FROM A
DIFFERENT ANGLE by Kenneth Rijock
DIFFERENT ANGLE by Kenneth Rijock
Financial Crime Consultant, for World-Check
On the importance of KYC follow-up
29 July 2007
When your financial institution or NBFI is named in the newspapers as banker to a criminal defendant or fraudster, or when the bank is identified in a civil court filing or an indictment as having unwittingly facilitated money laundering, reputation damage is inevitable. Whilst it is difficult or impossible to quantify just how many customers move their accounts elsewhere as a result, or whether a large number of prospective clients choose to go to your competition, it happens. The risk of such untoward events occurring can be minimised, however, through a regular programme of KYC follow-up. These procedures can prevent many of those public relations nightmares.
Why is this important? Your esteemed clients, particularly the high-risk ones, can and will get into legal, financial, ethical or moral trouble in the future. Your job in compliance is to ensure that the bank's name doesn't get smeared in the process. The military calls it collateral damage; incidental to the central player in whatever sad story surfaces.
So, what can you do, especially with clients in high-risk jurisdictions or occupations? Here's what I personally find effective:
When your bank is named in connection with an individual or business entity in a news story that is not of a positive nature, reputation damage can, and will, result. Reduce the risk of this happening by checking on your customers on a regular basis, updating and documenting your files to prove you did, and by establishing policies and procedures to ensure that compliance pays particular attention to your high-risk customers often.
So, what can you do, especially with clients in high-risk jurisdictions or occupations? Here's what I personally find effective:
- Vett your existing customers on a regular basis. Many World-Check users upload the entire dataset, and run all their clients, to ascertain whether the risk of banking any of them has increased, due to events subsequent to their account opening. This could mean criminal indictment, regulatory or administrative issues, becoming a Politically Exposed Person (PEP), being linked to individuals or entities that are unacceptable risks, or any number of potential problems.
- Check your high-risk customers against civil litigation databases, to learn whether the client is involved as a defendant in major litigation, indicating personal or corporate problems, or has become a litigator himself. Many businesses check to see whether prospective hires have a history of suing their prior employer. Whilst litigation is not always a factor indicating increased risk, it should be examined.
- Review the securities regulator database in your jurisdiction. Insider trading issues aside, KYC means that you understand all of your client's finances, not just what is disclosed to you at account opening.
- Newspaper source checks can reveal impending legal or financial problems that have not yet matured. Whilst investigative articles should be taken with a grain of salt, they may indicate that client monitoring might be prudent.
- Public records searches in the county or district where the client resides can turn up foreign judgments, tax liens, real estate foreclosures, creditor filings, and other business intelligence important in accessing client risk. This is not excessive; it can reveal information you cannot get anywhere else. Remember, your credit staff themselves access it. Compliance should as well.
When your bank is named in connection with an individual or business entity in a news story that is not of a positive nature, reputation damage can, and will, result. Reduce the risk of this happening by checking on your customers on a regular basis, updating and documenting your files to prove you did, and by establishing policies and procedures to ensure that compliance pays particular attention to your high-risk customers often.
The facts and opinions stated in this article are those of the author and not those of World-Check. World-Check does not warrant the accuracy of any facts and opinions stated in this article, does not endorse them, and accepts no responsibility for them.
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