Risk-based customer due diligence is the key to effectively managing financial crime risk

Ola Tucker
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Ola Tucker: Founder, Compliance Notes, USA

Journal of Financial Compliance, 2024, vol. 8, issue 1, 65-79

Abstract: Customer due diligence (CDD) processes and procedures are a required component of a financial institution's anti-money laundering (AML) compliance programme in the US and in many other countries. Solid CDD policies and procedures are key to meeting regulatory expectations as well as effectively managing money laundering/terrorist financing (ML/TF) risk. However, there are many nuances to conducting risk-based CDD and it is critical that financial institutions understand the specific risks they face and tailor their programme accordingly, as well as update it regularly to account for evolving threats and updates in legislation. This paper discusses the importance of CDD for risk management in financial institutions. It starts with an introduction to CDD, defines the three basic types of due diligence and explains the requirement to identify beneficial owners of legal entity customers. The paper goes on to discuss regulatory expectations as well as some of the more common compliance violations related to CDD incurred by financial institutions. The paper also highlights a case study examining the regulatory enforcement action against Deutsche Bank related to its AML compliance failures involving Jeffrey Epstein. Finally, the paper concludes with a list of best practices and recommendations for banks and other financial institutions.

Keywords: customer due diligence; enhanced due diligence; anti-money laundering; compliance; beneficial ownership; know your customer (search for similar items in EconPapers)
JEL-codes: E5 G2 K2 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:aza:jfc000:y:2024:v:8:i:1:p:65-79

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