Know your customer
(KYC) is the bank regulation specifying the due diligence that financial
institutions and other regulated companies must perform; it requires that they
identify their clients and collect information relevant to doing business with
them.
The US government has implemented KYC
as part of the Bank Secrecy Act and the USA PATRIOT Act. KYC policies are used
to prevent identity theft and money laundering, and they are an important tool
for disrupting the funding of terrorism. KYC entails much more than just
filling out forms; it is a process that touches every aspect of a customer
relationship.
Banks that perform KYC monitoring
for anti-money laundering (AML) and Counter-Terrorism-Financing (CTF) purposes
often use specialised transaction-monitoring software designed to analyse names
and monitor trends. This software identifies unusual activity, which is then
subject to Enhanced Due Diligence (EDD) processes that use both internal and
external sources of information, including the Internet, to determine whether a
transaction is suspicious enough that it must be reported to the authorities.
In the US, this would involve filing a
Suspicious Activity Report (SAR) with the Financial Crimes Enforcement Network
(FinCEN). In the UK,
it would require a report to the Serious Organised Crime Agency (SOCA)
Other types of companies also
employ Know Your
Customer procedures in order to ensure that their agents, consultants, and
distributors are not susceptible to bribery. Banks, insurers, and export credit
agencies now often ask their