One of the most important components of BSA/AML compliance is a Customer Identification Program (CIP). After all, money laundering is done by people who do not want to be discovered, and most of them pose as legitimate customers. The shorthand phrase “Know Your Customer” (KYC) means that a financial institution has to have a reasonable belief based on due diligence that its customers are who they say they are and are acting within the legal framework.

The first requirement is to have a thorough understanding of BSA requirements, broadly conceived to include all the applicable laws and regulations. Knowing these will enable you to investigate potential customers for relevant risk factors. Beyond basic identity and records requirements, applicable regulations may target certain currency transactions, potential structuring techniques, identifying types of suspicious activity, and so forth.

A compliant CIP has three major components to due diligence: planning and implementation, oversight and accountability, and independent auditing. Each of these may be more or less complex depending on the financial institution’s business lines, size, structure, and risk profile. The regulatory agencies, such as FinCEN, expect your institution’s compliance program to be unique to it on a risk-adjusted basis, but they will look at the components of a CIP to ensure they are effective. … Continue reading