This week's news involving the disclosure that one -half of the owners of certain accounts, obtained illegally from the branch of a major bank in the Crown Dependencies, reportedly had criminal records, is extremely disturbing, but a teachable moment for this column. In response, it was said that the bank's compliance department employed the best commercial off-the-shelf database of high-risk individuals in its customer identification programme. Longtime readers of my articles known that I have been associated with two major databases in the past, and whilst they are a great help, they are not the only avenue of query one should undertake, when vetting a prospective bank client. Do not cut corners with Customer Identification Procedures.
"Check the Box," the sole reference to established information sources, is never sufficient, in my humble opinion. Always conduct either Due Diligence, or Enhanced Due Diligence investigations, depending upon your initial assessment of risk. To calculate whether EDD is necessary, ask yourself these questions:
(1) Does the new client, who wishes to open an account, and deposit a substantial amount, reside in a high-tax jurisdiction ?
(2) Does the client come from a country known for rampant corruption ?
(3) Does the client reside in a jurisdiction where the Rule of Law, the domestic civil and criminal court structure, is either weak, or non-existent ?
(4) Does the client come from a drug-producing, drug-transit, or drug money laundering state ?
(5) Does the client come from a nation whose Country Risk assessment is high ?
If in doubt, initiate Enhanced Due Diligence immediately. To do otherwise, when the above-described factors ate present, constitutes no less than Compliance Malpractice. Know your Customer before you accept his deposits, lest you have a similar experience to the one we have been discussing, or worse.