AML
Anti Money Laundering (AML) is a system of policies and procedures put in place to mitigate the risks of money laundering. Criminals who generate money through illegal means (dirty money) continuously and tirelessly look for ways to get the money into the financial system to enable them ‘clean’ the money so they can use it for legitimate purchases. The process of getting the dirty money into the financial system is called money laundering and the responsibility on financial institutions to create and enforce policies and procedures compliant with the laws and regulations to stop them is what we call anti-money laundering.
CFT
Combating the Financing of Terrorism (CFT) involves activities put in place to intercept the flow of funds intended for terrorist activities. This typically includes investigations, monitoring, analyzing to prevent money from legal or illegal sources from being used to fund terrorist activities. Terrorism involves violent activities against civilians, government or religious organizations most of who’s funding process passes through the financial system. CFT advocates for investigative techniques such as suspicious activity reporting, currency transaction reporting and other due diligence process taken to follow the money so as to combat such disruptive activities.
KYC
Know Your Customer simply means all activities taken by establishments to properly identify, verify and document the information of the individuals and corporations to whom them provide their services. The ultimate goal for the KYC process is for business to accurately profile and understand the characteristics and risk of its customers and devise effective ways to properly manage each business relationship.
CIP
Customer Identification Program (CIP) is a rule imposed on US banks requiring them to collect and retain basic information of its customers, intended to ensure the banks are able to form a reasonable belief that it knows the true identity of its customers. At a minimum, banks are required to collect 4 identifying information before opening an account. This includes; Name, Date of Birth, Address and an Identification number.
PEP
Politically Exposed Persons (PEP) is an individual in public office, typically entrusted with the power and authority over public funds and/or ability to influence policies ruling over the affairs of the public. PEPs include persons who hold position currently or in the past either by appointment or not. The definition of PEPs extends to family members and close associates or affiliations.
CDD
Customer Due Diligence (CDD) is a process in KYC that combines CIP activities, negative media screening and other client verification process to help a bank have a good understanding of its customer. The whole process would help the bank result in determining the risk level of the customer and ascertain if it wants to continue the relationship or not and when the risks are identified the bank can figure out possible risk mitigating factors that allows the business relationship worthwhile.
UBO
Ultimate Beneficial Ownership (UBO)’s are natural persons who ultimately own a business relationship by virtue of their controlling shares and/or percentage of voting rights, which they have in a corporate establishment. Every company has individuals behind the curtains who control and dictates its affairs and are ultimate beneficiaries of its business successes. This control could be direct or indirect. The EU’s fourth Anti-Money Laundering Directive (MLD4) addresses UBO to be control of 25% or more of the shares or voting rights.
Client Risk Rating
Client Risk Rating enables banks to understand its risk exposure due to the nature and type of customers it banks. A good risk assessment would reflect the risk exposure of its entire client base, a segment of its clients or of an individual client. Risk rating methodology would consider factors like the customer type, ownership structure, length of days/years of existence, presence or absence of PEPs, negative media, types of products used by the client, its business location and location of customers served, transparency of the client’s business activities amongst others.
