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#593650 - 08/04/06 05:05 PM Customer Due Diligence
clarizar Offline
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Joined: Apr 2005
Posts: 152
I was just reviewing the revised BSA exam procedures and was wondering what some other banks are doing to meet the CDD (customer due diligence) requirements at account opening. To what extent or to what level of detail does the account opening information need to be? (i.e. is it necessary to ask the customer what their expected deposit/withdrawal activity will be, or if they expect to deal with mostly cash vs. checks, international transactions?) For business accounts, I could justify a greater level of detail based on the riskier nature of those types of accounts; however for personal accounts, this level of detail could be seen as being too "nosey" from a customer's perspective. Where do you draw the line? Currently we ask for the customer's occupation at account opening in order to draw a conclusion and predict expected account activity--would this be sufficient enough to meet the CDD requirements at account opening?

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#593651 - 08/04/06 06:10 PM Re: Customer Due Diligence
Titanic Offline
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Titanic
Joined: Feb 2005
Posts: 300
My Workplace
Our account opening checklist details the following:

KYC requirements: NAME, ADDRESS, DOB, ID #, TIN #, SOURCE OF FUNDS, PURPOSE OF ACCOUNT.

CDD specifics: ACC TYPE, ACC TITLE, SIGNERS, OCCUPATION, DEPOSIT/WITHDRAWAL VOLUME (ESTIMATED,CASH, CHECKS)..ESTIMATED WIRE TRANSFER ACTIVITY (COUNTRIES, ENTITIES, INDIVIDUALS, PURPOSE). ADDITIONAL ACCOUNTS & LENDING ACTIVITY.

We are planning to enhance our checklist by creating a separate "Customer Profile" form....
Additionally, we have implemented EDD for High risk customers, such form is risk coded depending on the proposed activity of the customer.
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#593652 - 08/07/06 11:39 AM Re: Customer Due Diligence
AnonRegulator Offline
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AnonRegulator
Joined: Mar 2002
Posts: 451
Everywhere, USA
Quote:

To what extent or to what level of detail does the account opening information need to be? ...for personal accounts, this level of detail could be seen as being too "nosey" from a customer's perspective. Where do you draw the line?




The level of detail for CDD information acquired at account opening is dependent on the level of perceived risk. Account opening personnel should be armed with some generic, baseline questions that are asked of all new customers, and be trained to know when to carry the CDD further, perhaps to an enhanced level.

For example, a new customer asks to open a checking account. They are asked for their name, address, phone number, DOB, TIN and occupation. They say they are a new school teacher in town. The next question can be something along the lines of, "How will the account be used?" Usually, the answer will be something like, "To pay my rent and bills," i.e., it's a garden variety checking account. You probably don't need any other information, unless you have absolutely no clue about the income of the local teachers. Then, you might want to ask about that.

If that same customer, though, says they will be making wire transfers on a a regular basis, more information would be useful. The vast majority of people don't wire money, so this is unusual in itself. Where they'll be wiring and the purpose should be obtained. If the destination of the wires is to an area that you consider high risk, or if the amount of the wires is not consistent with a teacher's salary, obviously there is higher risk here. Enhanced due diligence and account monitoring may be in order.

Having said all that, I want to address the last part of the quote, re: being too nosy with customers. I've said this before, but I think it bears repeating. The biggest mistake I see bankers make regarding customer due diligence is looking at it throught he prism of criminality, privacy or nosiness, all of which handcuff bankers from gaining necessary information, not just to comply with the law, but to also better serve customers. Instead, customer due diligence should be viewed throught he prism of good customer service. Gaining more knowledge will allow you to serve that customer better, while complying with the law at the same time. AR.

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#593653 - 08/07/06 12:48 PM Re: Customer Due Diligence
Elwood P. Dowd Offline
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Joined: Aug 2001
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Next to Harvey
To further AR's last point, sometimes the resistance is to asking the questions, not answering them. Some employees just don't want to do it and they use the customer as an excuse. It's important to make certain your questions generate usable information and are not overly specific; e.g. you really don't need to know someone's total income from line 22 of their 1040. You need to know how they are paid, what range their income might fall in, and whether items other than salary will be deposited.

However, your personnel need to be comfortable in asking the questions and understanding the rationale behind them. They need to be capable of explaining how the questions relate to customer service, not idle curiosity. When employees are hesitant and apologetic in asking the questions they cultivate customer resistance to answering them.
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#593654 - 08/07/06 02:14 PM Re: Customer Due Diligence
ACBbank Offline
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Joined: Jul 2006
Posts: 4,344
New York City
Quote:

To further AR's last point, sometimes the resistance is to asking the questions, not answering them. Some employees just don't want to do it and they use the customer as an excuse. It's important to make certain your questions generate usable information and are not overly specific; e.g. you really don't need to know someone's total income from line 22 of their 1040. You need to know how they are paid, what range their income might fall in, and whether items other than salary will be deposited.

However, your personnel need to be comfortable in asking the questions and understanding the rationale behind them. They need to be capable of explaining how the questions relate to customer service, not idle curiosity. When employees are hesitant and apologetic in asking the questions they cultivate customer resistance to answering them.





On this thread Ken, I agree with you 100%. Ken makes a valid point in far too often, customer contact personal are not trained properly on how to not only ask certain questions, but on how to judge a customers reaction to these questions, and a customers follow up questions. These are key issues which must not be ignored in performing due diligence.
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#593655 - 08/07/06 02:48 PM Re: Customer Due Diligence
BrendaC Offline
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Sweet Home AL
Training is always the key. We also need to help our customer contact personnel put a consumer-friendly slant on some of these questions. We don't want our customers to feel as if they are undergoing Chinese water torture!

Instead of: Will you be conducting any wire transfers?
How about: Mr. Jones, will you be conducting any wire transfers, we can go ahead and execute an agreement now to simplify the process for you in the future. You won't even have to come into the bank.

Instead of: Do you cash checks or take money out of the bank for any reason?
How about: We certainly want to ready to help you with your cash needs, do you cash checks or perform any other type services that will require us to keep cash on hand for you? (Then you can get into how much and what for.)

Most of the facts that we need to conduct an initial CDD review is the same information we should be getting up front to properly service our customer.
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#593656 - 08/24/06 07:16 PM Re: Customer Due Diligence
Kelsey D Offline
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Joined: Aug 2006
Posts: 516
Ohio
Thanks, clarizar, for the post. I was wondering about this as well.

Titanic, you wrote...

Quote:

Our account opening checklist details the following...CDD specifics: ACC TYPE, ACC TITLE, SIGNERS, OCCUPATION, DEPOSIT/WITHDRAWAL VOLUME (ESTIMATED,CASH, CHECKS)..ESTIMATED WIRE TRANSFER ACTIVITY (COUNTRIES, ENTITIES, INDIVIDUALS, PURPOSE). ADDITIONAL ACCOUNTS & LENDING ACTIVITY.




I'm hoping to start something similar at my institution. My question is, after you've collected all of this information, what do you do with it? How do you manage and monitor the information you've collected? I can understand how this checklist will help to identify high risk customers, but how do you use this information to identify customers who have strayed from their anticipated account activity? And how are you ensuring that current customer information is obtained? Is this manual or do you have software that you are using?

I would love to hear how other banks are handling this. Thank you in advance for your help!
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#593657 - 08/25/06 07:04 PM Re: Customer Due Diligence
NewTooBSA Offline
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Joined: Nov 2005
Posts: 568
Texas
We use the CDD as a way to compare transactions to what the customer has told us they will be doing. All of the new account documentation is imaged and available to compare against what types of transactions are appearing on various automated reports such as incoming/outgoing wires, ATM, large balance report, etc. If the transactions do not appear to be the same as what the customer has told us they will be doing, the account officer contacts the customer and gets an explanation. Which is then documentated to support or research.

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#593658 - 08/25/06 07:38 PM Re: Customer Due Diligence
campste Offline
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campste
Joined: Jun 2002
Posts: 145
LA
How many people are in your department? Wouldn't any deviation from the volume or activity expected from the customer be considered "suspicious". Wouldn't this CDD result in an enormous increase in the rate of SAR filings?
At what point do you consider closing the account? Do you have a range of activity or volume you consider before closing? The reg. places the bank in a position that everyone is a money launderer or no one is. (it must be Friday!) I need some air..

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#593659 - 08/25/06 08:22 PM Re: Customer Due Diligence
Kelsey D Offline
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Joined: Aug 2006
Posts: 516
Ohio
dcarlsen,

I was thinking along those lines for our program. Have you done CDD for your entire database or just new accounts? Also, are you risk rating based on the CDD results?

I'm new to BSA and starting to feel ill as I'm realizing all that our program is lacking. We do have a currency transaction software where we can monitor currency transactions and risk rate customers from there, but we have no CDD or risk rating at account opening. I think that I will incorporate a CDD questionnaire, but I'm not sure how to handle the risk ratings. It would be ideal if our CIF had a field for risk ratings because then I could pull reports based on that field. I wish there was a software out there that would do everything I need it to do!
_________________________
Don't make me say, "I told you so!" Sincerely, your friendly Compliance Officer.

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#593660 - 08/25/06 09:01 PM Re: Customer Due Diligence
rdelgado Offline
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Joined: Dec 2005
Posts: 116
Quote:

How many people are in your department? Wouldn't any deviation from the volume or activity expected from the customer be considered "suspicious". Wouldn't this CDD result in an enormous increase in the rate of SAR filings?
At what point do you consider closing the account? Do you have a range of activity or volume you consider before closing? The reg. places the bank in a position that everyone is a money launderer or no one is. (it must be Friday!) I need some air..




Don't pass out yet!

These questionnaires are not definitive. They are simply another useful tool, just like the reports, to help understand what a person is estimating will happen in the account.

Individuals, and businesses for that matter, rarely have a concrete idea of what volume of funds will flow through the account. This is a starting point, and when used along with a set length of time of tracked transactions, can help address any issues that might come up after that review period is over.

Quite often, the explanation is in an over- or under-estimation of the success of a particular business or occupation. That's why customer contact and the old KYC guidelines will always apply in the monitoring process.
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#593661 - 08/25/06 10:24 PM Re: Customer Due Diligence
NewTooBSA Offline
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Joined: Nov 2005
Posts: 568
Texas
Just as rdelgado said the CDD is a tool that is used to help you determine if the activity is suspicious enough to investigate further. Then make your decision based on the data you gather.
We had a CIP Application that all signers on accounts were required to complete but found that if it was an existing customer the new account reps were just copying old data. Within the past month we updated our electronic new accounts and hardcoded the basic information we HAD to have so there is no going past without an entry; name, address, SS#, OFAC(false positive/no match), ID # with expiration, occupation, telecheck approval code, etc.

The branch manager who reviews all new account packages is responsible for determining the risk rating based on the BSA Policy & Procedure then code the account as such. We chose to rate them using a numeric field that our deposit system will support. This way we are able to pull reports on specific types of accounts (convenience stores, jewelry stores, MSB, etc). If during a review we determine an account is no longer correctly risk rated we discuss this with the account officer and have the rating changed.

However we are a high risk bank with high risk customers and have been able to get a satisfactory rating so far from OCC so we must be doing something right.

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#593662 - 08/28/06 02:14 PM Re: Customer Due Diligence
Kelsey D Offline
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Joined: Aug 2006
Posts: 516
Ohio
Thanks, everyone! I've got some good ideas on how to get started now.

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