3 Categories of Customer Due Diligence in Anti-Money Laundering

3 Categories of Customer Due Diligence in Anti-Money Laundering: Due diligence requirements are satisfied by the information collected on the application form, in conjunction with the fact that the payment is made from an account in the customer’s name (i.e. personal cheques and other payment instruments drawn on a customer’s account such as Direct Debits/Standing Orders).

Three categories of Customer Due Diligence (CDD)

Simplified Customer Due Diligence applies to low risk customers and products.
Enhanced Due Diligence applies to non-resident ‘Politically Exposed Persons’ deemed to be high risk.
Standard Due Diligence must be applied to all remaining customers and products.

Simplified Customer Due Diligence

Simplified Customer Due Diligence (SCDD) means that a designated person does not need to comply with the CDD obligations (as listed previously). You must obtain sufficient information about the customer to satisfy that the customer meets the criteria for Simplified Due Diligence.

Simplified Customer Due Diligence: Specified Customers

Banks and financial institutions in the State
- As they are themselves Designated Persons?
- A Company whose shares are listed
A public body
EU agencies and bodies

Simplified Customer Due Diligence: Specified Products

Life assurance policy having an annual premium of no more than €1,000 or a single premium of no more than €2,500.
Pension, superannuation or similar schemes which provide retirement benefits to employees; where contributions are made by an employer or by way of deduction from an employee’s wages and the scheme rules do not permit the assignment of a member’s interest under the scheme.
Insurance policies for pension schemes if there is no surrender clause and the policy cannot be used as collateral (e.g.) Pension Term Assurance.

Enhanced Due Diligence

In practice for intermediaries, Enhanced Due Diligence applies in respect of a business relationship or transaction with non resident Politically Exposed Persons (PEP’s).
A “PEP” is an individual who is not resident in Ireland and has been entrusted with prominent public functions or an immediate family member or a known close associate of such a person, who is not resident in Ireland.
A person is a PEP if they held a relevant office at any time within the last 12 months
Designated persons must have processes in place prior to establishing a business relationship with a customer to determine whether the person may be deemed to be a “PEP”.
Intermediaries should establish whether the client is resident or non resident.
Where the client indicates that they are non resident, steps should be taken by the intermediary to establish if the customer falls within the definition of a “PEP”.
Require senior management approval to establish a business relationship with a “PEP”
Take measures to establish the source of wealth and funds for transactions.

Standard Customer Due Diligence (SCDD)

Applied on a risk based approach

Profile of the customer
Nature of product or service
Distribution channel
Geographical area of operation

There are 3 overall levels of risk for insurance products:

Low Risk
Intermediate Risk
Increased Risk

Standard Customer Due Diligence (Low Risk)

There are products due to their inherent features which are unlikely to be used as a vehicle for money laundering purposes. These are classified as “Low Risk”.

3 Categories of Customer Due Diligence in Anti-Money Laundering

The following features would indicate low risk:

Only pays out on death or diagnosis of terminal illness of policy holder.
Only pays out on medical evidence and proof is required as to loss of income.
No surrender value.
Small, regular premiums: additional payments by customer not possible.
Large premiums will normally require medical evidence.
No investment element.
Once term of policy is finished no payout and policy ceases.

Examples of Products which fall into the low risk category are:

Mortgage Protection, Term Life Assurance, Income protection products, Critical illness products (relating to diagnosis of a specific critical illness) and Whole of Life policies.
For reduced risk level products, designated persons may accept personal cheques and other payment instruments drawn on a customer’s account (i.e. Direct Debits/Standing Orders) to satisfy the standard evidence requirement.
If payment is made by bankdraft for the products above, Brokers Ireland would recommend that you get confirmation from the client, from the bank, confirming where the money is coming from.

Standard Customer Due Diligence (Medium Risk)

The medium risk level is given to products whose inherent features pose some risk for the purposes of money laundering or terrorist financing. These may be products which have a facility for “top up” payments.

The following features would indicate medium risk:

Long term savings plan often for retirement.
Requires at least 5 years to gain positive return on investment.
Often unable to be surrendered in first or second year, with penalties in years three to five.
Additional ’top up’ payments may be permitted.

Examples of Medium risk products are :

Life Assurance Savings plan (unless premium is less than €1,000 or €2,500, then Simplified Customer Due Diligence applies.)
Endowments

The recommended standard for intermediate risk is as follows (subject to exemptions):

Due diligence requirements are satisfied by the information collected on the application form, in conjunction with the fact that the payment is made from an account in the customer’s name (i.e. personal cheques and other payment instruments drawn on a customer’s account such as Direct Debits/Standing Orders).
If payment is made by bank draft for the products referenced Brokers Ireland would recommend that you get confirmation from the client, from the bank, confirming where the money is coming from.

Standard Customer Due Diligence (High Risk)

This level of risk has been given to products whose inherent features allow for the possibility of them being used for money laundering purposes.

These products have the facility for third party and/or “top up” payments and therefore an enhanced level of due diligence, by asking for more information, is appropriate.
This is the risk level that the majority of a designated person’s AML resources will normally be directed. The majority of products in this range are found in the investment category which reflects the higher value premium that can be paid into them.

The following features would indicate High Risk:

Open ended investment.
Usually a 5 year recommended minimum investment term but can be surrendered earlier.
Additional ‘top up’ payments permitted by policy holder and by third parties.
May be segmented and individual segments may be assignable.

Examples of High Risk products are:

Single premium investment bonds including:
- With profits
- Guaranteed
- Income
- Investment
- Offshore international bonds

The recommended CDD industry standard for High Risk products is as follows:

Personal customers:

Identification of a personal customer is the process whereby a designated person obtains from a customer the information necessary for it to identify who the customer is. The identity of an individual has a number of aspects at any point in time, all of which must be obtained by the designated person:

name (which may change due to particular events);
address (which is likely to change from time to time); and
date of birth (which is a constant).

One plus One approach

Obtain one item from the list of photographic IDs (to verify name and date of birth) and one item from the list of non-photographic IDs (to verify address) at the outset of the business relationship.

Sources which can be used to verify identity are:

Current valid Passport.
Current valid driving licence.
Current valid National Identity Card.
In the absence of the above documents, written or otherwise documented, assurances from persons or organisations that have dealt with the customer for some time may suffice.
A designated person might consider it appropriate to adopt an alternative approach of identification such as seeking a social welfare card, National Immigration Bureau Card off an individual who has recently immigrated into the State.

Verify address

Current official documentation/cards issued by the Revenue Commissioners.
Current official documentation/cards issued by the Department of Social and Family Affairs.
Instrument of a court appointment (such as liquidator or grant of probate).
Current local authority document e.g. refuse collection bill.
Current statement of account from a credit or financial institution.
Current utility bills (including those printed from the internet).
Current household/motor insurance certificate and renewal notice

Legal persons and arrangements

Directors or the equivalent, for example: Partnerships and unincorporated businesses, Clubs, Societies, Public Sector bodies.

Identification can generally be satisfied by either:

obtaining a copy of the annual audited accounts listing directors (where the necessary information is publicly accessible and considered by the firm to be current and reliable); or
Obtaining relevant and up-to-date legal opinion from a reliable source documenting due diligence conducted, in relation to information on directors:
- obtaining information from relevant company or other registry such as the CRO or known foreign equivalent; or
- as warranted by the risk, verify one or more directors in line with requirements for personal customers.

To identify the legal arrangement:

A search of the relevant company or other registry (where the necessary information is publicly accessible and considered by the firm to be current and reliable); or
A copy, as appropriate to the nature of the entity, of the certificate of incorporation; a certificate of good standing; a partnership agreement; a deed of trust or other official documentation proving the name, form and current existence of the customer.
In cases regarded by the firm as higher risk, use of more than one source of information may be warranted.

Acquire prescribed information at the outset of the business relationship to satisfy the additional information requirements:

Source of funds for the transaction e.g. an Irish bank account in own name.
Employment and salary details – this information could be captured in the Fact finding.
Source of wealth (e.g. inheritance, divorce settlement, property sale).

This information should be captured on the source of wealth form.

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