We live in a world filled with bad actors who consistently attempt to take advantage of flaws and weaknesses in our financial systems, often to the detriment of the law-abiding majority. When these efforts reach a grand scale in the form of massive money laundering schemes for drug cartels and terrorist organizations, the potential for harm on a global scale becomes catastrophically high.
Fortunately, regulatory and law-enforcement bodies are working hard every day to ensure these bad actors and criminal organizations are thwarted. Unfortunately, this sometimes leads to the tightening of regulatory controls that, though meant to stop such dangerous and illegal activities, can affect the honest businesses that are simply working hard and following the law.
Still, such regulations, like the newly effective Customer Due Diligence (“CDD”) rule, are ultimately balanced between the need to enforce the law as well as the safety and protection of all. The final rule became effective as of May 11th, 2018, and increases the burden of customer due diligence for both U.S. banks and broker-dealers. The FinCEN’s CDD Rule, which amends the Bank Secrecy Act, requires the improvement of financial responsibility and transparency. The rule requires U.S. banks and broker-dealers to obtain and identify information from any individual controlling 25% or more of a company holding a corporate account.
The CDD Rule – Banks and Firms Must Engage in Greater Due Diligence with Customers
The goal of the rule is to put the onus on banks and other types of financial services firms to increase the intensity and effectiveness of due diligence investigations they regularly perform on customers in order to more effectively deter money laundering schemes. International money laundering is the main concern, but its convoluted and mysterious process, with even some of the participants unaware that they are participating in such a scheme, makes it extremely broad to regulate. The new rule applies an extra layer of transparency to further prohibit banks and broker-dealers from getting away with performing minimal research and reporting before doing business with new customers who may possibly be involved in money laundering schemes.
The CDD requirements essentially fall into four broad categories:
- Creation of policies and practices to continually monitor certain types of customers and transactions to look for suspicious behavior and to develop risk profiles that allow the institution to more readily identify potential problems
- Identification and verification of new customers
- Identification (and verification of identification) of the “beneficial owners” of companies opening accounts (essentially identifying who stands to benefit when a representative of a company attempts to open an account)
- Creation of risk profiles for specific customer types, especially by taking time to understand different types of customer relationships and looking for vulnerabilities in certain customer types that drug cartels or terrorist organizations might try to use to their advantage
Anti-money laundering programs are a critical part of regulatory compliance — all financial services firms should have some type of anti-money laundering program in already place.
Now That the Final Rule is Effective, Is Your Firm in Compliance?
Core Compliance regularly works with clients who struggle to maintain compliance, especially when it comes to anti-money laundering programs. However, the modern era is filled with technology solutions that allow firms of all shapes and sizes to implement powerful compliance programs and keep them in place. Click to learn more about these solutions.