How Banks Are Enhancing Know Your Customer Due Diligence

The ubiquity of investors and consumers engaging in transactions online has created an environment ripe for financial crime, including money laundering, fraud and terrorist financing. According to The Wall Street Journal, over 2.5 million (SARs) were filed in 2020, compared to 1.66 million in 2012. In the U.S., under the Bank Secrecy Act (BSA), financial institutions are obligated to file SARs if there is knowledge or suspicion of criminal transactions or activity. Recently, the Financial Crimes Enforcement Network (FinCEN), the anti-money laundering (AML) regulator in the U.S., issued an advisory emphasizing the importance of filing SARs and implementing know-your-customer (KYC) due diligence activities to better detect proceeds of Russian kleptocracy and corruption.

A SAR is highly confidential. Banks aren’t even allowed to confirm the existence of a SAR. If someone discloses details regarding a SAR, they could incur civil penalties of up to a USD 100,000 fine and criminal penalties of up to USD 250,000 and/or up to five years in jail. To make the process more efficient, FinCEN allows banks to consult with each other on SARs and share transaction data on potential suspects. Needless to say, securing the personally identifiable information (PII) and other sensitive information within the SAR is critical, as the process is vulnerable to bad actors, data breaches, human or technical error.

Enter compliance case management

With a compliance case management solution, a bank’s financial intelligence units (FIUs) can securely and effectively collaborate with their counterparts at other institutions to identify previously unknown activities, accounts and/or associated entities or individuals related to suspicious activity. This helps to:

• Increase visibility into financial activities, especially if they are complex and appear to be layered among numerous financial institutions, entities and jurisdictions;
• Provide a secure hub for cross-bank collaboration;
• Secure confidential information with stringent multi-factor authentication, role-based access and advanced encryption;
• Closely track status of each investigation with dashboards, granular audit trails and compliance reporting; and
• Create and file much more effective SARs helping to combat money laundering and terrorist financing.

Getting to know-your-customer, again and again

Banks need to conduct KYC due diligence on every customer to confirm they are who they claim to be. This means collecting PII, including valid identification, proof of address and other supporting documents. Timing is key in KYC: If the process is too slow, the bank doesn’t benefit from the customer’s business until their identity has been confirmed. Frustration with the process may ultimately risk the customer’s business entirely. Moreover, banks need to update KYC every two years for high-risk customers, eight years for medium-risk customers and every 10 years for low-risk customers, otherwise the bank must close the account.

 Compliance case management facilitates a more efficient KYC process through:

• Automatic case creation that includes alerts and notifications to the prospective customer on required documentation to submit, instructions and confirmation of receipt of documents;
• Integration with existing CRM systems so prospective customers and relevant bank staff are automatically permissioned to the case;
• Dashboards to track the process in real-time, including the due diligence process and any tasks pending the customer or bank staff;
• Centralized, secure document exchange so that no PII is compromised.

Conclusion

Given the continuing conflict in Ukraine and proliferating financial crime by Russian oligarchs and other bad actors, banks and related corporations need to closely and regularly scrutinize their customers and the activities facilitated on their behalf. This type of due diligence is extremely tedious and will only get more demanding and complex over time. Thorough and rigorous compliance programs are critical — with solutions for secure file sharing, workflow and case management they can help block problematic transactions and provide effective mechanisms for reporting when and if criminal or suspicious activities happen.

For more on the benefits of case management amid today’s evolving regulatory landscape, download our white paper How Compliance Case Management Helps Banks and Corporates Protect Against Risk.