COMPLIANCE
Enterprise risk management techniques to strengthen due diligence controls
Financial institutions( FIs) are often exposed to various risks during the course of their operations. However, the risks arising from instances relating to financial crimes and anti-money laundering( AML) are the most detrimental. Such risks not only expose FIs to heavy financial penalties but can also cause major reputational damage. A critical avenue through which FIs are exposed to financial crime and AML risk is via onboarding high-risk customers and / or conducting business with existing high-risk customers who pose potential or existing involvement in money laundering or terrorist financing activities.
Who are high-risk customers?
Before we delve into the details of how to manage risk posed by high-risk customers, it is important to understand who can be considered a high-risk customer. In layperson’ s terms, a high-risk customer can be any individual or entity that holds a higher possibility of being vulnerable to or engaging in financial crimes and money laundering / terrorist financing activities due to the nature of their occupation, background or geographical location, among other factors. Similarly, a high-risk customer can also be considered as someone who avails certain products and services in an FI that can be used to facilitate activities related to money laundering and terrorist financing. Banking regulations and legal requirements in various jurisdictions list the distinct types of high-risk customers; however, the following are common high-risk customer categories:
▪ Politically exposed persons
▪ High-net-worth individuals
▪ Money services businesses
▪ Customers operating from high-risk jurisdictions
▪ Customers affiliated with high-risk industries( e. g., cryptocurrency, precious metal and stone dealers, casinos, etc.)
▪ Customers dealing in cashintensive businesses( e. g., laundromats, casinos, convenience stores, etc.)
▪ Weapons manufacturers
▪ Producers and distributors of cannabis
▪ Customers availing correspondent banking services
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