Customer due diligence (CDD) is the term used to describe the process of collecting pertinent information about your customer, to evaluate any potential money laundering or terrorist financing risks.
This involves, at the most basic level, collection and verification of any beneficial owner’s identity, the entity in which they are involved, to a sufficient level of confidence.
The Role of CDD
CDD plays a critical part in New Zealand’s AML/CFT regime, by helping businesses guard themselves against fraud and impersonation, thus mitigating the adverse effects of criminal economic activity, and instead promoting integrity and stability in our financial system.
Enhanced Due Diligence
There are three types of CDD, one of which is enhanced due diligence (EDD).
EDD provides a greater level of scrutiny of potential business partnerships and highlights risks that can’t be detected by CDD.
It is required when a customer has been evaluated to have a higher level of risk for money laundering or terrorist financing (or when specified in the AML/CFT Act). For example, EDD will likely be required for (but not limited to) trusts, politically exposed persons (PEP), customers to be high ML/TF risk, new or developing technologies, or products that might favour anonymity.
Ultimately, EDD requires a business to use additional measures on top of their regular CDD.
Enhanced Due Diligence Measures
Exactly what those measures are will depend on the customer or situation, however, it will require the usage of increased and more sophisticated measures, to likely:
1. closely scrutinise the nature of the business relationship or purpose of a transaction
2. implement ongoing monitoring procedure
3. obtain additional customer identification materials
4. establish the source of funds or wealth
This will help a business:
1. determine whether complex beneficial ownership structures are legitimate and intended to facilitate business, or if they are deliberately complicated to hinder investigation and conceal identity.
2. determine whether a customers source of wealth or finance are legitimately derived, or intended for legitimate use, or whether they are proceeds of crime.
3. distinguish between customers that have a high-risk profile but no involvement in ML/TF, versus those whose transactions may be linked to criminal activity.
These processes must be based on the business’s Risk Assessment, and this must be conducted before any activities or transactions commence, although it may also be required at subsequent points during a business relationship, as part of ongoing monitoring.
Under the AML/CFT Act, the AML/CFT Programme must outline how the business will determine when enhanced due diligence must be conducted, and when other types of CDD are permitted.
However, the AML/CFT Supervisors recently updated the EDD guideline. As part of this, there have been some small wording changes, and clarifications have been made around when the source of wealth or funds identification and verification must be carried out.
So, if you are a business affected by the AML/CFT Act, including these CDD/EDD measures, it’s important that you read, and take into consideration, the updates, and adjust your AML/CFT Programme accordingly (even if you’re already familiar with the guideline).
We can help
But, we know this can be confusing to understand.
Here at One AML, we are specialists in all things AML/CFT and can use our expertise to help you navigate these guidelines and fulfil your CDD/EDD obligations so that you can stay focused on what really matters. Get in touch with our highly-experienced team today.