Know Your Customer-Important!

"Know Your Customer"-Important!

An important session on Money Laundering and the filing of Currency Transactions Reports was held at the American Bankers Association Security and Risk Management Conference in January. John Byrne, Senior Federal Legislative Counsel for the ABA, David Palmer, Deputy Assistant Commissioner-IRS-CID, and Richard Small, Special Counsel, Division of Banking Supervision from Federal Reserve addressed problems regarding the Bank Secrecy Act.

The "Know Your Customer" policy was discussed at some length, with guidelines suggested. The policy itself should increase the likelihood that the financial institution is in compliance with established laws and regulations. It should decrease the likelihood that you will become a victim of fraud or illegal activities. Further, the Fed states that the policy will protect the good name of the institution and will not interfere with good customer relations.

According to the information originated by Fed, a "Know Your Customer" policy usually consists of procedures that require proper identification of every customer at the time an account is opened in order to prevent establishment of fictitious accounts. Knowing what type of activity and transactions are likely to take place will enable the financial institution to recognize when inconsistent activity occurs.

Fed suggests that you should make a reasonable effort to determine the true identity both of those individuals opening accounts and those opening safe deposit boxes. (Ed. note-In court cases in the past, decisions have gone against financial institutions if they "did not do all they could do" to positively identify the individual)

If you are opening a personal account for a customer, identification such as a passport or a driver's license with a photo (issued in your own state) should be taken, along with a consideration of where the customer lives or works. (If not in your area, why are they in your bank? "Ask!", said Rich Small.) The source of funds should be evaluated, and a large cash deposit should be questioned.

If you are opening a business account, the principals should provide evidence of legal status (i.e. sole proprietorship, partnership, or incorporation or association). Check prior bank references, and if it's a large commercial account, ask for a financial statement and a description of the customer's principal line of business. You may even want to ask for a list of major suppliers and customers, and also determine whether international transactions are expected to be routine.

(Ed. note-If you would like a copy of the eight page "Know Your Customer" handout from the Federal Reserve, give us a call at (215) 874-5522 and we'll mail it to you.)

Copyright © 1992 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 2, No. 11, 2/92