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 customers to provide detailed anti-corruption due-diligence information in order to verify their integrity. Consultancies exist that specialise in Know Your Customer processes in order to help multinational companies and SMEs enter new markets.
One key purpose of KYC controls is to monitor a customer's transactions and check them against the customer's recorded profile and the history on the customer's account(s). Another is to verify that the customer is not on the Office of Foreign Assets Control's Specially Designated Nationals list, or any other such list of known frauds, terrorists, or money launderers.
The Specially Designated Nationals list contains thousands of entries, and it is updated monthly. There are also lists of third-party vendors, which are used to track links between persons considered to be high-risk due to negative media reports or public records concerning them.
Global Credit Solutions (www.gcs-group.com) is recognised as a leading supplier of KYC and due diligence reports.