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Knowing your customers can be the difference between a safe transaction and a costly mistake

  • Written by Patrick Coghlan, CEO of CreditorWatch
Patrick Coghlan, CEO of CreditorWatch
Patrick Coghlan, CEO of CreditorWatch


In 2006 the Australian Transaction Reports and Analysis Centre (AUSTRAC) introduced a set of requirements for large financial companies and banks – the Anti-Money Laundering and Counter-Terrorism Financing Act – that have become familiar to those in the legislated industries. While requirements may be less familiar to small and medium enterprises, they quite simply require legislated organisations to verify the identities of their clients and assess any potential risks of doing business with them.

They are the foundations of basic due diligence and should be part of the onboarding process of every small business.

The acronyms every business should know

AUSTRACs aim was to bring Australia into line with international best practice to deter money laundering and terrorism funding, but the principles are relatively simple: you should actively seek details about who you are doing business with. Under the Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CFT), every business operating in the financial or digital currency industries is required meet Know Your Customer (KYC) requirements.

Unsurprisingly, the structure of some businesses is not always straight forward, so determining the Ultimate Beneficial Owner (UBO), who controls the company or indeed if there’s a Politically Exposed Person (PEP) involved, as required under KYC, is not always as simple as Googling the business name.

The process is essentially a checklist that helps organisations to verify the identities of their clients and assess any potential risks of doing business with them. The primary goal is to prevent organisations from being used, intentionally or not, for money laundering and other illegal activities by performing detailed checks of the customer's assets to ensure they are legitimate.

So what does all this mean?

Although only some industries are legislated to undertake KYC measures, it is essential that all companies – regardless of size or industry – have some form of risk mitigation in place to avoid fraud and ensure that all financial dealings are in the company's best interest.

Companies of all sizes are increasingly embracing KYC procedures and taking the steps to verify the identities of their clients. In fact, data from credit reporting platform, CreditorWatch, suggests that 22 percent of companies in non-legislated industries are now choosing to use KYC/AML and Ultimate Beneficial Owner (UBO) tools as part of their due diligence.

How do you meet the required compliance?

The obligations of KYC compliance include the following:

  • *  Determining and regularly reviewing who the Ultimate Beneficial Owners of your non-individual customers are.

  • *  Collecting and take reasonable measures to verify each beneficial owner’s identification information (information like full name, date of birth and residential address).

  • *  Determining if any of the individuals are Politically Exposed Persons (individuals who occupy a prominent public position or function in a government body or international organisation, both within and outside Australia).

  • *  Ensuring that you keep records of your beneficial owner identification processes

While it might seem like relatively simple information, it can be difficult to obtain and the process requires significant research and calculations. For those running standard credit checks as part of their onboarding process, it can be as simple as including an additional report, delivered to you within minutes.

As we move forward, it’s likely that the real estate industry, accountants and lawyers will one day be included among the legislated industries joining the financial sector, bullion dealers and gambling services. However, it’s businesses operating in high-risk industries like building and construction – or any industry whereby large companies operate or undertake significant transactions – that would benefit from the extra due diligence. Ultimately, implementing a KYC policy will help businesses make smarter and safer business choices.

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