Gorriceta Africa Cauton & Saavedra | View firm profile
By: Atty. Marisol O. Sison
August 28, 2024 – Customer due diligence in the financial industry is akin to getting to know someone before embarking on a long-term relationship. Just as individuals assess compatibility, potential red flags, and shared values, covered persons (e.g. Banko Sentral ng Pilipinas supervised entities, Securities and Exchange Commission supervised entities, Insurance Commission supervised entities, Casinos, and Designated Non-Financial Business and Profession) must thoroughly understand their customers to mitigate risks and prevent money laundering and counter-terrorist financing.
Everyone begins a relationship with a “getting-to-know-you” phase. Sharing personal and professional backgrounds is essential for building trust. Similar to this, the Anti-Money Laundering Council (AMLC) mandates covered persons to conduct customer due diligence. Customer due diligence involves identifying and verifying the true identity of customers, and their agents and beneficial owners, including understanding and monitoring of their transactions and activities (Section 1(aa), Rule 2, 2018 Implementing Rules and Regulations of R.A 9160, as amended, hereinafter “2018 IRR”). This procedure is crucial in order to understand and, as appropriate, obtain information on the purpose and intended nature of the business relationship. Ultimately, the goal of customer due diligence is to prevent the use of these covered institutions as instruments for money laundering and terrorist financing. Thus, as a necessary consequence, covered persons who are unable to satisfactorily complete the customer due diligence measures shall have to refuse commencing relationship and file a Suspicious Transaction Report, if circumstances warrant. (Section 12, Rule 7, 2018 IRR)
Just as relationships deepen over time, financial institutions must continually assess their customers. Covered persons are mandated to implement ��ongoing monitoring process” on the business relationship and scrutinize transactions undertaken throughout the course of the relationship. This is to ensure that the transactions being conducted are consistent with the covered person’s knowledge of the customer, their business and risk profile, and the source of funds (Section 9, Rule 18, 2018 IRR). Essentially, the goal of ongoing monitoring is to accurately represent the customer’s identity and activities. Thus, once the covered entity acquires information, in the course of its customer monitoring, that there is doubt as to the accuracy of any information or document or indicates any suspicious circumstances (e.g. unusually large transactions, unusual patterns of transaction, transactions without apparent economic purpose), the covered entity shall have to conduct enhanced due diligence on the customer (Section 8.2, Rule 18, 2018 IRR). From the word itself, enhanced due diligence requires stringent procedure of identification of the customer, his/her assets, and the source of wealth, among others (Section 10.2, Rule 18, 2018 IRR). Similar to nurturing a long-term relationship, ongoing monitoring of transactions is crucial for stopping any attempt at money laundering by identifying red flags at their earliest stages.
Ultimately, due diligence empowers financial institutions to make informed decisions, protect the reputation of financial institutions, and contribute to a safer financial ecosystem. By thoroughly understanding their customers, institutions can identify potential red flags, prevent fraud and crimes and comply with regulatory requirements.
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