expected to file a report to the rel­evant authority within twenty-four (24) hours upon forming the sus­picion. The Financial Intelligence Centre (FIC) is the only institution mandated to receive suspicious transactions/suspicious activity reports. These reports are analysed to produce actionable intelligence which serves as leads to investiga­tive and prosecutorial authorities.

Conclusion

The offence of money launder­ing transcends national borders and, therefore, could involve international and regional bodies. Due to the transnational nature of the crime of money laundering and the global presence of the finan­cial system, financial institutions and other accountable/reporting entities are to continually explore the benefits of conducting CDD in the course of their operations. The conduct of an effective CDD would enable these institutions to assess money laundering risk asso­ciated with their businesses, assist them to comply with laws and maintain the safety and integrity of the financial system. On the other hand, law enforcement agencies are to keep pace with emerging trends and to adopt effective ways to dis­rupt the activities of criminals.

The writer is a Financial Crime Specialist

BY RITA YEBOAH QUAYSON